Crypto liquidity crisis rumbles on, Nexo issues cease and desist

Crypto liquidity crisis rumbles on, Nexo issues cease and desist

Crypto liquidity crisis rumbles on, Nexo issues cease and desist

The recent liquidity crisis in crypto has driven a lot of uncertainty in the space with the latest drama involving allegations of mismanagement and embezzlement, with a cease and desist in response from crypto lender, Nexo.


Allegations and counter-allegations

In a tweet thread published on Saturday, an anonymous Twitter account (‘@otteroooo’) claimed that Nexo co-founder Kosta Kanchev stole from HelpKarma, a Bulgarian charity.

Nexo published a blog post as a rebuttal titled “The anatomy of fake news: the latest attack on Nexo”. In it, the company claims that oteroooo has confused another individual embroiled in the HelpKarma scandal with its co-founder - with the founder of the charity being Constantine Krastev and not Nexo co-founder Kosta Kanchev.

Nexo claims that this Twitter user is the latest of several Twitter accounts to apply “lies and distortion” as part of a smear campaign against the company. It further alleges that the motivation is to build up a Twitter user base built on clickbait and to sell on this account and huge following for profit. It published a direct message exchange where oteroooo offered to sell his Twitter account for $50,000 in USDC.

The crypto lender has also published a ‘cease and desist’ to its website which doesn’t refer to the oterooo Twitter account but refers generally to those “engaged in malicious spreading of inaccurate, fake and unfounded information”.


Proof of reserves

The fracas has caused quite a bit of chatter within the crypto community. However, it’s difficult to determine the health of Nexo’s financial state right. In a previous tweet thread, oteroooo had claimed that Nexo would undergo a liquidity crisis before the end of the year.

Nexo boasts of its use of real-time auditing but the Twitter user is calling the company out on this on the basis that they’re not real time audits but attestations carried out by a third party on the basis of parameters set by Nexo.

Ryan Selkis, founder and CEO of crypto market intelligence firm Messari, chimed in on Twitter. He said that Nexo’s real-time auditor reports were “pretty cool” given that they’re carried out by Armanino, a top 20 US accounting firm used by Kraken, CoinShares and others. He also claimed that it makes sense that they’re attestations rather than fully fledged audits given that it’s impossible to do real-time audits, just “real-time financial review and proof-of-reserves via procedures”.

The debate rumbles on with oteroooo calling on Selkis to declare if he has any equity investment in Nexo whilst others question oterooo’s motivations.


Liquidity crisis roundup

Here’s an update of the current status of a number of troubled crypto lenders:

Celsius: Having suspended client withdrawals on June 12, it’s understood that Goldman Sachs is trying to raise $2 billion from investors to buy the lender’s assets. It’s looking likely that Celsius is preparing for bankruptcy, having hired restructuring consultants Alvarez & Marsal.

Voyager Digital: Last week the publicly listed crypto platform announced that it had exposure to troubled crypto prop trader, Three Arrows Capital (3AC). It limited withdrawals and subsequently its share price tanked by 60%. In a press release published earlier this morning, Voyager announced that it has issued a default notice against 3AC. It has accessed $75 million of a $200 million credit facility provided to it by Alameda Ventures.

BlockFi: Whilst the firm has not limited or suspended withdrawals, it’s believed to have some level of financial difficulty at present. FTX has provided the company with $250 million in revolving credit and it’s also believed to be in talks to acquire a stake in the company. Investment firm Morgan Creek Digital is also understood to be attempting to raise $250 million to purchase a majority stake in BlockFi.

Babel Finance: The lending and asset management services company suspended withdrawals on June 17 due to “unusual liquidity pressures”.

Finblox: The Hong Kong-based crypto staking platform has limited withdrawals in light of exposure to losses at 3AC.

Maple Finance: The Australia-based crypto lender warned last week that there may be instances where there is insufficient cash in pools. “Lenders must wait for borrower repayments”, it said.CoinFLEX: The crypto yield provider announced last week that it was pausing withdrawals citing “extreme market conditions”.

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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