According to CoinMarketCap(CMC), the top cryptocurrencies had a combined market capitalisation of USD 830 billion at its peak on 8 January 2018. At the time of this article, the figure stands at a more modest USD 386 billion. That does not even take into account the hundreds of cryptocurrencies not listed on CMC.
While most banks and financial institutions feel threatened by the growing popularity and increasing adoption of cryptocurrency, some of the more enterprising FinTech companies are busy coming up with ideas to tap into this relatively untouched market.
Credissimo is a FinTech company founded in 2007. Nexo is not its first foray into cryptocurrency but it is the European company's first attempt at utilising blockchain technology to provide something as yet unheard of - Instant Crypto Overdrafts.
The Nexo platform essentially allows holders of cryptocurrencies to use their digital assets as collateral to get an instant overdraft from Credissimo. Users would transfer the collateral into special overdraft wallets governed by smart contracts. The overdraft limit would then be determined by the Nexo Oracle system based on the real-time value of the digital assets in the user's overdraft wallet.
Once the user agrees to the overdraft limit, the funds would be made immediately available via the free Nexo credit card or through a bank transfer.
The minimum overdraft is USD 1,000 and the maximum is USD 1,000,000 for up to 24 months. The interest rate on the overdraft will vary depending on the repayment period selected. There is no penalty for early repayment and interest will only be charged for the number of days the overdraft is outstanding.
Initially, Nexo will only support USD, BTC, and ETH. Support for other fiat currencies and cryptocurrencies is expected to be gradually implemented over the next 6 months.
Users can repay their overdrafts through either fiat or cryptocurrencies. They may also opt to use part of their collateral to offset the repayments. Repayments made with NEXO ERC-20 tokens will receive a discount on the interest.
Compared to the alternatives, Nexo's instant overdraft facility appears to be a cheaper, faster and hassle-free option. In fact, the company has made a comparison of all the options currently available. You can check them out below or on their website.
Overdrafts, like all loans and credit facilities, come with inherent risks. The pros are generally considered to outweigh the cons as long as the loan can be repaid on time.
With Nexo, that may not be the case. As mentioned, the Nexo Oracle platform utilises smart contracts to manage the overdraft process. It is constantly checking and adjusting users' overdraft limits based on the real-time market prices of their digital assets.
Given the volatility of cryptocurrencies and the huge fluctuation in prices from one moment to the next, this could essentially translate into a huge difference in overdraft limit between the time it was taken and the time it was repaid.
If the amount of overdraft outstanding exceeds the real-time overdraft limit determined by the Nexo Oracle system, a notification will be sent out to the user to top up the difference. This can be made by increasing the collateral in the overdraft wallet or paying the difference in fiat or cryptocurrency.
However, if the user does not take any action or is unable to make up the difference, the Nexo Oracle system will sell off part or all of the collateral to balance the accounts. So while Nexo appears to offer the best of both worlds; to retain ownership of your digital assets while possessing liquidity, it is not a risk-free proposition. So if you plan on using Nexo, it may be prudent to spend within your means and avoid maxing out your overdraft limit. This is just my interpretation based on the information on their website and whitepaper. The reality might be vastly different. As always, do your own research.
@cgrave