Despite posting a retention statement with no asset breakdown or wallet address, Nexo hailed the Risk Engine as the only reason there were no bad debts.
According to a tweet on Nov. 28, most exchanges had submitted evidence of their reserves but were unable to prove whether their assets exceeded their liabilities.
The companies that were lucky enough to withdraw their FTX balances at the final countdown claimed to have assets both on-chain and off-chain. I needed to have both assets and liabilities monitored.
An audit of Nexo’s assets under custody revealed $3.4 billion in customer liabilities and a 100% collateral ratio that adequately backed the assets. In the thread, the company stressed the importance of proof of reserves, but called for greater transparency in the space, citing the need for credible proof from outside accounting firms.2021 With the assistance of the PCAOB Audit Committee, Nexo has developed a tool for evaluating asset-liability ratios.
Nexo stressed the need for independent auditors to ensure that companies continue to provide financial services. However, the firm wanted these firms to show their liabilities alongside their assets.
Meanwhile, the company urged companies to avoid unsecured loans, especially during periods of market turmoil. The tweet pointed out how Nexo can achieve sustainability, positive margins and scalability by managing its bad debts.
Rather than relying on in-house matching engines and order books (like traditional cryptocurrency exchanges), our trading service aggregates liquidity from 10+ locations via smart order routing. Clients get access to the best prices and cheap liquidity. Nexo can charge spreads and commissions – a win-win. 12/33
— Nexo (@Nexo) November 28, 2022
After facing a $0 loss following the FTX drop, Nexo made a fully secured loan to Alameda Research, but risk managers said they managed to recover the money by selling the collateral. Additionally, Thread said the company’s risk management has allowed it to have zero exposure not only to FTX, but also to Gemini, Genesis, Blockphi, Celsius, struggling miners, and Three Arrow Capital. Success factors included eliminating currency, maturity, or interest rate mismatches.