BlockFi’s bankruptcy filing was expected since FTX had attempted to bail it out after Terra’s collapse. Now all eyes are on Nexo, another major crypto lender, which has tried to quell speculation that it is next in line to become insolvent.

On Monday, November 28th, BlockFi announced that it filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of New Jersey. The bankruptcy extended to eight of its subsidiaries and came less than a month after FTX’s collapse.

BlockFi’s Bankruptcy Was Expected

News of BlockFi filing for bankruptcy was somewhat expected as the lending platform had in June received a $250 million credit line facility from FTX to shore up user balances across all accounts after it was affected by Terra ecosystem collapse. With FTX going under, it was only a matter of time before BlockFi either looked for a new funding source or declared bankruptcy.

All Eyes on Nexo

This then leaves one major centralised crypto lending platform still standing: Nexo. The lending platform has recently received intense scrutiny from the crypto-Twitter community, who believe that it needs to tell the whole story regarding the company’s financial situation.

On the same day BlockFi filed for bankruptcy, the team at Nexo released an informative Twitter thread explaining its business model and how it differs from other lending platforms. The Nexo team explained that their product is different since it has a ‘battle-tested real-time risk engine’ and that they always require ‘highly liquid collateral at appropriate loan-to-value ratios, for retail or institutional clients.’

The Nexo team added that it ‘extends assets from its Earn product as loans to clients looking to borrow against their crypto in one form or another.’ Their higher yields are also subject to fixed terms, thresholds and token requirements.

Nexo stated that it ‘profits on the positive net interest spread between the interest rate it receives and the yields it pays to interest-earning clients.’

Nexo Can Seize Opportunities for Alpha Generation for its Clients and Own Treasury

However, one part of the Nexo thread has left the crypto-Twitter community questioning whether the company is also utilising customer funds to generate profit.

In one of its Tweets in the thread, Nexo explained that it ‘can seize opportunities for alpha generation in market-neutral ways for its clients and its own treasury.’ If true, it implies that Nexo could be carrying out financial activities similar to a hedge fund, as highlighted by @rleshner in the Tweet below.

Don’t Keep Your Crypto on an Exchange — Magic Cannon

In a nutshell, the FTX contagion continues to expand, with BlockFi being the latest company to file for bankruptcy. The crypto-Twitter community’s eyes are now on Nexo as they wait for the company to release its proof-of-reserves.

At the same time, crypto traders and investors, such as the popular Magic Cannon, have emphasised the need to keep personal funds and crypto off exchanges until the FTX contagion shows signs of ending.

(By John P. Njui)