Nexo Co-Founder Antoni Trenchev on the Future of Secure Crypto Lending and the Evolution of Bitcoin Bull Runs

Before entering the blockchain space in 2011, I studied Law and Management at King's College London and Humboldt University, Berlin, and then worked in the hedge fund industry. Having always had a parallel interest in all things technology, I gradually became involved in fintech and quite naturally became a crypto proponent.

My belief in blockchain's potential for positive societal impact led me to run for office in my home country, Bulgaria, where I served as a Member of Parliament between 2014 and 2017. I advocated for progressive legislation to foster blockchain solutions for e-governance services, including e-voting and distributed database storage.

My experience during those years gave me a well-rounded vision of what finance and the economy of the future should look like, and I wanted to be part of shaping that future. I joined the founding team that launched Nexo in 2017, and shortly after, we made the first steps toward that goal by launching the platform in April 2018. We now manage over $2 billion in assets for more than a million users worldwide and actively push for mass crypto adoption by making our offerings broader, more accessible, and by acting as an ambassador for the industry.

Our core team primarily operates out of London, where our headquarters are. Besides London's growing fintech and crypto hub, this location makes strategic sense for us as a global institution – we can easily catch a flight to just about anywhere.

Having said that, and considering the fact that we serve over 200 jurisdictions, we have offices all over the world, including in Switzerland, the US, and in my home country, Bulgaria, where some of our key operations, like our Treasury and Client Support teams, are primarily based.

Like any sensible business, we strive to create the products that our clients want and need. At the same time, we are committed to protecting our clients and the platform. Because of this, we have approached the addition of new assets to our platform in two ways.

The first is by asking our community to vote for the asset they would like to see next on Nexo. We initially conducted such polls on the Nexo website and have now extended the practice to querying our Twitter community about the assets they use and want to see integrated.

Our in-house specialists also play a significant role in selecting new assets for listing. Our team excels at identifying reputable cryptocurrencies and digital assets with promising characteristics and growth potential. These are the assets we are eager to support.

In this strategic approach to asset listing, we provide our clients with quality services they have already expressed a desire for, secure the safety and legitimacy of our platform, and promote the adoption of crypto.

When we launched Nexo in 2018, we were the first company to provide instant crypto-backed credit lines, essentially creating the market niche. This was our first major achievement and one we're still extremely proud of. We also facilitated the first crypto-collateralized mortgage, enabling Brock Pierce to buy a house – that was a huge step both for us and for the industry.

We are not ones to rest on our laurels, though, and we've been on quite a roll since. Over the past few months alone, we launched our Earn on Crypto & Fiat product suite, distributed our third dividend, which brought the total profits Nexo has shared through dividends to $9.5 million, and initiated Nexonomics – a comprehensive tokenomics upgrade, which came with interest rate bumps for Earn, an Earn in NEXO option, a new loyalty program, and most importantly – a $12 million buyback program.

Thanks to these efforts, we now boast industry-best yields on most cryptocurrencies, stablecoins, and fiat, our native NEXO token’s price has risen by over 185% since the launch of Nexonomics, and we currently manage $2BN in assets for over 1M users, across 200 jurisdictions. And that’s just up until now – we have more launches and announcements coming up by the end of 2020.

When compared to many other players in the blockchain space, we have a sustainable business model that makes sense, one that is based on best practices from traditional finance – an industry as old as time. Within the management team of Nexo alone, we probably have a century's worth of experience in finance, and Nexo’s model is built on the best of that experience.

We are self-sufficient in that we don’t rely on venture capital, i.e., access to cheap and easy money. In contrast, there are players in our space that have taken the worst from traditional finance – those who have billions in transactions, yet at the same time, their CEOs take precarious loans from their own companies to, say, buy houses in prime locations. Those companies are often on the brink of insolvency, needing new capital every few months to keep the house of cards upright. A more colloquial term for this is a Ponzi scheme.

But unlike most of our competitors, we adhere to our policy of only lending on an over-collateralized basis, because this ensures we protect both our clients' assets and our business, making us sustainable in the long term and accountable for our footprint in the blockchain space. This is because we believe that, ultimately, it is the sustainable companies that will emerge as the next Amazons, the next Googles, and the next Apple. Those who share this belief and have the stamina and realistic expectations of what is possible will be the ones like those who bought Apple in ‘97 for a dollar a share.

That’s the holistic view. If we are to go into the specifics of our products, our sustainable business model means that our Instant Crypto Credit Lines continue to lead the industry with their flexibility and low rates. We charge as low as 5.9% and allow clients to withdraw as much or as little as they want from their available credit, while only paying interest on what they actually use. To the best of my knowledge, we are currently the only lender that offers dynamic credit lines as opposed to loans that bind users with a series of commitments.

When it comes to Earn accounts, we offer both the best rates in the industry – up to 12% – and the top-tier security for digital assets, so keeping assets with us is a real no-brainer. As explained in answers to your other questions,  we have premier insurance and military-grade security for the Nexo Wallet and strict lending policies – all assets held with us are backed by our 200-500% overcollateralized credit lines, which, on top of all the security measures and insurance, guarantees the safety of your assets through the oldest, and most sustainable trick in the book.

I’m very excited to say that Nexo will soon be launching our very own internal exchange. It will allow our users to swap between various assets without having to leave the Nexo platform.

This is something our community has been asking for for a long time, and we're on the final leg of its development, so be on the lookout for the launch.

Alongside the exchange, we have more Nexonomics releases coming up, which aim to further enhance the utility and growth potential of the NEXO Token and are preparing for the release of the Nexo Card. In the mid-to-long term, we are also developing our prime brokerage platform and working towards obtaining banking licenses, which will allow us to offer 360-degree commercial banking services.

“Security first” is a key principle in financial services, especially in a nascent industry like crypto and digital finance where we don’t yet have the full picture on all the possibilities and vulnerabilities. This is why insurance is a must at Nexo. We currently secure ours through BitGo, a leader in crypto custody. In addition to providing us with 100% cold storage, BitGo provides top-tier insurance for all assets held at Nexo through Lloyd's of London.

With so many hacks and examples of poor operational practices making headlines in our space, it should be obvious to everyone by now how unfortunately things can end when you forgo insurance and proper security. In addition to using BitGo, we only lend on an overcollateralized basis, carry out complete KYC via our partner Jumio, and have very strict security measures in place internally. We’re currently also finalizing deals with additional wallet custody solution providers, which will further enhance our insurance coverage and the security of our clients' assets, as well as looking into setting up a proof-of-reserves mechanism to give clients additional reassurance.

Though some of our partners have described us as a “boring Swiss bank” due to our strict policies with regard to security and risk management, I’m quite proud of the precedent we're setting and am confident that, as the “wild west” era of crypto comes to an end, it will be an example that leads the industry into a massive, better, and more sustainable future. We have never been hacked, which goes to show that “being boring” works. On a personal note, it helps me sleep at night knowing that our clients and the company I've contributed to building over the past three years are protected.

Celsius created quite a stir in the crypto lending industry, there's no doubt about it. The loss of trust that ensued from this case has, I'm sure, negatively impacted every single player in our field, as well as the space in general. On the positive side, it's a case that should galvanize the industry – we now have an even greater imperative to build this trust and must each do our part towards this, as it is a setback for mass crypto adoption, which should be the goal for every participant in our space.

Let me expand on the topics I touched upon in the previous answer to highlight why Nexo sets a great, if not the best, example with regard to security and why a Celsius scenario is so highly unlikely.

Unlike most of our competitors, we adhere to our policy of only lending on an over-collateralized basis because this ensures we protect both our clients' assets and our business, making us sustainable in the long term and accountable for our footprint in the blockchain space.

To keep operations in line with our mission and policies, the security of our clients' assets must be a top priority. This is why our cold storage wallets are kept in bank-grade Class III vaults, provided by BitGo, whose platform is SOC 2 Type 2-certified. This is further enhanced at Nexo’s end by security features such as biometric-based identity verification and segregated multi-signature cold wallets.

We work with leading custodians including BitGo to secure top-tier insurance amounting to over $100M, so that whether it is a third-party hack, an insider theft, or whether private keys are lost or copied, the assets kept with us remain protected. Additionally, we are in the final stages of further expanding our custodian partners and significantly increasing the insurance coverage on clients' assets.

Our information security management system (ISMS) has been successfully audited by CISQ, a member of IQNet and the world's largest provider of information system certification, and by RINA, who have decades of experience in certifications, resulting in an ISO/IEC 27001 certification. This guarantees that our security process is of the highest standard and carries minimum risk to clients and investors thanks to strict security policies, impeccable risk assessment, data protection, and state-of-the-art cybersecurity.

Our own extensive firewall server strategy, combined with a strict Employee Access Policy built on forced entry and privileged role-based access to applications, multi-factor authentication (MFA), and step-up authentication, further ensure that no breaches to our systems occur. Our staff also undergo regular cybersecurity workshops to keep them up to date with the latest security threats. To prevent so-called “insider jobs”, very few employees have access to clients' assets and even for those that do, MFA and step-up authentication ensure that no employee can act independently and in isolation to the established chain of command.

Additionally, to comply with global “know your customer” (KYC) and anti-money laundering (AML) regulations and protect our clients' assets, we verify account holders' identities. While this is a requirement for traditional financial institutions, it is not yet one for many crypto industry players. We choose to implement KYC and AML checks, and do so via our partners Jumio and Onfido – two leading identity verification providers working with global clients, including Monzo, Rappi, and HSBC — as we believe this to be best practice and fundamental to the institutionalization of the space.

Maintaining an impeccable security and safety record is key to our acquisition of a banking license, which we are in the final stages of obtaining. As you can imagine, this requires us to have audited financials, strict internal policies and procedures, as well as to comply with stellar regulatory requirements. With this in mind, and in light of the events preceding Celsius's bankruptcy filing, we're planning on setting up a proof-of-reserves mechanism to further reassure clients with respect to their assets' safety. We’ll be announcing more details soon.

Another aspect of ensuring the safety of a platform that’s often overlooked is educating account holders on how to best keep their information secure and reminding them that it is as much their responsibility as ours to safeguard their accounts — we're talking basics like using a strong password, enabling two-factor authentication, controlling all login credentials to Nexo, taking offers that seem too good to be true with a grain of salt, and, generally, having a healthy skepticism of both finance and technology.

There were a number of challenges to overcome when we were creating Nexo. The biggest one, which remains an issue in the cryptocurrency industry, was building trust in a space notorious for hacks, scams, crime, and money laundering. People are understandably very hesitant to place their money into new, unknown platforms, especially when many people lack the technical knowledge to understand blockchain – so proving ourselves to be trustworthy and reliable has been a process, and we're pleased with our progress to date.

Additionally, building a seamless and attractive user experience is essential to attract and retain new users. Cryptocurrency is a complex industry for most mainstream consumers, so simplifying it, and making it accessible and appealing to users has been a real challenge.

Besides our own developments — the Nexo exchange, the card, the next installments of our Nexonomics push, the prime brokerage platform, and, of course — on a more general level, Bitcoin storming through the borders of the crypto space and into mainstream finance with institutional investment behind it, what I'm especially excited about seeing over the next few months is how DeFi progresses.

DeFi has been the most transformative aspect of our space over the past year — on the one hand, it has witnessed exponential growth in a matter of months and, at its core, it truly embodies the principles that the crypto space stands for. Perhaps to an extreme, but it captures the essence and ethos of what crypto can bring to the world of finance — true decentralization, a shared economy, power to the unbanked. At the same time, it is rife with risk. It is not user-friendly. It needs work.

While I firmly believe in what DeFi stands for, I am no dreamer. It has a long way to go before it is ready and palatable for mainstream use — especially by way of security and UX. These are the areas in which I believe CeFi and DeFi can and must work together — they are not mutually exclusive, as has so often been said. They stand to gain a lot from each other, and it is only in working together that they will truly benefit the crypto space and propel it into the mainstream.

In a nutshell, I cannot wait to see how CeFi and DeFi find a golden mean and the results that will follow.

As I've said many times before, I'm not a big fan of predictions. That said, I do believe Bitcoin, the largest cryptocurrency, will go up a lot. At the beginning of 2020, I made a forecast that it would reach $50,000 by the end of the year. Given COVID-19 and the rather uncertain global situation, it's only just now that Bitcoin is entering a bull run and circling the $20,000 mark. So it may be coming with a slight delay, but I still believe BTC is heading towards $50,000 and the rally to that level is not far off.

Alongside the previously mentioned developments that I anticipate and am excited to see unfold, I also feel that 2021 is the year where we will move closer to mass adoption and, in some ways, the COVID-19 crisis has played a positive role in this regard. Some investors — primarily smart-money institutional players, but also tech and finance-savvier retail users — are looking for ways to hedge against inflation as governments keep pumping fiat into the economy to soften the blow of the pandemic.

Beyond user-friendliness and security issues that make the headlines, poor financial literacy on the retail side is, in my view, a major obstacle to mass crypto adoption.

The cryptocurrency market is still in its infancy, which brings with it both an overwhelming sense of opportunity and a lack of understanding. Recent surveys suggest there are two distinct groups of crypto newbies: beginners who pour money into projects they don't fully grasp, and aspiring crypto investors who doubt their own ability to get involved.

I recently came across a survey which concluded that nearly half of online investors were not trading crypto because they felt they lacked the proper knowledge. An interesting nugget of information — the women surveyed (who do tend to be more cautious), in particular, admitted that their lack of knowledge was the biggest barrier to entry into crypto investing, even though their interest in doing so matched men's. Another study, from 2019, found that U.S. investors would be more likely to invest in BTC if they were more knowledgeable about the asset, relative to stocks and bonds. This means that we're not getting our message across to the critical thinkers out there — that perhaps we're stuck in our own crypto jargon and lingo, thus preventing potentially smart investors from coming into our space.

Interestingly though, those with the least crypto knowledge tend to demonstrate high or very high confidence in its future, which makes for an awkward journey towards mass crypto adoption. Enthusiasm, whether matched by deep knowledge or not, is definitely a step in the right direction, but it can backfire when those who are at a loss after making naive decisions take to crypto Twitter or some other social media and bash the space, with the negativity eventually making mainstream media headlines.

This also holds true at the company level — when the businesses that are responsible for protecting their users' assets don't secure their platforms because of a lack of knowledge (or will) of best practices, this casts doubt over our entire space. Moreover, and considering how new crypto is and its mission to make financial tools available to everyone, “best practice” should include financial education, or at least ensuring that products and services are clear and transparently explained to users. A failure on either of these fronts will result in a setback for everyone in crypto, or at least for those of us who believe in and strive for mass crypto adoption as a better alternative to the current financial system.

On this note, I was very pleased to hear CoinMarketCap's interim CEO Carylyne Chan say earlier this year that she was leaving CMC with the hope that it would play a “more prominent role in cryptocurrency education.” Hers is a voice of reason, and we must all take heed. For the space to progress and enter mainstream finance, as it deserves to, the “quick-buck” mentality must end.

Unlike 2017, the recent BTC rally has stayed under the radar. It is smart money-driven, led by the big players and institutions behind them, like Michael Saylor, Paul Tudor Jones, Stan Druckenmiller, among others. By contrast, the 2017 frenzy and subsequent 2018 crash was retail-driven, with price action intensified by the ICO phenomenon.

With smart money at the helm, the current BTC rally looks a lot like the gold bull market of the 1970s: stealthy institutional purchases announced to the world once Bitcoin makes it onto treasuries. This means we can expect smaller investors to also move in, given that the whales are now in and there is no longer a need to defend these investments.

We're not doing anything fundamentally revolutionary here. Just taking the principles and best practices from the age-old industry that finance is and implementing them in a digital context.