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Crypto platform Nexo slowly exiting US

Wednesday 7 December 2022 13:52 CET | News

Cryptocurrency lending platform Nexo says it is ‘phasing out’ the US side of its operations, after unsuccessful talks with regulators.

 

In particular, the firm noted a recent scramble from state regulators and the federal Consumer Financial Protection Bureau to investigate Nexo's ‘Earn’ offering. As the company puts it, this was made clear by the Consumer Financial Protection Bureau’s (CFPB) recent decision of insisting it has jurisdiction to investigate the company’s Earn Interest Product, which the SEC and state regulators have simultaneously insisted is a security subject to their jurisdictions.

The CFPB rejected a petition from Nexo to cease an investigation into the product after the company argued that only securities regulators hold jurisdiction over it. Still, Nexo said it wasn't happy with them either. Furthermore, the company says that several state securities regulators they had been cooperating with for several months blindsided them by filing actions against them without advance notice.

Cryptocurrency lending platform Nexo says it is ‘phasing out’ the US side of its operations, after unsuccessful talks with regulators.

The Earn product, like many crypto lending platforms, in theory replicates a bank account with higher rates of return. But the SEC has taken issue with similar products, including a $100 million fine against BlockFi that Nexo cited in its petition for the CFPB to drop an investigation. State regulators, who sometimes coordinate with federal authorities, also sent the company cease and desist letters in September.

Nexo, which has a large portion of its operations in Bulgaria, had announced that it would no longer pay interest on new Earn deposits from the US earlier in 2022.

Partnership with Mastercard

Back in April 2022 Nexo and the global payment processor and card issuer Mastercard launched a co-branded crypto-backed payment card. The card is designed for those who are passionate about investing in and trading with cryptocurrencies and comes both in a digital and physical form. The virtual card can be activated by linking it to either a Google Pay or an Apple Pay account.

It can be used to purchase goods just like a regular credit card, with the user’s available cryptocurrencies used as collateral, and can be accepted anywhere in Mastercard’s global merchant network.

Crypto regulation issues

As we found out from the FTX case, US regulators have the habit to prioritise their energy on companies located domestically, as coordinating with regulators globally can be a murky affair, certainly with new topics such as crypto.

FTX was in the Bahamas, with a US professional subsidiary, while mass marketing its services globally, though mainly in the US. Heavy marketing gave FTX the sense of trustworthiness, towards investors, politicians, regulators, and the public. In three years’ time, FTX became the world's third largest crypto service provider, following Binance and Coinbase.

It seems thus that the basic fix of prevention is not so complicated, as very basic hygiene factors of operational management were not attended to. Such a large-scale business failure is not specific for crypto and not specific for regulators. Probably FTX completely outpaced regulators’ ability and willingness of action, partly because they were lured into believing the bonafide intentions of FTX.

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Keywords: cryptocurrency exchange, cryptocurrency, regulation, lending
Categories: DeFi & Crypto & Web3
Companies: Nexo
Countries: United States
This article is part of category

DeFi & Crypto & Web3

Nexo

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