Arrington XRP Capital-backed financial startup Nexo has unveiled a crypto card with a line of credit backed by the user’s crypto holdings.
Nexo partnered with an unnamed intermediary to issue the card, which offers a way for users to “spend the value of their crypto without actually spending it,” said firm partner Antoni Trenchev.
Unlike other crypto credit cards like TenX and Crypterium that convert cryptocurrencies to fiat for every transaction, Nexo collateralizes users’ crypto and supplies them with a fiat loan. Since its founding, the startup has extended more than $700 million in crypto-collateralized loans to over 200,000 clients. Now, the loans can be used to make purchases at merchants that accept MasterCard, through a co-branding.
After swiping, an oracle confirms the user has enough collateral to cover the purchase, instantaneously executes a loan, and settles the transaction in fiat. Trenchev claims the card’s issuer is licensed within the European Economic Area.
Through additional partnerships with intermediaries, Nexo aims to expand to the U.S. and Asia by the end of the year.
The cards are available independent of a client’s credit history, as the staked collateral reduces default risk. Likewise, interest rates are set between 8 and 24 percent APR based on the loan structure and local regulations.
Users can repay their loans in either crypto or fiat, though using Nexo’s token will reduce interest rates to 8 percent. Additionally, minimum payments will be eliminated if the value of bitcoin increases. This is because the credit line is “dynamic,” meaning as the value a client’s collateralized assets increases relative to the market, their fiat debts decrease.
In fact, crypto entrepreneur Brock Pierce mortgaged a house in Amsterdam through a $1.2 million line of credit through Nexo, and hasn’t made a single repayment due to the rising value of bitcoin since he took the loan, Trenchev said.
Conversely, if cryptocurrencies crash, users will either have to “deposit more crypto, pay a part of their loan to reduce exposure, or sell a portion of their collateral to restore the loan-to-value ratio,” Trenchev said.
The company complies with know-your-customer ustomer protocol, follows international sanctions, and has integrated with blockchain investigators Chainalysis to check if collateralized crypto has been ill-gotten, it says.
Nexo has previously paid out dividends of 30 percent on $3 million of profit made during its first 7 months in operation to token holders.