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It seems that no matter where we go in life these days, there are two sides trying to fight over whose ideas are better: Republicans vs. Democrats, Bitcoiners vs. Ethereans, Elon Musk vs. Himself. It can be enough to tear any community apart. Perhaps this is the situation in which the Nexo community currently finds itself.
Wait, what is “Nexo”?
Nexo bills itself as “the most advanced platform for instant crypto loans”. However, its product offerings have expanded to include much more than just collateral-backed lending using depositors’ crypto. Nexo currently pays interest on crypto and fiat deposits, hosts a cryptocurrency exchange with dozens of fiat/crypto and crypto/crypto pairs, and has a card in the works that will allow holders to spend the value of their crypto without having to sell it (i.e., crypto-backed credit purchases).
So what’s the drama about?
Since its founding in 2018, Nexo has distributed roughly 30% of its profits to holders of the token native to its platform, the NEXO Token. While the NEXO Token does not equate to ownership of Nexo the company by the token holders as a normal company stock would, the success and value of the NEXO Token are indelibly linked to the performance of the company. When the company improves operations and increases profits, higher dividends can be paid to token holders, which increases the desire of market participants to buy and hold the token and drives up its price. When the company’s performance falters, the opposite occurs and people scramble for the exit. This is very similar to how dividends affect the price of and demand for a normal stock.
However, this can also have negative ramifications for both Nexo the company and the NEXO token. There’s a common saying in English that goes something like this: If it walks like a duck, quacks like a duck, and looks like a duck, chances are you’re looking at a duck. In the case of the NEXO token, this means that since it is similar in operation to a security (i.e., stock), many regulators around the world already have or soon will judge the NEXO token and other similar cryptocurrencies to be securities. While perhaps there’s nothing inherently wrong with a cryptocurrency token that operates like a security or stock, they and the companies that offer them are typically subject to much more stringent regulation than cryptocurrencies like Bitcoin that have no company or other entity governing their use. Just look at what happened to the XRP token when the company backing it, Ripple Labs, was sued by the U.S. Securities and Exchange Commission (SEC).
Likely in an attempt to alter the NEXO Token’s status as a quasi-security, Nexo the company announced on May 26, 2021 its very first Governance Proposal: Daily Interest on NEXO and a Final Dividend. In essence, NEXO token holders will have the opportunity on June 7, 2021 to vote whether to continue receiving a portion of Nexo the company’s profits in the form of a dividend or to receive interest payments on the NEXO tokens held within their depository accounts with Nexo the company. In many respects, a successful switch from dividends to interest would remove a portion of the NEXO token’s similarity with stocks since the value of the token would no longer be tied directly to company performance.
Dividends vs. Interest
There are a host of benefits behind both dividends and interest and the team over at Nexo has done a pretty good job of listing the benefits for both. I’ll only touch on the benefits that I find the most intriguing here.
Receiving interest on your holdings of the NEXO token eliminates almost all of the unknowns associated with your token earnings for the year. Dividends are only announced once a year and even though the total amount is announced a few days before the dividend is paid, NEXO token holders won’t actually know how much their portion of the dividend will be until it arrives in their account. On the other hand, calculating an interest payment is rather easy. If you own 500 NEXO tokens, or about $1,000 U.S. Dollars worth at today’s price, and you receive 7% interest on your holdings, your earnings after twelve months will amount to 35 NEXO tokens or $70 U.S. Dollars (this example does not account whatsoever for changes in the underlying price of the NEXO token in U.S. Dollar terms during the year).
Interest instead of dividends also allows token holders greater control over the timing of any changes they may want to make in the NEXO-based portion of their portfolio. As an example, perhaps you like the NEXO token, but are much more tied to the value provided by Bitcoin or Ethereum. With interest payments being paid out daily, you have many more opportunities to convert your NEXO tokens to your favored crypto than you do when receiving a dividend once per year.
Dividends on the other hand, can have a much larger range of both upside and downside. Since the size of your dividend depends directly on the size of Nexo the company’s profit, you could earn significantly more or less than you would by receiving interest payments. It’s currently estimated that over 100 million people globally, or around 1.3% of the earth’s population, use cryptocurrency. Should cryptocurrency use become as widespread as internet usage, billions of people would soon find their way into the cryptoeconomy. It’s feasible to expect that Nexo the company’s user base and profits, and by proxy, NEXO token holder dividends, would increase proportionally.
So should NEXO token holders vote for Dividends or Interest?
I’m of the belief that the decision to vote for dividends or interest really comes down to two things: one’s belief in the long-term prospects of Nexo the company and one’s level of commitment to hodling the NEXO token.
If you believe that Nexo the company has the ability to grow its user base and profit in tandem with the growth in global cryptocurrency usage, then your dividend earnings could, in theory, increase exponentially over any amount of compounding you could receive through interest. Additionally, if you believe that the benefits and future appreciation of the NEXO token are on an upward trend, then the ability to convert earnings on the NEXO token only once per year may be a nonissue.
Conversely, if you’re concerned with the prospects of both Nexo the company and the NEXO token, you may like the ability to receive a relatively fixed (i.e., assuming that the interest rate doesn’t change too much) amount of earnings on your NEXO token holdings and the ability to cash out those earnings much more often than once per year.
The decision to vote for dividends or interest on NEXO token holdings is the sole responsibility of each individual token holder. The analysis above is not financial advice, in fact or in intent. While the result will rely on the aggregate votes of all NEXO token holders, only you can determine which decision is in your best interest.
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Imho, the Interest side of the argument wins hands down. It is cleaner, more transparent, more reliable and it makes it much easier for Nexo to grow and expand because of all that "securities regulation" bs the zombie legacy old fi is trying to burden us with. I'll be definitely voting for the change.