DeFi

November 18, 2022

Nexo Must Have A Guardian Angel

Crypto lender Nexo ($NEXO.X) is like the Minnesota Vikings of crypto this year (also, they both have purple in their logos). This has got to be a combination of fate and good work because someone there is probably getting a bonus this year. 

The first bullet Nexo dodged was its offer to buy BlockFi ($BLOCKFI.P) this past Summer. Nexo was willing to partner with FTX on acquiring BlockFi – but BlockFi decided to go it alone with FTX’s bid. The total value of Nexo’s offer was roughly $850 million.

The second bullet – and Hollywood couldn’t write a better script for this – is the FTX bullet that almost hit them along with everyone else. We have to go back to this November 8 Tweet from Nexo’s Twitter:

Again, either Nexo has a guardian angel, or someone at Nexo smelled the stink coming from FTX before it was too late because, between November 1 and November 8, Nexo withdrew nearly $220 million from their FTX accounts. Literally hours before FTX shut down all withdrawals.

Genius or miraculous? You be the judge. 

Nexo is one of the only ‘big’ crypto lending platforms that has been able to stay stable and grow after the collapse of Three Arrows Capital/Voyager/Celcius. If you didn’t read our interview with them, read it here. 👼

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Like every technology, DEXs come with their unique set of risks. Let’s dive into some of the most prevalent ones.

Smart Contract Risk 📜

One of the most significant risks when dealing with DEXs revolves around smart contracts. These programmable transactions run the entire DEX infrastructure. If there’s a bug in the smart contract code, it might be exploited and lead to substantial losses. Make sure you’re using a DEX that has undergone rigorous smart contract audits to mitigate this risk.

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As a liquidity provider in a DEX, you could face what’s known as ‘impermanent loss’. This occurs when the price of your deposited tokens diverges. The larger the divergence, the more you stand to lose. The loss only becomes “permanent” if the prices don’t return to their original state by the time you withdraw your liquidity.

Price Slippage 📉

High market volatility can lead to price slippage on DEXs. Slippage refers to the difference between the expected price of a trade and the price at which it’s executed. While some slippage is common, large amounts can lead to unfavorable trade outcomes.

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Constant Product Market Maker (CPMM)

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