What is the crypto lender Nexo's business?

Apart from operating a cryptocurrency trading platform, their activities can be compared to operating a pawn shop and a bank deposit. What happens to the deposited money and how can the company verify the origin of the funds?

Nexo explains what happens to the assets deposited by their customers. Experts explain that the company's core business can be compared to a normal pawn-shop:

"In order to borrow money at a pawn-shop we have to give some collateral. Whether it be an expensive watch or some other asset," said Valentin Mihov, a consultant-programmer.

But instead of a watch, one blockchain asset is exchanged for another. The company also provides a service resembling an investment instrument, comparable to a bank deposit.

"I put in $10,000 and accordingly this money is distributed the way Nexo sees appropriate. Mostly in being able to lend money and now when they do this thing, I accumulate part of the profit that is with them," said Martin Kuvandjiev, an entrepreneur.

There's another mechanism that Nexo's deposit products go through - that's stablecoins.

"In general, it's crypto that is backed in dollars, that is, if we have 100 crypto dollars or a stablecoin in some bank there are 100 dollars that cover all this money," said Valentin Mihov.

And the origin of the money is verified with the so-called chain analysis.

"Chain analysis is used when we want to trace the origin of the funds we are working with. A lot of people say crypto is similar to cash and cannot be traced, but it is not true. On a blockchain, all transactions are visible," explained Valentin Mihov.

In the world of virtual money there is also a new innovation - the so-called "Proof of funds". This means that the company has to prove how much funds it actually has to another specialized external company.

"First, to get to know the client, whether a person is or is not connected with illegal activities or is or not a politically active person. Second - where his money came from, to know that it is not money related to money laundering, etc. and other illegal activity," said Martin Kuvandjiev.

Kuvandjiev explains that each company engaged in this type of activity decides for itself how to use the available control tools, but the end result should be one.

"There should be no case where a person is engaged in criminal activity and can use a platform," Martin Kuvandjiev comments.

The experts add that their products are not available on the Bulgarian market.

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