Expanding Crypto Lender Nexo Secures U.S. Banking Charter

A day after being sued by eight state attorneys general who claim it violated securities laws, crypto lender Nexo unveiled that it has purchased a stake in federally regulated Summit National Bank.

In buying a minority stake in the holding company that owns Summit National Bank, which is regulated by the Office of the Comptroller of the Currency, Nexo has substantially expanded the scope of products it can offer, notably bank accounts.

Other services include asset-backed loans, card programs, and escrow and custodial solutions through Summit National Bank, Nexo said in a release.

The deal will give its customers “access to some of the most innovative products at the intersection of traditional finance and blockchain technology,” said Kalin Metodiev, co-founder and managing partner of Nexo. He also joined the bank’s board.

He also called it a major step “in Nexo’s relentless drive to better serve our U.S. customers in compliance with the constantly evolving regulatory landscape.”

Summit National Bank President and Chairman Forrest Gilman said the deal and addition of Metodiev to the board “strengthens our work on the transformation of the bank into a fully fledged cutting-edge FinTech bank with access to new clients.”

In addition the Summit partnership, Nexo plans to expand “its global commercial banking capabilities … by securing additional banking licenses on a global scale. It has more than 50 licenses and registrations globally, as well as an institutional custody solution and professional crypto trading platform.

Riding the Storm Out

Nexo has been pursuing an aggressive acquisition strategy after a series of bankruptcies by crypto lenders including Voyager Digital and Celsius spurred by the $48 billion collapse in May of a stablecoin, TerraUSD. That sent a major crypto hedge fund many crypto lenders had loaned heavily to, Three Arrows Capital, into insolvency, causing a domino effect.

See also: How a Stablecoin’s $48B Collapse Rippled Across Crypto

In June, Nexo, which is based in Zug, the heart of Switzerland’s “Crypto Valley,” announced that it had hired Citigroup to advise it on acquisitions, taking advantage of a strong financial position while many of its competitors flailed with insolvencies or simply the crypto downturn.

Read more: Crypto Lender Nexo Hires Citigroup as Acquisitions Adviser

Most notably, with the stated aim of strengthening its presence in Asia, Nexo is in talks to buy Singapore-based Vauld, one of the crypto lenders than halted withdrawals by customers who entrusted it with their crypto in exchange for interest.

That is the same financial product that led the attorneys general of New York, California and six other states to sue Nexo on Sept. 26.

Read more: U.S. State Regulators Charge Nexo Group For Not Registering Product

That lawsuit follows on the $100 million settlement in February by BlockFi, a leading crypto lender, for selling unregistered securities in the form of those interest-bearing deposits with/investments in crypto lending. Half of that went to several dozen states and the rest to the Securities and Exchange Commission (SEC).

Buying Spree

Nexo is hardly the only company using that downturn to go shopping.

BlockFi became insolvent in the current crisis, but was rescued by FTX CEO Sam Bankman-Fried, who has been on an accelerating acquisition spree since before the crypto winter bear market began. And earlier this week, his U.S exchange, FTX US won a bidding war for Voyager Digital’s assets, suggesting Bankman-Fried is planning to push ahead with its own FTX Earn product.

See also: Bankrupt Crypto Firm Voyager Sold to FTX for $1.4B

Generally speaking, crypto lenders require borrowers to put up crypto worth 125% to 150% of the amount they want to borrow, getting loans in stablecoins. That collateral is automatically sold if volatile crypto prices drive it too close to the amount borrowed. While those loans, which normally in stablecoins, can be used for any purpose, most is used in risky decentralized finance, or DeFi, investments.

Nexo stopped accepting new U.S. clients. While it did not halt the service for existing clients, it stop paying interest on new deposits. Those changes would be in place “until the restructuring of the Earn Interest Product and the registration process with the relevant regulatory bodies are finalized,” it said at the time.

Read also: Crypto Lender Nexo Stops Interest on New Deposits

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