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Nexo's incredibly smart Celsius takeover bid

DeFi

invezz.com 14 June 2022 22:09, UTC
  
Reading time: ~4 m

When I saw Nexo tweeting their takeover offer of rival Celsius amid the latter’s crisis yesterday, I immediately smiled. Because without knowing anything beyond the superficial detail, it’s really cunning by Celsius.

Let’s dig in.

Crypto crash sparked by Celsius

I wrote a deep dive into the crisis facing crypto lending platform Celsius crisis yesterday here, but in short, Celsius took the shocking action of suspending withdrawals Sunday evening as they stared down the barrel of possible insolvency, triggering mass sell-offs and contagion fears across the market.

The possible Celsius contagion is likely due partially to the Terra collapse last month, as Celsius had funds invested in Terra’s Anchor protocol (deep dive of the Luna death spiral here – I really look forward to a month where no death spiral post-mortems require writing).

Nexo

Naturally, eyes turned toward Nexo, a competitor of Celsius who also offers customers yield in return for deposited crypto. Their team didn’t waste much time in tweeting out a response, taking a leaf out of Elon Musk’s book by taking to the Twitter timelines to reveal an ambitious takeover bid.

After what appears to be the insolvency of @CelsiusNetwork and mindful of the repercussions for their retail investors & the crypto community, Nexo has extended a formal offer to acquire qualifying assets of @CelsiusNetwork after their withdrawal freeze. https://t.co/JFtKTHRLcY

— Nexo (@Nexo) June 13, 2022

It made me laugh because it was genius – and I hadn’t even opened the terms. I didn’t need to. This is the wild west world of cryptocurrency, not Wall Street, and Nexo used their smarts here to take advantage of that very fact.

On Wall Street, such things cannot be whimsically tweeted out by companies – regulators take a hard line with that. In crypto, there is more free rein, so Nexo took their chance. It reminded me of Musk’s infamous “funding secured” tweet which spiked the price of Tesla a few years ago. Classic. Of course, he ended up in hot water with the SEC and he was charged with civil securities fraud.

Am considering taking Tesla private at $420. Funding secured.

— Elon Musk (@elonmusk) August 7, 2018

Given Nexo’s tweet was only a few hours after Celsius suspended withdrawals, due diligence and proper legal framework could not have been pursued. This was, in essence, a publicity stunt – but a damn good one.

Why was it clever?

Nexo achieved two things here. The first was the most important – separating themselves from being painted with the same brush as the suddenly-toxic Celsius. Their PR people got ahead of the storm, and drew a line in the sand, emphasising the health and stability of Nexo in comparison to Celsius.

The second reason this was smart was that it helped assuage a tidal flow of redemptions. Sure, Nexo may be healthier than Celsius, but even a healthy bank will struggle under a run of redemptions too large.

This is what toppled Celsius – a fall from $28 billion to $12 billion assets under management, with the Terra crisis serving to send more and more people running for the exit door. Their (liquid) assets couldn’t match their liabilities, and thus they had to suspend withdrawals.

In tweeting out a takeover offer for Celsius, customers are reassured of the health of the company and the safety of their funds, hence reducing the amount of redemptions likely to hit Nexo’s coffers.

Publicity stunt

If there was even a doubt this was a publicity stunt, Invezz reached out to Nexo for comment on their plans if the buyout of Celsius is successful. Co-founder and Managing Partner Antoni Trenchev responded with the below:

At the time being, we are far more concerned with providing the crypto community with the necessary resources and tools to get through the market volatility, rather than with our reputation. We believe our actions speak for themselves.

Antoni Trenchev, Co-Founder & Managing Partner, Nexo

These guys are smart, like I said. Just for kicks, I took a look at the Letter of Intent (LOI) attached in the takeover offer tweet, and it’s an extremely generic non-legal document which conveys no legally binding action from Nexo. Due diligence of both parties is stressed as being vital, and it’s scarcely two pages long – an intern could have written it up in twenty minutes, for all we know.

Besides, Celsius preventing withdrawals is to give them a chance at regaining solvency and matching their liquid assets to liabilities, which will take time to sort out – something which Nexo is well aware of.

This is not happening overnight. Sure, there may be an opportunity for Nexo down the line to have a look at Celsius’ assets, but that won’t be done in a few days via a tweet. But a might fine PR move to separate themselves from Celsius and maintain their pristine reputation? A tweet is perfect for that.


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