However, some crypto lenders have remained strong through the downturn. One such player is now looking to parlay this strength into a major splash.
Nexo, one of the largest crypto lenders, has signed an indicative term sheet with rival Vauld, starting the process for a potential acquisition.
Vauld: Another Casualty
Crypto lenders have shown themselves to be susceptible to contagion effects. The yields that these lenders promised were propped up by leverage. This works great when prices are going up, but fails when prices are going down. In other words, when crypto prices drop, crypto lenders suffer. Recently, prices have dropped a whole lot, and lenders have suffered along with them.
The latest member of the down-bad lender club is the Singapore-based platform Vauld.
During the bull market, Vauld was doing quite well. It raised $25 million from prestigious investors including Peter Thiel, Coinbase, and Pantera in 2021. In early May, Vauld had more than $1 billion in assets under management.
But the blowups that have plagued crypto since May have taken their toll on Vauld. The fallout from Terra, Celsius, and 3AC has caused a steep drawdown in crypto prices and a weakening of retail confidence in the market. The result? Withdrawals of $197 million from Vauld over the last 3 weeks.
Stretched to its limits, Vauld has made some difficult decisions. On June 21st, they laid off 30% of their employees. This was a prelude to the real bombshell where on July 4th Vauld halted all withdrawals, trading, and deposits and announced they were looking into restructuring options.
Nexo To The Rescue
Nexo is another crypto lender. By offering people an easy-to-use platform and strong yields, they have amassed an impressive $4 billion in assets. Fortunately for them, they were able to derisk from their DeFi positions before the recent crash. Because of this, Nexo is much more liquid than its competitors with their assets at a greater than 1:1 ratio to liabilities. This strength presents significant possibilities for Nexo.
Not even 24 hours after Vauld’s announcement, Nexo started the process for a potential acquisition. The indicative term sheet presents a plan to acquire up to 100% of Vauld and grants Nexo 60 days to exclusively conduct due diligence.
The Race For Lending Dominance
‘This is not Nexo’s first attempt to buy out a struggling competitor. In June, they made a failed attempt to purchase Celsius’s assets. Their repeated attempts at acquiring competitors lead to a natural question: Why?
The answer is simple – although they are struggling right now, crypto lenders still present a big opportunity in the future. It was just last year that BlockFi was valued at $5B and Celsius was valued at $3.5B. In the right market conditions and with the right management, other crypto lenders may reobtain their previous valuations.
This is based on the belief that crypto lenders will continue to play a big role in the future. As crypto adoption grows, so does the need for platforms that are easy for users to borrow money from and for lenders to receive a strong yield. It’s unreasonable to expect new entrants to hop right into complex DeFi protocols. By providing a friendlier entry point for new crypto converts, crypto lenders are primed for future success.
By acquiring Vauld, Nexo doesn’t just gain a foothold in the important Asian and Indian markets but also begins to position itself for lending dominance. However, they aren’t the only ones looking to gain a foothold in this market. FTX has reportedly signed a deal to purchase BlockFi (see above), crypto lender Ledn wants to do the same, and Goldman Sachs has its sights set on Celsius.
However this all turns out, it’s clear that this is a field worth watching.