The Collateral Exchange Feature
You now have the ability to preserve the value of your collateralized assets during a market downturn and improve the health of your credit line in a matter of seconds with Collateral Exchange, i.e. the option to exchange assets in your Credit Line Wallet.
The feature allows you to:
- maintain a healthy LTV ratio during a market downturn
- exchange collateralized assets to match your investment goals
Stabilized Portfolio & Healthy LTV Maintenance
Your Credit Line Wallet spans the assets used as collateral for your Instant Crypto Credit Line™. With Collateral Exchange, you can preserve the value of your collateral – both the part already used to back a credit line* as well as the excess collateral in the Credit Line Wallet.
Imagine the price of your collateral depreciates, and you don't want to make repayments – you are basically running the risk of a liquidation. By converting negative trending assets into more stable ones, including but not limited to stablecoins, you can stabilize your portfolio, thus maintaining a healthy Loan-to-Value (LTV) ratio and preventing automatic repayments of your credit line.
Flexible Collateral Management to Match Your Investment Needs
When you withdraw a Nexo credit line, it is backed by one or a combination of many of the assets in your Credit Line Wallet. Until now, you have been enjoying the flexibility of managing your collateral by transferring funds between the Savings and the Credit Line Wallets. This, however, requires additional assets. Luckily, the new swap option in the Credit Line Wallet lets you change your collateral without this requirement for additional assets.
This feature provides you with an unrivalled level of flexibility to adjust your portfolio at the most crucial times according to your investment strategy and goals. It is an opportunity to protect your portfolio and re-enter the market only when you think the time is right. With that peace of mind, you can revert your portfolio back to its original crypto mix when the market is down to maximize your holdings.
How Does Collateral Exchange Work?
These are the steps to follow:
- Go to the Nexo platform & click “Exchange”.
- Select “Credit Line Wallet”.
- Pick the pair and the amount you want to swap.
If the amount of collateral is not enough for the swap to be executed, you can always move more assets to the Credit Wallet from the Savings Wallet. Check this article to learn how.
- Your excess collateral can be exchanged for any other supported asset at any time. The collateral already used to back an existing credit line can only be exchanged for currencies with a Loan-to-Value ratio equal to or higher than the one(s) of the collateral used, as indicated in the Nexo Platform.
- NEXO Tokens are currently not available for swapping in the Credit Line Wallet.
- Collateral exchange operations are not allowed during an ongoing automatic repayment.
Last but not least, below is an example to illustrate how the exchange of collateral works when the LTV of the output currency is lower than that of the input currency:
Suppose you have exchanged your BTC for DAI to stabilize your LTV and protect your assets from price volatility. When market conditions are right, you may want to restore your original collateral lineup by exchanging DAI for BTC. Since the LTV ratio attributed to BTC (50.00%) is lower than that of stablecoins (90.00%), you would not be able to complete the swap unless you transfer more assets from the Savings to the Credit Line wallet. The amount of extra collateral moved to your Credit Line wallet must be enough to ensure that the output LTV can support the loan, as otherwise, the exchange would be declined. In simple terms, it must be enough to compensate for the increased output LTV. Bellow, you can find a more detailed breakdown of the given example:
you have 20 000 USD in BTC and 10 000 USD loan with Loan-to-Value = 50% and no excess collateral in the Credit Wallet
after swapping BTC to DAI, you will have ±20 000 USD in DAI with the same loan of 10 000 USD, new Loan-to-Value = 90%. This means that you now have ±11 000 USD in DAI as collateral to secure the loan allowing you to move the excess of collateral ±9000 USD in DAI to the Savings Wallet and earn interest on it or swap it to any other currency directly from the Credit Line Wallet.
To swap DAI back to BTC - you can swap the ±9000 USD in DAI to BTC at any time, because they are now excess collateral, except when you take a new loan with that excess. The rest ±11 000 USD in DAI cannot be converted to assets with lower LTV, including BTC.
To swap DAI for other assets with lower LTV (35%), like Stellar, you would need to have at least ±30 000 USD worth of Stellar in your Credit Wallet after the swap to secure the loan. Therefore, to make it happen, you would have to move 10 000 DAI to your Credit Wallet from the Savings Wallet to make the swap.
Alternatively, based on the same example, you would be able to move ±9000 DAI (exceed collateral) to your Saving Wallet and swap it for whatever assets you want.
Important notice: Effective August 12, 2021 the Nexo exchange is temporarily unavailable for residents of Australia.