Cryptocurrency platform Nexo is currently being sued by an XRP user for causing $5 million worth of client liquidations after suspending the use of XRP as collateral without warning in December.
Lawsuit Against Nexo For Liquidating Loan Collateral
Junhan Jeong, a California resident, is responsible for filing the class-action lawsuit against Nexo.
Joeng accused the crypto platform of breaching its user agreement by suspending XRP as loan collateral without notifying its customers beforehand.
Nexo had suspended its XRP trading services on December 23, 2020, following the US Securities and Exchange Commission fraud case against Ripple on December 22.
The SEC had filed an action against Ripple Labs Inc. and two of its executives, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.
As stated in the legal document, Jeong alleged that Nexo’s severe reaction to the SEC’s announcement made many users unable to support their loan positions, prompting wholesale liquidations across the platform.
Jeong claims Nexo sold off his collateral funds consisting of 598,384.6188 XRP.
Nexo’s loan conditions require users to maintain a specific loan-to-value (LTV), which is the ratio between the money borrowed and the collateral held in a customer’s Credit Line Wallet.
If the ratio exceeds a certain threshold (83.3%), the customer must deposit more cryptocurrency as additional collateral to maintain the requisite LTV ratio.
If the customer fails to do that, Nexo begins to sell off the assets held in a customer’s wallet to recover the loan amount.
Nexo is not the only crypto platform to have suspended XRP.
Recall that several exchanges also stopped or delisted XRP trading, such as Coinbase, Bitstamp, Binance.US, Crypto.com, and eToro.
Nexo Responds To Allegations
Nexo has gone ahead to tell its side of the story by responding to the allegations. In a blog post, the crypto lender noted that its actions were in adherence with the company’s regulations and that it was done to protect its clients during regulatory uncertainty about XRP.
Nexo also stated that XRP top-ups and withdrawals remained available on the platform to all users. The exchange said the liquidations that ensued from users failing to repay their credit lines were a different matter altogether.
The platform further claimed that it had been the target of harassment “via various media and communication channels by several former clients liquidated as a result of the December 2020 XRP crash.”
Nexo added that any further attacks upon its reputation, including lawsuits, will not be taken likely.