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“Blockchain-Backed Loans”

The SALT cryptosystem is meant to help facilitate “blockchain-backed loans”.

It’s meant to provide you with the ability to raise cash loans against your crypto asset holdings. The reason for this is to give people without any security the opportunity to liquefy their capital without giving up control of their assets.

The way it works is for SALT to offer a smart contract between a lender and borrower – the borrower puts up their equivalent crypto tokens and the lender signs an agreement to provide the equivalent fiat currency.

The borrower pays back the money they borrowed (plus interest) for the agreed duration, with their crypto assets being unlocked when the loan is repaid in full & settled as per the agreement.

Whilst lending is an age-old trade, it’s never been the case that crypto tokens have been used as a viable security before. The obvious issue here is that if you’re looking to take out a loan against – say – BTC, and the price of the asset changes (both up and down), there may be discrepancy in how much needs to be paid back etc.

Ultimately, the system is generally seen for the following use-cases:

Long term crypto holders looking to make best use of their holdings without having to pay taxes or relinquish control of their stake.

Leveraging your crypto holdings for cash in order to buy more crypto. This – whilst highly controversial (don’t risk what you can’t afford) – could be a good way to capitalize on a burgeoning market.

If you’re liable to pay more than 20% of taxes on your gains you can instead simply take a loan from SALT which you don’t pay back (cash) – the smart contract will sell off your crypto collateral (this will have no effect on any kind of credit score – no such thing with SALT), leaving you with the loan money and less crypto assets… but no tax.

What is Salt Cryptocurrency?

The most important thing for SALT is that it’s trying to cut out the middleman in the lending industry. Whenever you lend money, what you’re doing is borrowing the money that someone else saved – either on their own or as part of a consortium (fund).

At the moment, the majority of lending goes through banks – where someone will take out money that is essentially pooled from all the savings inside the bank. The bank will charge interest to the borrower, and pass (a small percentage of) that interest onto the saver.

Whilst the bank-backed lending system works, and is obviously just a small part of a HUGE financial infrastructure, the likes of blockchain or another decentralization technology actually have the promise to produce a system through which people are able to receive high levels of returns on loans they make, backed by a liquefiable asset (crypto tokens).

Consequently, it’s widely believed that if SALT doesn’t work, some other system will come to take its place – the demand for such a service being so strong…

Conceived in March 2016, and with an initial seed round of financing put together in early 2017. Most appropriately, all the board and advisers actually contributed funds personally – typically rare in a space filled with people trying desperately to raise outside money.

The system works around the SALT token – the unit transferred within the ecosystem and designed to provide the user with the ability to pay down loan interest, receive better rates on loans, and purchase items from SALT’s online store.

Obviously, the risk involved with this is huge.

For all their ills, banks have such a huge footprint (and are regulated!!) that loans etc are managed as efficiently as possible. If someone defaults on their loan, the bank not only takes them to court but the system is able to cope with the small loss whilst profits from other operations generally cover it.

In other words, lending money through a bank is a much more secure way to generate returns on your money. The cost of that safety net is the lack of interest, but that’s better than having no money. A company like SALT is entirely unregulated and you simply don’t have any way to police the various policies being taken out through it.

Who created it?

The Team behind SALT are a mix of banking professionals and tax experts.

It’s important to note that from the outset, this was established as an incorporated business – which is rare in the world of blockchain.

Shawn Owen (CEO)

Became involved with blockchain technology through advocacy of bitcoin in early 2011 – owned and managed a number of businesses before that time.

Why does it exists?

The SALT experience is pretty well explained, but in case you needed to know why they developed it, here’s what they say…

SALT is a membership based lending and borrowing network that allows users to leverage their blockchain assets to secure cash loans. Our Secured Automated Lending Technology is a protocol and asset agnostic architecture designed to adapt to the constantly growing class of blockchain assets. The system is designed such that, if you have an asset you want to hold on to, you can borrow the asset you want to spend, regardless of credit history or geographic constraints. The SALT Platform is automated, efficient, and cryptographically secure. It offers a compelling solution to the problem many consumers face when they need or want cash to make a purchase, but do not wish to liquidate their assets. Instead of selling, SALT enables the members of the SALT Lending Platform (Members) to leverage the value of certain digital assets, thereby giving them access to cash, offsetting tax events, avoiding exchange fees and maintaining their long position in the asset they hold SALT is a lending platform specifically designed for blockchain assets; operating as a second layer protocol which sits atop any public or permissioned blockchain, allowing the underlying asset to be used as collateral for access to credit.

You can view the SALT Whitepaper here.

Trajectory

SALT, as expected, received a lot of interest – predominantly from the “free money” brigade.

The problem with SALT, as mentioned, is that it’s not regulated and you’re operating almost entirely on trust. If you “default” on your loan, your crypto assets are given to the lender of the cash.

The problem we have with this is that it presupposes that the crypto assets themselves are worth something, when they’re not. Crypto assets are worth what people are willing to pay for them, which might be a lot in this current market – but may plummet to nothing.

Bitcoin and the other crypto systems gave the world a decentralized financial transactions infrastructure. The important thing to note is the coins/tokens represented by Bitcoin are not meant to carry value. They’re simply meant as a means of transaction (as a coin would be in real life). Because of this, the idea that you can secure a loan against your crypto coins is false.

Irrespective of the legitimacy of the system, the underlying reality is that it’s gained traction from its pre-sale and has facilitated $30m loans already, at the time of writing.