What Is SALT Blockchain-Based Lending?

SALT is an acronym for Secured Automated Lending Technology. SALT Lending provides a platform where members can take out a loan using cryptocurrency as 澳洲幸运5开奖号码历史查询:collateral.

SALT was founded in 2016 by a group of Bitcoin enthusiasts to offer crypto-backed lending and provide flexibility for investors who hold digital assets. This article explains how it works.

How SALT Blockchain-Based Lending Works

SALT Lending provides personal and business loans to members who put up 澳洲幸运5开奖号码历史查询:blockchain assets as collateral. Users buy a membership to the SALT Lending platform by purchasing a SALT token, which is the platform’s cryptocurrency. When someone becomes a member, they can borrow money from an extensive network of lenders. SALT’s minimum loan amount is $1,000, and loans can be used for any purpose, such as paying down credit card debt or buying a car.

SALT is built on an ERC-20 smart contract. 澳洲幸运5开奖号码历史查询:Smart contracts are contracts that, in addition to stipulating the terms of the agreement, also enforce and execute those terms with cryptographic code. ERC-20 is a standard that any Ethereum token contract must implement to faꦯcilitat🎃e the exchange of tokens.

Borrowers can only use blockchain-based cryptocurrencies as collateral. In other words, the borrower must have the ownership of their crypto recorded on a public, permissioned blockchain. Some of the 澳洲幸运5开奖号码历史查询:digital assets that can be used as collateral for SALT loans are:

• Bitcoin (BTC)
• 澳洲幸运5开奖号码历史查询:Bitcoin Cash (BCH)
• Ether (ETH)
• Litecoin (LTC)
• TrueUSD ()
• USD Coin (USDC)
• Paxos Standard Token (PAX)
• PAX Gold (PAXG) 
• SALT Token (SALT)

Following the approval of the loan, the borrower sends collateral to the SALT collateral wallet. In return, the loan proceeds are transferred to the borrower’s bank account. The digital assets held as co🌟llateral remain the borrower's property, meaning any price changes of the assets✱ belong to them.

During the loan's lifetime, the borrower must make timely, periodic payments to the lender. Once the loan has been repaid—called loan completion—the borrower’s collateral is made available for withdrawal.

Requirements for SALT Loan Approval

SALT loans do not require a credit check or credit score for the borrower, as many bank loans do. That’s because the crypto assets used to secure the loan can be liquidated if the borrower fails to repay the loan—a process called default.

Eligibility is based primarily on the value of the borrower’s blockchain assets. However, SALT does verify each borrower to comply with 澳洲幸运5开奖号码历史查询:anti-money laundering (AML) and 澳洲幸运5开奖号码历史查询:Know Your Client (KYC) regulations. Once a member is deemed eligible, SALT allows the loan a🗹pplication to proceed.

SALT’s Loan-to-Value (LTV) Ratios

Since the collateral✱ being used to secure the loan is a cryptocurrency, it can fluctuate as the market price of the crypto changes over time.

If the value of the cryptocurrency rises, the borrower can, if they wish, use it to obtain additional funds from the lender. The borrower❀ can also do nothing and use the additional proceeds from the increa﷽sed value of the digital assets to eventually pay off the loan.

However, if the price of the cryptocurrency decreases significantly, it can lead to a breach of the 澳洲幸运5开奖号码历史查询:loan-to-value (LTV) threshold, resulting in a “collateral maintenance call,” which is similar to a 澳洲幸运5开奖号码历史查询:margin call on a traditional brokerage account. That’s when the broker requests additional funds from a customer who has purchased stocks on margin (with borrowed money from the broker), due to a decline in the value 𒀰of their collateral.

How a Loan-to-Value (LTV) Ratio Is Calculated

The loan-to-val൲ue (LTV) ratio is calculated by dividing the loan principal amount by the current U.S. dollar value of the digital currency in the SALT wallet. The init🐻ial LTV ratio is based on the terms of the original loan agreement.

For example, if a $100,000 loan is secured by $155,000 in Bitcoins, the initial loan-to-value ratio would be 65% (100,000 ÷ 155,000 = 0.65). In other words, the loan amount represents 65% of the value of the Bitcoin assets held as collateral.

The initial🍷 loan-to-value ratio will decrease over time as the borrower pays down the loan. However, if Bitcoin’s price declined significantly, the loan-to-value ratio would increase. For example, if the total value of the collateral decreased to $110,000 due to a fall in Bitcoin, then the loan-to-value ratio would increase to about 91%.

The borrower would then have to provide more collateral by depositing an additional amount of the cryptocurrency or else make a payment to reduce the o𝕴utstanding loan balance. The loan-to-value ratio is tracked by a smart contract, which calculates and updates the ratio throughout the life of the loan based on the changes in the price of the digital asset held as collateral 🧸and the various payments made by the borrower.

SALT Loan-to-Value (LTV) Ratio Triggers

These are the loan-to-value ratios that would trig🔴ger a margin call for a SALT loan:

• 75% LTV: First margin call warning
• 83.3% LTV: Margin call with 48 hours to reduce LTV to 70%
• 90.91% LTV: Automatic stabilization with a 5% fee

If the value of the digital asset held as collateral crashes and the loan-to-value ratio reaches 90.91%, then SALT converts the entire crypto portfolio into a U.S. dollar-based 澳洲幸运5开奖号码历史查询:stablecoin—a process called automatic stabilization. Once the loan-to-value ratio falls to 83.33% or lower, by either paying to reduce the amount outstanding or depositing additional collateral, the borrower can reenter the market by converting the stablecoin back into their original digital currency.

The stabilization process helps to preserve the value of the cryptocurrency assets held as collateral during market downturns. Stabilization also gives the borrower time to decide when to reen෴ter the market and purchase the original d🌄igital asset.

SALT Loan Length, Interest, and Fees

The loan term can be 12, 36, or 60 months, and SALT does not charge an origination fee for setting up the loan. Borrowers pay interest on the loan, as they would on any other loan. Rates recently ranged from 0.95% to 9.99%, depending on loan length and LTV. Also, if stabilization is triggered, SALT charges a 5% processing fee.

The d🍰epo🍬sited funds held as collateral do not earn interest.

Benefits of SALT Loans

A likely SALT borrower would be someone who believes that the digital assets they use as collateral will increase in value over time or at least remain the same. (In crypto jargon, that makes them HODLers.) SALT loans allow them to maintain ownership and benefit fr🧸om any gain in their digital currency’s value while also obtaining cash for other pu🍷rposes.

The Bottom Line

SALT blockchain-based lending gives investors access to cash without having to sell their cryptocurrency holdings. However, there are risks to the borrower since cryptocurrency prices can fluctuate wildly. If the👍 digital asset used as collateral drops in value, the borrower may need to pay down a portion of the loan or deposit additional crypto assets as security.

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