What Is SALT Blockchain-Based Lending?
SALT stands for Secured Automated Lending Technology. It’s a lending platform that allows users to borrow money by using their cryptocurrency as collateral.
Founded in 2016 by a group of Bitcoin supporters, SALT was created to help crypto holders access loans without needing to sell their digital assets.
This gives more financial freedom to investors who prefer holding onto their cryptocurrency. This article breaks down how the SALT system works, its advantages, and the risks involved.
Key Points to Know
- SALT Lending is a platform that gives out personal and business loans when users offer their cryptocurrency as security.
- Borrowers don’t lose ownership of their digital assets while using them as collateral to get cash.
- If the value of the crypto collateral falls below a certain point, the platform may issue a “collateral maintenance call”, asking the borrower to top up the collateral.
- Loan terms can be 12, 36, or 60 months, with interest rates that recently ranged between 8.95% and 14.45%, depending on the loan’s length and loan-to-value (LTV) ratio.
How SALT Blockchain Lending Works
To use SALT Lending, a person must first become a member by purchasing a SALT token—the platform’s own digital currency. After joining, members can borrow funds from a wide network of lenders. The minimum loan amount offered by SALT is $1,000, and borrowers can use the money for anything—from paying credit card bills to buying a vehicle.
SALT operates using ERC-20 smart contracts, which are programmed agreements that automatically enforce their terms. ERC-20 is a common standard for Ethereum-based tokens, allowing smooth interaction between tokens.
The only accepted form of collateral is cryptocurrency recorded on a public blockchain. Some of the eligible digital assets include:
- Bitcoin (BTC)
- Ether (ETH)
- Litecoin (LTC)
- Bitcoin Cash (BCH)
- SALT Token (SALT)
- USD Coin (USDC)
- TrueUSD (TUSD)
- Paxos Standard (PAX)
- PAX Gold (PAXG)
After a loan is approved, borrowers must send their cryptocurrency to a SALT collateral wallet. Once this step is completed, SALT transfers the loan amount to the borrower’s bank account. Even while the digital assets are being held as collateral, they remain the property of the borrower, meaning any gains or losses from price changes still affect the owner.
Borrowers are required to make regular payments during the life of the loan. Once the loan is fully repaid, SALT releases the collateral, making it available for withdrawal.
Important Note on SALT’s Recent History
Like many companies in the crypto space, SALT Lending was affected by the FTX exchange collapse in November 2022. This caused SALT to temporarily pause deposits and withdrawals. In response, the state of California suspended SALT’s lending license.
However, after receiving $64 million in new funding in February 2023, SALT began a new growth phase with plans to rebuild and expand.
Requirements for SALT Loan Approval
Unlike traditional loans, SALT loans don’t require a credit score or credit history check. That’s because the loans are secured with cryptocurrency, which can be liquidated in case of non-payment.
Loan approval is based mostly on the value of the borrower’s crypto assets. But borrowers must still pass KYC (Know Your Customer) and AML (Anti-Money Laundering) checks to meet legal requirements. Once verified, users can proceed with their loan applications.
Understanding SALT’s Loan-to-Value (LTV) Ratios
Because cryptocurrencies can change in value quickly, SALT monitors the Loan-to-Value (LTV) ratio closely.
- If the crypto value goes up, the borrower might be able to borrow more or use the extra value to help repay the loan.
- If the value drops, it might push the LTV ratio too high, triggering a margin call where the borrower must deposit more crypto or pay off part of the loan.
How Is LTV Calculated?
LTV is calculated by dividing the loan amount by the current U.S. dollar value of the crypto held as collateral.
Example:
If you borrow $100,000 against $155,000 worth of Bitcoin, your LTV is 65%.
But if Bitcoin’s value drops and the collateral is now worth $110,000, the LTV rises to 91%. You’d then need to either add more crypto or repay part of the loan to bring the LTV back down.
A smart contract monitors these changes in real time and updates the LTV ratio accordingly.
Triggers for LTV Alerts and Stabilization
SALT uses a tiered system to manage risk when the LTV ratio increases:
- 75% LTV: First warning to the borrower.
- 83.3% LTV: A margin call is issued. You have 48 hours to bring the LTV back down to 70%.
- 90.91% LTV: SALT activates automatic stabilization. Your crypto is instantly converted into a stablecoin, and you’re charged a 5% fee.
Once your LTV drops below 83.3%, you can reenter the market by converting the stablecoin back into your original digital asset.
This system is designed to protect both the borrower and the lender during sudden drops in cryptocurrency prices.
Loan Duration, Interest Rates, and Fees
SALT offers loan terms of 12, 36, or 60 months. There’s no origination fee, but borrowers do pay interest, similar to traditional loans.
- Recent interest rates have ranged from 0.95% to 9.99%, depending on the loan’s LTV ratio and duration.
- If stabilization is triggered, a 5% processing fee applies.
- Collateral held by SALT does not earn interest during the loan term.
Benefits of Using SALT Loans
SALT is ideal for HODLers—crypto holders who want to keep their assets long-term because they believe the value will increase. SALT lets them use their digital assets as collateral to get cash, while still benefiting from any future price gains.
Instead of selling their crypto and missing out on potential growth, users can borrow money while keeping ownership of their coins.
What Is a HODLer?
In crypto slang, a HODLer is someone who holds onto their crypto instead of trading it frequently. The term began as a typo for “hold” and has since come to mean “Hold On for Dear Life.”
What Is Loan-to-Value (LTV)?
LTV is the ratio of your loan amount to the current value of your collateral. In crypto lending, it helps manage the risk of price volatility. A higher LTV increases the risk of margin calls or loan liquidation.
Risks of Crypto Lending
Although SALT offers a unique way to borrow money using crypto, there are important risks:
- Smart contract vulnerabilities: Bugs or flaws in the code could lead to security issues.
- Custodial risks: Crypto held as collateral could be lost due to hacking or mismanagement.
- Regulatory uncertainty: Crypto lending rules vary by region and are still evolving.
- Price volatility: A major drop in cryptocurrency prices could trigger a margin call or loan liquidation.
The Bottom Line
SALT Lending gives crypto holders a way to access cash without selling their digital assets. This is especially appealing to investors who believe in the long-term value of their cryptocurrencies.
However, borrowers must be aware of the risks, including the volatility of the crypto market. If their collateral loses too much value, they may be required to add more funds or pay down the loan quickly.
As with any financial service—especially those involving crypto—thorough research and careful planning are essential before taking a SALT loan.
