SALT (Secured Automated Lending Technology), a membership-based financial ecosystem based in Denver, Colorado, is launching what is claimed to be the first lending platform to support loans denominated in national currencies collateralized by blockchain assets including bitcoin. But one wonders if this bold initiative can actually work out and disrupt the loans market, facilitate cost-effective offerings and treat customers fairly, as it has claimed?
The touted “disruptive platform” enables crypto–based asset holders to leverage their investment for cash loans – without having to liquidate holdings. It could have its merits.
Specifically, what is being launching by SALT today is the concept and the ability to sign up for their waiting list along with being first in line to become members of their platform for membership.
With the aim also to broaden blockchain technology’s global reach, the move comes as traditional banks are “currently under-serving their clients” by not recognizing the wealth inherent in blockchain assets, as the founders behind this initiative pointed out.
When canvassed for evidence to support this, SALT told me at Forbes it had a “waiting list of borrowers” who want to use their loans service. According to conversations with these borrowers the project revealed that many of them have expressed this issue as “being a pain point.”
Explained as “traditional lending secured by non-traditional collateral”, with a SALT a borrower’s assets like Bitcoin and Ethereum can be fully acknowledged and used as collateral. In essence SALT seeks to streamline every step of the loan process, facilitating a new blockchain-backed lending market.
The new lending platform, which is built on Ethereum ERC 20 smart contracts, enables borrowers access to what is described as “capital-on-demand” through its network of lenders. The upshot is that this helps preserve the value of investor holdings.
Just imagine for a moment selling out your entire bitcoin holdings last year only to see the price shoot up to new record highs in 2017 and losing out on all that gain in the intervening period. That would have translated to a considerable loss in hundreds of dollars per bitcoin – unless one had bought the dips in between.
So, if an investor has collateral they wish to retain, via SALT’s platform they can borrow in an asset they prefer to spend – regardless of credit history or geographic constraints. In so doing, the project’s Members can maintain a long position in a chosen blockchain asset as well as plan tax events.
Shawn Owen, CEO of SALT, commenting in the wake of the launch with the platform slated for later this year, said: “Currently, if you are a holder of blockchain assets, a large piece of your financial wealth is not being recognized by lenders. With SALT, we see a future where virtually all of the world’s value is on blockchains, and lending is reflective of our globally-connected, digitized lives.”
Blockchain Assets as Collateral
As to the suitability of blockchain assets as collateral, a section on the SALT website stated: “Blockchain assets are an ideal form of collateral because they are inexpensive to transfer, store, and liquidate when compared to traditional forms of collateral like real estate or stocks.”
It further stated their FAQ section on the project’s site: “The key innovation of the blockchain is its distributed, peer-to-peer ledger. The blockchain allows for the highly efficient management of collateral in a transparent and publicly viewable manner. This eliminates fraud, and greatly lowers transaction costs.”
The claimed too that they “can offer more competitive interest rates to both our borrowers and lenders” since SALT Lending is built to capitalize on the advantages of the blockchain.
How The System Works
- Loan Creation: A borrower sends collateral to the SALT Oracle Wallet and the funds are transferred to the borrower’s bank account*. The SALT Oracle Wallet is a multi-signature blockchain wallet, which stores collateral and automatically enforces lending terms – e.g. triggering of maintenance calls.
- Loan Repayment: A borrower makes timely, periodic payments to the lender.
- Loan Completion: Upon repayment of the loan, the borrowers collateral is returned.
* Collateral remains the property of the borrower and any price appreciation or depreciation belongs to the borrower.
Loans made through the platform are both denominated in and repaid with traditional currencies, while blockchain assets are only provided by borrowers for use as collateral to secure their loans. Borrowers can elect to pay off their loans early without being charged a prepayment penalty.
Members are not required to have blockchain assets to become a lender on the platform. Lenders must be accredited investors under Regulation D of 17 CFR § 230.501 et seq. in the United States under the Securities Act of 1933 and the U.S. Securities & Exchange Commission, and have passed SALT’s Lending Suitability Test. SALT indicated it planned to license the technology to existing lenders and regulated entities such as Broker Dealers, Private Equity funds, family offices, etc.
By focusing on the value of the borrower’s assets instead of their credit score, SALT has asserted that it is able to “dramatically reduce the complexity and costs of the loan process.”
During the life of the loan, the platform monitors both the value of the underlying collateral and keeps it securely stored in a fully-audited smart contract architecture.
The historical limitations of liquidating, transferring and storing assets has forced lenders to focus on the creditworthiness of their borrowers, which restricts the amount of capital that lenders can deploy. The result is the simultaneous increase in the cost to borrowers in the form of higher interest rates, and a decrease in the supply of available capital, according to SALT.
Credit history clearly becomes very important as income is typically used as the primary source of repayment, followed by assets such as real estate and other forms of physical assets as a secondary form.
Owen pointed out here: “Tangible assets are typically not used exclusively for a primary form of repayment due to the cost and burden associated with perfecting, taking position of, and liquidating. As such we are highlighting the ability to do the reverse when dealing with blockchain assets.”
It was back in around 2008 that the Bitcoin blockchain established a new paradigm for transferring and storing value through distributed ledgers. This evolutionary leap allows lenders to recognize the value of a borrower’s assets and completely eliminates the need for credit to play a role in lending decisions.
Erik Voorhees, Shapeshift’s CEO and founder and a member of SALT’s board of directors, posited that: “SALT’s disruptive innovation is an important project for broadening the usefulness and global reach of blockchain technology.”
The initial step to becoming a borrower on the platform is to purchase a SALT Membership, which has varying levels depending on the features that are intended to be used. Subsequent to that they must create an account with SALT Lending within the financial ecosystem.
SALT pointed out that it does not perform a credit check on borrowers, but undertakes full Anti-money Laundering (AML) and Know Your Customer (KYC) verification checks. Once a Member is verified as eligible to transact with SALT, a loan can be requested and processed.
Prior to the full live launch of the platform, which is anticipated during the fourth quarter of 2017 but with no specific date being given, SALT membership will be made available to the public at a deep discount.
Ultimately the success of SALT will depend on ‘buy-in’ from lenders and borrowers. Of course time only will tell in this endeavour that is facilitating a new market for loans that is held up as “cost-effective, fair…protecting the investments of both lenders and borrowers.”
But given that lately a wall of money has been thrown at crowd funded initiatives and initial coin offerings (ICOs) in the rapidly growing crypto asset class space prospects might appear – bar a force majeure – to be set pretty fair. Others may argue the jury is out for now until concrete signs of traction are seen. In the interim further updates will be communicated directly to SALT’s member base over the next two months.