SALT introduces StackWise, offers crypto rewards to loan holders

StackWise logo with wallet showing bitcoin rewards

We’re excited to announce StackWise, our latest product for crypto-backed loan holders. With StackWise, you get a portion of your monthly payment back to your wallet in the form of crypto rewards. Rewards are available in Bitcoin, Ether, or USD Coin — you can choose your reward type and can change it any time prior to your next monthly payment. Once you start stacking crypto rewards, there are a couple of ways to use them: 

  1. Leave the crypto rewards in your collateral wallet to reduce your loan-to-value ratio (LTV) and minimize the risk of Stabilization 
  2. Withdraw your crypto rewards and use the funds as you wish

Note: Anyone with a crypto-backed loan that originated in 2022 is eligible for StackWise. If you have a loan that originated prior to 2022, contact [email protected]. Our Lending Team is ready to help you start earning StackWise rewards by refinancing your loan or extending the current loan terms.

Keep reading for more details on StackWise and how it works.

How it works

How do I know how much of my monthly payment I’ll get back?

With the launch of StackWise, all loans are priced at an interest rate of 9.99% with a net rate (the actual rate after crypto rewards are factored in) that depends on your chosen LTV. You can reduce your net rate even further by redeeming SALT Tokens. Once you know your net rate, you can determine your rewards rate. For example, if you take out a loan with a 30% LTV and you do not redeem SALT Tokens, your net rate will be 7.50%, meaning your rewards rate will be 4.49% (9.99% interest rate – 5.50% net rate = 4.49% rate reduction or what we call “rewards rate”). 

chart showing lending rates and rewards rates

Taking this example, if the loan amount is $5,000 with a 9.99% interest rate, you’d expect to pay $499.50 in interest over the life of the loan. 

With StackWise however, your rewards rate is 4.49%, which means you’ll get back 4.49% of the total loan amount over the course of the loan, effectively making your net rate 5.50%. Therefore if the term of your loan is 12 months, you will receive $18.71 back in crypto rewards each month for the duration of your loan. So instead of paying $499.50 in interest, you are getting crypto back each month, meaning your actual interest paid at the end of the loan will be $274.98, resulting in $224.52 saved on the cost of your loan. 

And remember, the lower the LTV you choose, the higher your rewards rate and savings will be. Add SALT Tokens to the mix, and you can save even more on your loan (and no, you can’t buy SALT from us, but if you already hold SALT, you can redeem it for a lower net rate).

UI of StackWise on desktop showing rates, monthly payments and rewards

How do I review my StackWise rewards in my dashboard?

You can review your rewards anytime via the SALT desktop or mobile app. Once you login to your dashboard, you’ll see everything from your rewards rate to rewards schedule, to your next reward amount and your total rewards earned. You’ll also see a section titled “Receive Rewards in,” which allows you to change your selection between BTC, ETH, and USDC. For example, if you set your rewards to BTC for the first 2 months of your loan and then decide to switch to USDC for the remaining months, you’ll see your initial BTC rewards in your Bitcoin wallet and then will begin to see your following rewards in your USDC wallet.

image of UI for StackWise rewards schedule

Don’t have a loan with us yet? We’d love to work with you!

The most confusing economic concepts explained: Negative interest

negative interest rates_ man standing next to bag of money

The Fed’s stated interest rate, which determines just how much lenders can get back on their investments, has been abysmal over the past several years; cash investments, particularly in traditional savings and checking accounts, are currently one of the lowest-earning opportunities available.

Is it possible to get worse for investors? In part four of our series on the most confusing economic concepts explained, learn what a negative interest rate is and how it affects you and your investment strategies.

What are negative interest rates?

Interest is expressed as an annual percentage rate or APR. For as long as many of us can remember, APRs have always been positive. For example, if a bank loans you money and you get a positive interest rate (say 3.5%), they’ll get the original loan amount back (the principal), plus their earnings which are based on the interest rate you received. Even in times of economic trouble, a positive interest rate, or anything above 0 percent, ensures that the lender makes something from their loan. They may not profit after operating expenses, but they will make something. 

Anything under 0 percent is called a “negative interest rate.” This can cause issues for the market, as it actually costs banks money to lend out cash. What’s their incentive to do so if they can’t break even? There may not be one. Some of the riskier loan opportunities to businesses could dry up, investments would lose significant value, and the everyday consumer with cash in interest-bearing bank accounts may find themselves actually paying the banks to store their money. Not ideal!

How do negative interest rates work?

In the instance of a negative interest rate, consumers would be more likely to take on debt, since it would be much cheaper to make those monthly repayments. From houses to cars, cash-strapped households may find it the perfect time to borrow, all while investors shy away from cash assets that are set to lose money during a negative interest rate period.

So, it’s good for loan demand, since it’s so cheap to borrow, but banks would have no reason to take on unnecessary risk. Cash and fiat-based systems wouldn’t perform well, and investments could shift to something more tangible until rates bounce back to positive.

How do negative interest rates affect you?

Is there a chance of negative rates in our future? The U.S. doesn’t currently have much experience with a negative interest rate. While European countries have taken the plunge in an effort to provide consumer relief, the Fed isn’t an advocate of negative rates and even came out with projections of keeping things just north of zero until at least 2022. However, the perfect storm of COVID-response stimulus spending, which has caused the Fed to put over $120 billion a month into the economy, has some fearing hyperinflation. 

In either hyper-inflation or negative rate scenarios, investors will find it less reasonable to stick with traditional cash-based investments. They may seek out “alternative” investments, including bullion and crypto. Regardless of your investing strategy, it’s smart to look at examples of times we have come close to negative interest rates and even watch other countries as they navigate these uncertain waters. Negative rates may be a way to get consumers to start taking risks again, but, for investors, it’s a scary prospect that few have really prepared for. 

Has inflation got you worried about the future of cash markets? Sign up for our newsletter, and receive updates on ways you can use your crypto to your advantage—even in times of negative interest and hyperinflation.

The most confusing economics concepts explained series part 3: Supply and demand

scale showing supply and demand

Have you ever wondered why the price of something might change suddenly? Like, for instance, the skyrocketing prices of above-ground swimming pools amidst the coronavirus pandemic? One common reason lies in the concept of supply and demand. This economic principle has a very real effect on how products are priced and your ability to obtain the goods and services you want and need.

What is supply and demand?

“Supply and demand” is a fundamental economic model that explains how the availability of a product or service (the supply) and the number of people who want to buy it (the demand) determine its price. For example, the supply of a popular, limited-edition pair of sneakers can determine how much people will pay for them. If there is a limited supply, and they are set to sell out quickly, the asking price can be higher than a similar sneaker with a much larger supply that people know they can buy at any time. However, there is a limit to the asking price. Even enthusiasts will eventually refuse to buy at a certain price point.

As a consumer, you only have so much money to spend, and if you buy a pair of sneakers, you can’t buy anything else with that money. So the cost of the sneakers has to match their value to you. The seller must try to ask for the highest amount they can without tipping the scales and turning off your sneaker demand. This relationship, or tension between supply and demand, can keep the prices for many goods within a reasonable range—provided they aren’t interfered with artificially.

There’s more to it

Whether you look at shoes, real estate, or stocks, the less there is of something, the more the seller can ask for it—assuming there’s a real demand. For example, there may be only two houses available in a particular lakefront residential area, but if the water is polluted or if it’s next to a noisy highway, the houses will still be hard to sell at anything but a very low price because the demand will be poor. However, if the location is desirable, the lack of choices will increase the demand and prices. 

There are also some instances where supply can’t keep up with demand, and the seller can continue to sell at the highest price possible. The price may be kept high until the demand falls, or the supply increases to the point where there is no threat of losing out by waiting for a better price.

Perceived supply and demand matters

One final thing to know about supply and demand is that it doesn’t depend on facts to influence the market. A perceived supply can determine price just as much as actual supply. When consumers worry that there may be a shortage of an important household staple, it could cause them to assume a limited supply and run out to buy more than they normally would. 

We saw this in the spring of 2020 when COVID-19 was hitting the news cycles and people were stocking up on toilet paper. The uncertainty of the situation caused people to speculate that there may not be enough toilet paper for their needs, so they bought more than usual and prompted a shortage, as well as a price increase. This caused the perceived threat to become (at least for a time) a reality. 

So whether real or perceived, supply shortages can drive demand. Further, demand can be reduced by supply surpluses. And this ongoing ebb-and-flow causes the prices you’re asked to pay to fluctuate. 

The Most Confusing Economics Concepts Explained: Purchasing Power

Purchasing Power, man looking at chart

Have you wondered why your dollars don’t stretch quite as far as they did last year or the year before? How about 10 years ago? Many factors continue to drive inflation up which, in turn, lowers what a dollar can buy. This leads us to the confusing economic concept we’ll explain this month: purchasing power. 

What is purchasing power?

Purchasing power refers to the number of goods and services that you can buy with an amount of currency. For example, if you can buy a month’s worth of food for a family of four with $500, your money has more purchasing power than when $500 can only buy three weeks’ worth of food. But why is purchasing power important?

Why is purchasing power important?

Purchasing power has far-reaching impacts from the individual level to the global economy. 

People need items like food, clothing, and shelter, and manage their budgets to meet those needs. When the cost of necessities becomes too high for the wages earned in an area, economic problems result. Excessive inflation and reduced purchasing power are hard on communities, and statistics have found correlations between crime and poverty

Purchasing power, inflation, and investments

There’s another aspect to purchasing power that’s important, however, and that is in relation to investing and the markets. When purchasing power goes down, it’s almost always due to inflation. For investors, this drop in inflation matters. Inflation can help them make more money on loans they issue to borrowers but it can also make some investments too expensive to participate in, such as real estate or bullion.

Hyperinflation, or the rapid inflation of currency (usually a rate of more than 50% per month), can be a sign of an unhealthy economy and can spook investors. It also may be very hard for small businesses to access the loans and lines of credit they need to expand product offerings or provide services to new areas. This can reduce activity in the market.

The global impact

The global impact of a lower purchasing power in many countries at once is real, as well. Significantly weakened economies have resulted from prolonged periods of hyperinflation and decreased purchasing power, which can lead to the destabilization of more than currency. An entire country’s credit rating may decrease, leading to opportunity losses for the country’s citizens, ruined trade agreements, and difficulty in achieving global expansion. In countries where hyperinflation is the norm, political unrest has often resulted. Lebanon saw a 50 percent increase in the cost of basic consumer goods, one of the factors leading to mass protests.

A steady decline in purchasing power

It’s not surprising that a dollar doesn’t buy near what it did 100 years ago ($1 in 1913 equals $26 in 2020). The history of purchasing power in the U.S. is a predicted one of decline. The dollar has consistently bought less decade after decade, with few exceptions. Significant historical moments, such as the oil crises in the 1970s and 1980s or the dotcom bubble of the 1990s have pushed purchasing power down more rapidly. Even with the dollar bouncing back here and there over the years, 1913 marked the high point of purchasing power for the U.S., and we have never returned to that level.

Solutions for diminished purchasing power

An out-of-control decrease in purchasing power can be catastrophic for an economy. When people can’t make their money stretch to buy the food or housing they need, the government may step in and try to quell the negative consequences. One way they may do this is by monitoring the consumer price index; then, the Federal Reserve may choose to drop interest rates to encourage borrowing, lending, and purchasing. Other mechanisms, like increasing minimum wage or offering tax incentives, are other methods to help bring purchasing power back up, at least temporarily.

While decreasing purchasing power can start small, usually at the household level, it has vast effects that can reach the global economy at large. What we see in a family’s budget, for example, may be a sign of larger economic forces and shouldn’t be ignored.

The Evolution of Money

Evolution of money

Entrepreneur Jim Rohn famously mused, “Time is more valuable than money. You can get more money, but you cannot get more time.” Mr. Rohn may have been more right than he knew because while time has infinite value, money, by itself, has none. Whether you’re holding a dollar, a franc, some yen, a metal coin, or a seashell, it has no value—not until someone wants it. This goes for anything that can be traded, but the reality is far harsher when it comes to the paper people carry in their wallets in the hopes of exchanging it for goods and services. At the same time, money is, in some ways, an important block in the foundation of modern society. Why? Let’s take a closer look at the evolution of money to find the answers.

A brief history of money

Bartering

Before people carried around pieces of paper that symbolized value, they would trade goods and services with each other to make transactions. Each possession had a relative value. This means that what it meant to the holder was not necessarily equal to what it meant to the person to whom they wanted to give it in exchange for something else.

Take, for example, a farmer who grew potatoes but needed tomatoes. The farmer may approach his friend who grew tomatoes and offer him 10 potatoes for 10 tomatoes. The friend may say, “Well, to part with these 10 tomatoes, I’m going to need 15 potatoes.” If the potato farmer agreed and had that many potatoes to barter, he would present them, make the exchange, and both parties would leave the transaction satisfied.

On the other hand, if the potato farmer approached a different farmer with the same proposition, the transaction may not go as planned. If the second farmer already grew potatoes, he may ask for something else. It could be corn, beets, or another type of produce. But the other farmer may also prefer a tool or some form of service from the potato farmer. Each transaction was, therefore, relative. Currencies, although abstractions of value, brought concreteness to previously relative transactions. One of the progenitors of modern currency was salt.

Salt

Salt itself used to be a currency (fun fact: this is how we got our name). Far more than a common seasoning, salt has been at the center of trade and culture for multiple millennia—to the point where the word “salt” is at the root of the word “salary.” Salt, as a flavor additive, has long been a valued commodity. The word “salad” comes from when the early Romans used to add salt to vegetables and leafy greens. 

Before the large mass-production of salt became commonplace, the production of salt was a time-consuming process. And as people figured out different ways of producing it, its production was limited to maintain its value. Therefore, people with a salt surplus had a coveted commodity.

The Egyptians used to use it as part of their religious offerings. This lead to salt becoming the currency of choice while trading with the Phoenicians. The practice continued for many centuries and spread across much of the developed world. Marco Polo, while traveling through China in the 11th century C.E., noted how the Chinese used to boil water to create a salt paste that, when formed into a cake, was worth two pence.

Bronze castings

As time progressed, around 770 B.C.E. the Chinese began developing bronze representations of the things they were trading. For example, if a farmer wanted to trade a hoe for a hammer, he would present a bronze casting of a hoe and give it to a carpenter—or someone else—in exchange for a small bronze hammer. The bronze statue could then be exchanged for the real thing. This solved the problem of having to physically transport large or cumbersome objects to places of trade.

Coins

Soon, it became more practical to use coins instead of little castings of valued objects. This approach maintained the convenience of being able to carry an item in your pocket and added an extra convenience: the ability to easily manufacture them.

The manufacturing of money was first performed in Lydia, which is now in the west of Turkey. This was the first mint. Inside, people manufactured coins that represented value. Around 600 B.C.E., Lydia’s ruler, King Alyattes, made the first official state currency. The coins were manufactured using electrum, which consists of a naturally-occurring combination of silver and gold. Each coin was stamped with a picture, and each picture represented a different value. Thus was born the concept of denominations. This system of minting denominated money helped facilitate a more efficient trading system, propelling Lydia to being a powerful, wealthy empire.

Paper

The Chinese made the switch to paper currency around 700 B.C.E. The distribution and use of the bills were carefully regulated by the emperor. In fact, on the bills, there was an inscription warning people that if they counterfeited the money, they would, literally, lose their heads.

After some time, banks began adopting the use of paper money. Inside the bank would be an amount of gold that corresponded to paper money the bank could issue to individuals with whom they did business. For example, if someone deposited half a pound, or eight ounces, of gold, at the bank today, according to the rates at the time of this writing, it would give them $15,197.60. The person would then be able to use that paper to purchase goods and services.

If the individual went and bought a new horse, perhaps spending $8,000 of his money, the person who sold the horse could take that paper money to the bank. The bank would then give the horse-seller $8,000 worth of gold. This gave birth to the modern concept of money, with gold as the underlying asset of value.

Currency-based conflicts

As more countries adopted the use of currency, some took advantage of the, admittedly arbitrary, value of money. They would do things that would cause the value of another country’s currency to rise. On the surface, this may sound like a good thing. However, when a currency is inflated, the cost of the goods within the country goes up. This inflation is due to the fact that more work has to be performed to produce the goods being traded. If someone were to do the same amount of work they did before the currency was inflated, they wouldn’t get paid enough to cover their bills. With goods that cost too much, a country wouldn’t be able to trade with others that could help them build the weapons and armies they needed to engage in war. Currency battles for the sake of weakening another nation continue to this day.

Credit cards

Similar to how going from bronze castings to coins made transactions easier, going from paper to credit cards made buying and selling more convenient for 20th-century consumers. With a credit card transaction, the money of the individual is still held within a bank, but the credit card is used to make the transfer. This is made possible due to two concepts: fungibility and transferability

When a unit of value is fungible, it has the same value as another unit with the same denomination. For instance, a $10 bill in Boston has the same value as a $10 bill in Los Angeles. And the same goes for an electronic transaction that provides access to $10 stored in a bank. Thanks to fungibility, an individual can put $1,000 into a bank and get a credit card that has a $1,000 spending limit. The transferability of money refers to the fact that money can be moved from one party to another. In a credit card transaction, this happens electronically.

The bank that supports a credit card transaction can also allow the person to spend more than they actually have by lending the individual money. The conditions of the loan agreement are contained within the credit card contract. In many cases, the individual may not have enough money in the bank to cover the transaction. Therefore, they agree to put at least that much, and often a percentage more, into the bank in exchange for the right to spend the money the bank lent them. The use of debit and credit cards and the process behind credit card payments are pivotal factors in the evolution of money. They set the stage for a crucial monetary concept: electronic payments.

Electronic payments

Electronic payments are at the heart of the culmination of the evolution of money. In many ways, electronic payments solve the original problem money sought to tackle more efficiently. When money was first conceived, it’s creators were trying to create an abstraction of value that was fungible, transferable, and easy to spend and accept. With credit and debit card payments, electronic transactions become commonplace while providing a solution for everything money was meant to be.

 However, one problem still remained: the middleman. If you have someone working as a go-between that generates wealth by charging you to spend money electronically, how can you guarantee a transparent, trust-worthy, error-free, corruption-free transaction? 

Enter cryptocurrency. With the onset of bitcoin, cryptocurrency became an efficient way to both provide an electronic, tradable abstraction of value and, once again, provide the world with a one-to-one, two-person transaction, devoid of a middleman. But the crypto movement wasn’t arbitrary. The signs have been there for years.

The historical signposts that pointed to cryptocurrency

Because cryptocurrency is such an innovative idea, it’s easy to lose track of the fact that it was born, not so much out of innovation but out of necessity. The modern monetary system has, in many ways, been broken for quite some time. For many decades, there have been signs pointing to the need for a better solution.

Interest rate manipulation

Perhaps one of the most powerful historic indicators of the need for an alternative to typical fiat currency was revealed in the 1970s. The interest rates, designed to help stabilize the United States economy, ended up doing the exact opposite. When the government manipulated interest rates to help slow the inflation of common goods, it ended up having the opposite effect. Inflation skyrocketed as certain goods saw huge leaps in their prices. While some people could afford to pay the higher costs, others couldn’t and had to go without essential items.

Even though companies selling their goods to other Americans during a period of inflation may benefit, those exporting American-made goods suffer. Because it costs more to produce goods in the United States, companies have to charge buyers from other countries more. Consequently, some goods become unaffordable for international buyers and they look to other countries to get what they need. This impacts the gross domestic product (GDP) of the country suffering from inflation, hurting their overall standard of living. Because the government can choose to print money anytime it wants, regardless of whether or not there’s enough gold to support the printed currency, inflation in the modern system can easily spin out of control. As in the 1970s, it can start with a poorly adjusted interest rate and have global implications.

With cryptocurrency, the supply of each token is either limited or controlled by the currency’s governance team—a group of individuals and token-holders who make decisions using a voting system. This helps control the inflation of each cryptocurrency. Also, because the currency isn’t hindered by national borders, you have one common means of purchasing goods and services, and its value is the same regardless of where you are.

The housing crisis

The financial crisis of 2007 was another bellwether for the global economy because it highlighted the corruption that can occur when you have profit-hungry “middlemen” involved in transactions. When someone wants to buy a home, they often have to get a loan from a bank. The bank decides who they will lend the money to, as well as how much they will make that person pay, in interest, for the right to use that money. In theory, the system makes sense. However, as the world saw in 2007, when the banks, hungry for profits, abuse the system and those involved, it can have far-reaching implications.

If the interest rate at which money is lent isn’t decided by a bank but by mathematical equations that take into account real supply and demand factors, the lenders can only earn more by lending more. Manipulating interest rates for the bank’s bottom line would be a thing of the past. Cryptocurrency also addresses the problem of predatory lending. The economic crash was partially a result of banks lending money they knew couldn’t be repaid—and then selling the problematic loan to another, unsuspecting, bank. When transactions happen between two people instead of three, the middleman, and his potentially greedy ambitions, are removed. Cryptocurrency, therefore, eliminates some of the major causes of the financial crisis of 2007.

SALT Lending: A historical turning point in the evolution of money

Throughout history, the utility, divisibility, verifiability, and fungibility of salt made it a perfect asset to be used as a method of trade and currency around the world. Through the products and services at SALT, the legacy continues. SALT is now bridging the gap between cryptocurrencies and traditional lending. 

Even though cryptocurrencies are, in many ways, a superior monetary solution, they are still not yet widely accepted. With SALT, holders of crypto can get loans using their digital assets as collateral. You can then spend the USD or stablecoin you get any way you’d like. SALT empowers those in the cryptoverse, allowing them to turn the most innovative monetary solution since, well, salt, into liquid assets.

Learn more about SALT loans today!

The stable makeup of stablecoin

stablecoin, man with laptop staring at different fiat symbols

In 2008, Satoshi Nakamoto released the Bitcoin white paper, introducing the concept of a decentralized currency to the public. From that time on, many have turned to cryptocurrency for an alternative to traditional fiat currencies that offers decentralization, transparency of exchange, and ease of use—especially when it comes to international exchanges.

However, along with the plaudits have come disadvantages, notably the volatility of digital assets relative to the US Dollar. The perceived value of a specific cryptocurrency by investors can lead to wide fluctuations in the value of Bitcoin, Ether, and other types of crypto. This, in turn, can make cryptocurrency more difficult to use as a medium of exchange or store of value.

Enter stablecoins, an inherently less volatile option being considered the best of many worlds. They provide a desirable link between the stability of fiat currency and the decentralization and efficiency of cryptocurrency.

What are stablecoins and where did they come from?

Stablecoin is a catch-all phrase for cryptocurrency that is pegged to specific reserves or other asset types. More specifically, stablecoin is divided into four groups:

  • Fiat-collateralized stablecoins: Cryptocurrency assets secured against real-world currencies, such as USD Coin (USDC) and Gemini Dollar (GUSD).
  • Commodity-collateralized stablecoins: Cryptocurrency assets fixed against commodities, such as oil, gold, and silver. One example is Pax Gold (PAXG), which is one of the collateral types available on SALT’s platform.
  • Crypto-collateralized stablecoins: Algorithmic stablecoins that mint dollar equivalents based on the value of the crypto provided to backstop each unit.
  • Non-collateralized stablecoins: Stablecoins that automatically adjust its aggregate supply to maintain a certain price or pegged asset. 

The first stablecoins, BitUSD, and NuBits, came online in 2014 and were collateralized through various other cryptocurrencies. Also released in 2014 was RealCoin (now Tether), the first crypto to be backed by so-called “real” assets. Active dollar-based stablecoins today include Paxos Standard, TrueUSD, USD Coin, Tether USD, and Gemini Dollar.

How to use stablecoin for a crypto-backed loan

Though it might not be a strong addition to an investment portfolio, stablecoins are useful in many ways. For example, at SALT Lending, as a provider of crypto-backed loans, we accept stablecoins for:

  • Making direct payments on crypto-backed loans. Reimbursement via stablecoin is nearly instant, with minimal time lag between payment and acceptance.
  • Maintaining a more stable loan to value ratio on a loan, by boosting stablecoin holdings as part of overall collateral.
  • Depositing stablecoin at any time to protect the cryptocurrency collateral value during a market downturn. Stablecoin payments can be made outside of normal banking hours or holidays, unlike cash or fiat payments, meaning borrowers can manage loans without the need for a bank.

SALT also offers loan payouts via stablecoin or fiat currency. The advantage of a stablecoin payout is that only a stablecoin address is required, no bank account is needed.

The potential of stablecoins

Cryptocurrency enthusiasts see value in stablecoins given their decentralized properties, ability to facilitate better payment rails for global commerce, accessibility in unbanked jurisdictions, and programmability to streamline business operations.

Meanwhile, more traditional institutions are researching stablecoins for their potential in cross-border lending and overseas transactions without conversion into fiat, or sovereign currency. The Bank of Canada mentioned the use of stablecoin in its 2020 vision, focusing on it as a part of emerging payment technologies. Meanwhile, The U.S. Office of the Comptroller of the Currency released guidance indicating that national banks are free to hold reserve currencies for stablecoin.

While much of the world continues to rely on fiat currency for financial operations, digital currencies have been quickly disrupting this archaic financial infrastructure. Of those currencies, stablecoins could bridge the divide between cryptocurrency volatility, decentralized ownership, and providing banking solutions in otherwise untouched jurisdictions.

For more information about cryptocurrency loans and stablecoins, contact SALT Lending.

How to use a crypto-backed loan

how to use a crypto-backed loan, man writing on note pad 10 ways to use a crypto loan

If you need access to a loan, you’re probably considering the lineup of traditional options like credit cards, personal loans, business loans, and home equity options. They all base your ability to borrow off of your income, credit, and possibly your assets. But one option that isn’t as widely-talked about is a crypto-backed loan. It’s a new way to borrow that doesn’t factor in your credit and income as no personal guarantee is required. Instead, it’s a loan simply secured by your crypto assets. So how can you use a crypto-backed loan from lenders like SALT?

10 ways to use a crypto-backed loan

1. Pay off credit card debt

Credit cards have a place in our economy and can help you rack up rewards, but with interest rates up to 29%, they aren’t typically the best option for carrying balances. Crypto-backed loans, on the other hand, give borrowers a flexible way to access lump sums of cash with interest rates starting as low as 5.95%. 

If you have crypto, you can get a crypto-backed loan and use the proceeds to pay off high-interest credit card balances, consolidating them into one payment and potentially lowering your cumulative interest rate.

pay off credit card debt, image of man holding credit card

2. Make a large purchase

Whether you’ve been planning to make a purchase for a while, or an emergency popped up and took you by surprise, the proceeds of a crypto-backed loan can help you cover it. For example, say you want to take a family vacation to Hawaii. Instead of putting the flight and all the trip expenses on a credit card, you can take out a crypto-backed loan and then pay for everything in cash. This can help you avoid higher interest rates and any negative impact on your credit score.

3. Home renovations and improvement projects

From a burst water pipe to an unexpected HVAC repair, homeownership can be expensive. While it’s advised to have a rainy-day fund just for these occasions, even the best savers may find the final bill just out of reach. You may also feel reluctant to drain your emergency savings account to put your house back in order. A crypto-backed loan can quickly get you the cash you need.

man painting home, complete home renovations and improvement projects

4. Paying off medical debt

If you’re still opening bills every month thanks to that one time you broke your arm ten years ago, you are not alone. About 32% of American workers have medical debt and more than half have defaulted on it. Medical debt can be crippling to an otherwise healthy budget, and with payments lower than with other types of financing, it can take years and years to pay off. 

A crypto-backed loan may be just what you need to get that hospital or clinic to stop calling, and it’s often much cheaper than putting all of that debt on credit cards. Further, if your personal credit is maxed out, a crypto-backed loan can open up a new avenue of borrowing for you. 

pay off medical debt and bills, image of hospital and money

5. Planning a wedding

Even if you don’t want to spend too much on your big day, the average wedding in the US costs just shy of $40,000. From the dress and the venue to the flowers and catering, many expenses add up. Temporarily trading your crypto for cash can help you cover the big day without digging into savings or driving up your credit utilization. Cash payments to vendors can also sometimes get you a discount on services, giving you yet another reason to consider grabbing that crypto-backed loan before saying, “I do.”

plan and pay for a wedding, image fo couple and a wedding cake

6. Buying a house or real estate

Have you considered buying a property outright without the hassle or extra fees of a mortgage? A crypto-backed loan may be just the ticket to closing on that house deal. You’ll also be at an advantage as a cash buyer in an increasingly tight housing market; the seller may be more than happy to give you the deal since there are no additional lender hoops for either party to jump through. Cash obtained from a SALT loan is also free of those “extra” charges, such as loan origination fees.

Buy a home or real estate, new home

7. Starting a business

Even the simplest online businesses have startup costs. A crypto-backed loan can help pay for the costs like forming an LLC, building a website, and getting your first product manufactured. Don’t let another year pass with the excuse that you just don’t have the funds. If you have crypto assets, this can be the year you get your dream business going.

8. Upgrading mining equipment for mining operations or individual miners

Crypto miners have to evolve to survive, and that means investing in the latest, most powerful equipment. Being that you’re already involved in the crypto sphere, crypto-backed loans are a natural choice that can help you stay competitive and get every coin you can. Plus, it’s an investment that can help you not only pay off your loan and get your crypto back but also earn more.

upgrade mining equipment for bitcoin and crypto mining

9. Fund ongoing operational business costs

While new businesses benefit from getting a funding jump-start, existing companies can often use a little extra cash flow too. Whether you want to hire new employees, invest in marketing, expand your product offerings, or something else, business owners of all types are turning to crypto-backed loans to diversify their borrowing and take advantage of low rates through short-term loans.

fund or pay for operational costs

10. Reinvest or trade crypto

Serious crypto investors often need fiat to acquire more crypto. A crypto-backed loan that gives them access to cash can help them do so. With the crypto markets showing promise, and the rates on SALT loans very low, it’s easy to see how smart investors can make the numbers work in their favor to expand their crypto enterprises.

invest in crypto

SALT crypto-backed loans: Flexible funds with no personal guarantee

Whether you only need a few thousand dollars or a large lump sum, SALT loans can give you access to $5,000 or more in USD or Stablecoin. Secure your loan easily, with a single crypto asset, or through a combination of SALT-approved currencies. You’ll always know how your assets are doing, as SALT’s secure system and unparalleled customer support ensure that you can check in on your assets at any time. There’s no credit check needed, either. Once you deposit your collateral assets onto the SALT platform, you’ll be well on your way to getting the cash you need for whatever move you want to make.

How to Protect Your Anonymity Against Crypto Dusting Attacks

Understanding the nature of dusting attacks and airdropping can help you determine the best way to protect yourself and your crypto holdings from hackers and scammers.

Since Bitcoin’s debut to the public more than a decade ago, supporters have praised the benefits of cryptocurrency transactions including decentralization, transparency and anonymity. While these benefits certainly have their advantages, crypto’s nature also opens you up to a level of risk that has been realized through activities like dusting attacks and airdrops that often go completely unnoticed if crypto holders don’t know what to look for. Fortunately there are steps you can take to protect yourself from malicious entities interested in deanonymizing you. Understanding the nature of dusting attacks and airdropping can help you determine the best way to protect yourself and your crypto holdings from hackers and scammers.

The blockchain: Not as anonymous as you might think

Many people mistakenly think bitcoin is private. It’s anonymous, yes, but not private. A transaction is made up of input(s) and output(s). When you spend, you are creating a transaction using your address as an input. When you receive, your address is given an amount of bitcoin, which becomes the output. All of this transaction information (including the addresses involved, amounts and times of the transactions) are recorded on the blockchain. As that ledger is 100% transparent and public, so are your transactions. Any uninvolved party (people who have not transacted with you directly) examining the blockchain can see the cryptocurrency being received or spent — they just won’t know it’s you spending or receiving it because the owners of the addresses are not revealed. If the person you’re transacting with knows who you are however, they may be able to associate your blockchain wallet (and future transactions) with you, as anonymity only applies when referring to non-involved parties. And even still, a non-involved party may not know who you are from the beginning, but by watching blockchain activity, they may be able to figure it out if your wallet is maliciously “dusted” and use this information to deanonymize you in the future.

Dusting: Revealing your identity, one satoshi at a time

When you use bitcoin to pay for something, one or more addresses (UTXOs) are selected that most closely match the amount due and you receive an output UTXO with your change. For example, if you were paying for something equal to $400 and you had three UTXOs in your wallet equal to $5,000, $5, and $399, you could use the UTXOs equal to $399 and $5 and would receive a UTXO back worth $4. All of this information is recorded on the public ledger.

With dusting, a hacker or scammer sends very small amounts of a cryptocurrency (dust) to a large number of addresses. If you receive dust, you will have a UTXO in your wallet with a very small value. As you spend from your wallet, the attacker watches to see when the dust UTXO is picked up. When it is, they take note of all the other UTXOs that go along with it as well as what addresses they go to. When these entities study transactional patterns long enough, they can eventually identify all the addresses linked to your wallet, which means they can figure out how much crypto you have. If your account is of interest (you have large sums), they can work on figuring out it belongs to you, which can make you a target for anything from scams and phishing campaigns to cyber-extortion threats.

One reason dusting is so insidious is that the amounts of crypto sent to accounts are so very small; they are smaller than the minimum transaction fee required to use cryptocurrency. Most times, the dusting amounts are calculated in units known as satoshis; one satoshi equaling 0.00000001 bitcoin. Given the minuscule size of dust, the chances are pretty good that many people won’t notice them as they casually scan their cryptocurrency total.

Airdropping: Free tokens, potential scams

Airdropping is similar to dusting in that it adds small amounts of crypto to your wallet. But airdropping’s purpose is far less ominous. Companies that airdrop want to use you to spread the word about their great new cryptocurrency. As such, they will send free coins or tokens to your address (found on the public blockchain). Sometimes they send them free and other times they ask for something in return (like a tweet about the company and its currency). You might also actively encourage airdrops to your wallet in hopes that the new cryptocurrency will ultimately have a large payout. There are hundreds of airdrop lists and websites, all eager for your interest.

While the purpose of airdrops is often benign, problems come up when hackers and scammers reach out for more than your public wallet address. If you aren’t careful, you could be at risk from the following:

  • Private key theft. Private key theft takes place when an airdrop entity asks for the private key to your wallet. You should never give out your private key. While more savvy crypto users can spot such a scam, those new to cryptocurrency trading could fall victim to it.
  • Trolling/information collecting. Sometimes nefarious airdrop websites are used, not to promote currencies, but to gather data — such as email, wallet addresses or even social media information — that can be sold to third parties or used for future phishing attempts.

Protect your crypto from malicious dusting and airdrop attacks

Because cryptocurrency transaction information is public knowledge, it’s important to protect yourself, your holdings and your anonymity. In addition to ensuring anti-spam and anti-viral protection for your wallet, consider the following steps.

If you think you’ve been dusted, don’t move the dust. Look for wallet apps that allow you to “mark” small, unknown deposits in your wallet to prevent them from being used for other transactions.

Monitor your balance — 100% of the time. If wayward satoshis suddenly show up in your cryptowallet, you might have been dusted. It’s a good idea to find a wallet app with a push notification, which tells you when you receive new funds.

Don’t give out private information — ever. If a website — or other airdrop entity — wants more than your wallet address in exchange for tokens or coins, it’s a red flag. Be as wary of handing out your cryptocurrency information as you would be of providing fiat bank account log-in data.

Keep your anonymity in place

None of the above is meant to suggest that cryptocurrency trading or usage is dangerous. It is, however, a reminder that while transactions can be anonymous (when actually conducting a transaction you may potentially be revealing information about who you are to complete it, which can then be associated with your wallets), they aren’t private. Unfortunately, scammers and hackers are taking advantage of the very public blockchain technology to determine the identities of those behind cryptocurrency transactions.

The good news is that knowledge is power. You can protect yourself from malicious entities and preserve your anonymity by being aware of attacks like dusting and taking preventative action. Doing so will better protect you and your holdings while helping to ensure you don’t become victim to phishing or cyberextortion threats.

SERIES: The Most Confusing Economics Concepts Explained: Inflation vs. Deflation

Inflation and deflation are common economic terms that can be a bit confusing. They aren’t always addressed in school, but they affect our lives in so many ways. While the causes and consequences of inflation and deflation can be complicated, their definitions are surprisingly simple. Here is what you should know about these two terms and their role in a greater economy.

What is inflation?

In the simplest terms, inflation occurs when the price of goods and services goes up over time. It can happen slowly, over decades, or with sudden and devastating effects. Not every economist agrees on the reasons for slow, gradual inflation. It’s often tied to factors like market demand or the availability of certain goods and services.

Inflation in action

A current example is the inflated price of backyard swimming pools, pool filters, and pool maintenance supplies. With COVID-19 precautions closing many local swimming pools, more people than ever decided to put up backyard pools this summer. This increase in demand forced the price of pools and supplies up; another factor was the scarcity of some pool supplies since they have traditionally been manufactured in countries that slowed or shut down production due to COVID. The combination of increased demand with a short supply led to a deep inflation in the cost of these goods.

Hyperinflation

There’s more to the story, however. When both the cost of goods goes up, and the value of the local fiat goes down, it’s often referred to as “hyper-inflation,” especially when both happen in a short time frame. Unlike standard inflation, which experts aren’t always able to attribute directly to a source, economists tend to agree on the cause of hyperinflation.

The most common cause is a sudden and excessive growth of a country’s money supply. How does this happen? The Fed usually plays a role in making more money available in a strangled economy. Additionally, it’s not uncommon for governments to step in and tinker with interest rates or offer economic cash infusions (stimulus payments) in an attempt to stop the financial bleed that frequently happens with long periods of hyperinflation. Unfortunately, the bandaids for hyperinflation can often make problems worse.

How can you know if we’re in a period of inflation or hyper-inflation?

While the Fed aims for a rate of 2–3% per year inflation, this isn’t always manageable. Venezuela, for example, has seen inflation rates of 200,000% in a single year, an obvious sign of hyperinflation. It doesn’t have to be that severe to be counted, however; experts define anything above a 50% annual inflation rate to be a form of hyperinflation.

What is deflation?

The exact opposite of inflation, deflation, is the decrease in the cost of goods and services. It is usually accompanied by an increase in the value of the fiat. While some see this as a pleasant situation, deflation can be difficult for lenders who rely on climbing interest rates to make money on the cash they lend. Too much deflation or inflation can hurt essential industries. It can also harm consumer confidence over time, as people can get used to seeing prices go lower and actually hold on to their money waiting for the absolute best price. This can further aggravate the deflation cycle, something we saw during the Recession of 2008.

Remember, the role of government, unemployment, natural disasters, and technological advances can impact the cost of products we buy. Further, in the U.S., inflation doesn’t always happen across the board; consumer categories such as food and housing may see inflation over time, while items like electronics or clothing may see deflation during the same period. While consumers can’t always do much to affect inflation or deflation, we can better prepare our investment portfolios to secure our individual economic futures.

Game Theory and Bitcoin: the Miners’ Perspective

Competition drives markets. In traditional financial markets, however, competition is limited to the production of goods and the buying and selling process. With Bitcoin, competition plays a far-deeper role. The minting of new bitcoin, as well as the processing and verification of transactions, are all made more efficient, accurate, and secure, thanks to competition. It’s no surprise, then, that game theory plays a pivotal role in the inner workings of the Bitcoin ecosystem.

A brief explanation of game theory

Game theory models the strategic interaction between players in a scenario with set rules and outcomes where the players are rational and looking to maximize their payoffs. In effect, it’s a more detailed, nuanced way of looking at how incentives affect how things get done.

For example, if your job is to shovel 100 pounds of stone into a hole and you’re all alone and have all the time you want, there’s no game theory involved. On the other hand, if someone else is given the same task and you’re each working with the same pile of stones, the dynamics of the situation change.

They change further if only the person who shovels the most gets paid. And, naturally, if you get paid according to how much you shovel, the outcome of your actions would change in yet another way. Each of these situations will be impacted by game theory and its many models.

Although Bitcoin seeks to espouse concepts like “fairness,” “transparency,” and others that are often incongruent with competition, game theory still plays a primary role in the Bitcoin universe.

How does game theory apply to Bitcoin mining?

Bitcoin mining involves solving math problems that are used to create new bitcoin and verify transactions. To continue with the stone shoveling example, if you have as long as you want to move the pile of stones, you may choose to take your time. Your shovel may move slower than if someone else were involved in the task because then the speed at which you shovel would determine whether you get paid more, less, or at all.

The fact that multiple miners compete to verify transactions and generate coins gives Bitcoin an inherent efficiency: The job gets done faster. To dig a little deeper, three types of game theory driving this process include zero-sum theory, congestion theory, and the Nash equilibrium. Let’s take a closer look at how these concepts work.

Bitcoin mining and zero-sum theory

Zero-sum theory dictates that the “winner” gets the spoils and everyone else walks away with nothing. In the mining of bitcoin, the first person to solve a problem gets the value associated with completing the task. Everyone else gets nothing. If you could take a snapshot of the nanosecond a particular hash is found, you would see one user getting rewarded for their work and the others getting nothing.

However, because the Bitcoin system requires so many problems to be solved all the time, in reality, many miners can earn a relatively steady income. The strategies they use are governed by two other game theory concepts — the congestion theory and the Nash equilibrium.

Bitcoin mining and congestion theory

Congestion theory stipulates that the amount each player gets depends on the resources they choose and how many other players choose the same resources.

For example, imagine there are two stations with trains heading to the same destination, and each train can hold only 10 people. One train station is five miles closer to the destination. If there are 100 people, and everyone goes to the closer station, one train will have to go back and forth 10 times. On the other hand, if some of the passengers go to the closest station and others go to the station farther away, there will be less congestion, and everyone will arrive at the destination sooner.

In Bitcoin mining, many of the decisions of the miners depend on congestion theory. If there was only one miner, all the spoils would go to her or him. On the other hand, Bitcoin is open to all, so each miner has to decide whether they will get in the game — and add to the congestion — knowing that more people are bound to get in the game, decreasing their chance of winning.

Once a miner decides to get involved, they then have other decisions to make regarding the equipment they choose. Faster equipment provides an advantage, similar to getting on the closer train. However, the quicker the equipment, the more electricity it takes to run, which increases the cost of mining.

If a miner’s earnings won’t sufficiently offset the cost of electricity, they may choose not to get involved. They may also choose to forego setting up a mining system and join a mining pool instead, where the electricity costs are absorbed by multiple participants. Congestion theory dictates which “train” each miner takes, as well as when and how they get involved.

In addition, the way the decisions of each miner affects the others is governed largely by another game theory concept: the Nash Equilibrium.

Bitcoin mining and the Nash Equilibrium

In the Nash equilibrium, named after mathematician John Nash from the movie A Beautiful Mind, each “player” recognizes that while they have similar goals, not everyone can get exactly what they want. Therefore, some will choose to settle for a less-desirable outcome, satisfied with the fact that they are at least getting something. All players agree to proceed, happy to share the spoils.

For example, continuing with the stone shoveling scenario, you may be stronger and faster than the other shoveler. Both of you agree to shovel for the same amount of time, but you get 70% of the money while the other shoveler only gets 30%. The other person could protest, but realizing that something is better than nothing, they agree to the terms. At this point, an equilibrium is established. At the end of the day, you both earn money and walk away satisfied.

The worldwide community of miners also follows Nash equilibrium principles. Some miners have more money than others and can afford to purchase the latest mining computers, capable of solving specific hashes faster than older models. Other miners may not have as much money, but they live in areas where electricity is less expensive. They can, therefore, spend less than wealthier miners who live in areas where electricity is more costly. Some live in places where it will never be profitable to mine, so they join a mining pool instead.

Each miner recognizes that their limitations dictate how much they will get. At the same time, all agree to participate, satisfied with their portion at the end of the day — even if it’s just a small fraction of a bitcoin.

How miners are incentivized

Zero-sum theory, congestion theory, and the Nash equilibrium only work because of the ways miners are incentivized and dissuaded from cheating the system. Before mining rewards are approved, the technical infrastructure enforces the “trustless” nature of the Bitcoin network. If miners do not adhere to protocol rules, their block submission will be rejected by other nodes in the blockchain. All network nodes including other miners verify the ledger entries packaged into a new block. If entries are considered invalid, or the block hash doesn’t meet network requirements, the miner’s result will be rejected and the 6.25 BTC will be awarded to another miner.

While the block rewards are enticing at current BTC valuations, there are other financial implications that compel miners to either continue or suspend network operations. No miner will win the worldwide competition each time a new block is added (~every 10 minutes), so they must weigh the probability of profitable successes. There are other factors to consider, too. For example, some miners may decide to bow out when electricity becomes too expensive. Others however, may have a longer time horizon and decide to accept the risk of energy expenditure, calculating that miner attrition will increase their chances of winning new block rewards. In other words, fewer miners in the network means more chances for the remaining miners to profit. For those adopting this viewpoint, the potential of solving enough blocks to maintain business profitability outweighs the risk of any short-term loss related to high energy costs.

How bitcoin is distributed

Every block consists of many small transactions. When a block is mined, the winning miner is awarded 6.25 bitcoin plus all transaction fees for each transaction they were able to package within the block. The more blocks you are able to solve, the higher your reward. In other words, you get a bigger piece of the pie. Hunger for more slices of pie incentivizes miners to purchase more powerful equipment or move to areas with lower electricity costs.

Game theory and the surety of the Bitcoin network

The Nash equilibrium helps motivate miners to do more than generate new bitcoin. Each miner has no choice but to play a role in making sure the network functions as it should. This is a part of the “pile of stones” each miner agrees to shovel.

In a Nash equilibrium, although the individual participants would like to either get more rewards or a different type of reward, they agree to settle with getting something of value rather than nothing. The Bitcoin network compels miners to play by an agreed set of rules to add transactions to the distributed ledger, or their work will be summarily rejected. At the same time miners add security to the network by expending expensive energy that chains each new block to the preceding block via a well established mathematical algorithm.

Each miner is, therefore, a generator of new bitcoin liquidity as well as an auditor, checking the details of network transactions. Even though each problem solved involves a zero-sum game and congestion theory dictates how each miner approaches the task, everyone works in a happy Nash equilibrium.

In the end, game theory is an underestimated, yet essential, element of the Bitcoin network. As each miner plays their role, historical transactions are kept secure and new transactions unanimously approved, which helps maintain Bitcoin’s position as the number one digital currency in the worldC