Finance Strategists sat down with Justin English, CEO of SALT Lending. He shared his thoughts on the past, present, and future of the company, as well as the insight he has gained from running the business.
Who is Justin English?
Q. Who are you and what’s your background?
I’m Justin English. I joined SALT as CEO in May 2020. Prior to my role as CEO, I was first and foremost an early customer and investor in SALT and began consulting for the company and serving on its board in fall of 2019.
Before joining SALT and entering the crypto space, I spent more than 15 years across the private equity, early stage venture capital, consumer products, supply chain, manufacturing, distribution, and consumer services industries.
An entrepreneur at heart, I’ve been personally invested with capital and have spent my career understanding business drivers to influence implementation in the real world, which has aided me in my ability to serve as an advisor to early-stage organizations as well as those that are growing and scaling.
Q. Who has been your biggest influence, and why did they have such a significant effect on you?
My college economics professor had a significant impact on my ability to think critically and bring insight into a discussion. Before each class, we were all expected to read The Economist and be prepared to discuss that week’s issue of the magazine. Our entire grade was based on these discussions and the insights we produced throughout them.
The exercise taught me to pay close attention to the nuances of the story or issue being discussed and formulate intelligent, thought-provoking questions as a result. I learned to identify the most common assumptions on which people would base the discussion and then question and poke holes in those assumptions. I’ve leaned on this tactic throughout my career and still use it today, as it always makes people stop and think, resulting in a more insightful discussion overall.
Q. Knowing what you know now, what advice would you have given your younger self?
I was extremely stubborn when I was younger and set on learning in my own way, through my own failures. If I could give one piece of advice to my younger self, it would be to use my resources and learn from the achievements and failures of those who came before me rather than repeat their mistakes and failures purely out of stubbornness.
Q. What is SALT Lending?
SALT is a fintech company with a focus on crypto assets. Our mission is to build products that increase access to financial opportunities and give people more control over their ability to generate long-term wealth.
The first to offer crypto-backed lending, we accept crypto assets as collateral for cash loans, enabling crypto holders to get value out of their assets without having to sell or rely on the traditional banking system.
Aside from our lending product, we are excited about the upcoming launch of the SALT Card — a crypto-backed credit card that will allow customers to borrow against their crypto assets and use their crypto for everyday purchases without having to spend any of it, all while earning crypto rewards with every purchase.
Q. What makes SALT Lending different from its competitors?
SALT is different from our competitors in three key areas: the combined experience within our team enables us to continuously improve operational processes and make space for innovation; our management team and our ability to build and invest in value-creating technology (SALT Stabilization, StackWise, our Loan Management System, trading execution platform); and the fact that we’re leaning into transparency and compliance and have been a publicly reporting company since early 2021.
From a customer perspective, we often stand out for our customer service, as SALT customers love knowing that at any point, they can speak to a real person who can walk them through any issues they’re experiencing or answer any questions they may have.
Q. What led you to join SALT Lending?
Having started as an early investor and SALT customer back in 2017, I was among the first to ever hold a crypto-backed loan and explore SALT’s platform. I experienced the benefits and pain points of the product first-hand and later joined the Board of Directors, which enabled me to provide feedback on the technology and product offerings and offer guidance on what improvements could be made.
I continued to be a customer throughout my engagement with SALT and took on the role of CEO in 2020 with the intent to improve our lending product and expand our product suite to provide greater value for our customers.
Since becoming CEO at SALT, my goal has been to create products that incentivize people to develop strong financial habits that will enable them to build generational wealth– the SALT Card is the first manifestation of this goal, as we seek to take the traditional concept of credit and disrupt it.
With this product and future products, we want to change the way people think about debt and credit and empower them to move from building up “bad debt” to generating wealth simply by developing better habits and getting more value out of the assets they already own.
Q. What has the experience of building the business taught you?
While I’ve learned a lot from building the business at SALT, some of the greatest things the journey has taught me are leadership and softer skills, which I’ve come to realize are way more important than I’ve previously given them credit for.
Aside from that, I’ve learned the importance of pragmatism when it comes to making business decisions. I’ve seen so many peers fall into the trap of becoming too emotionally invested in something to the extent that the sunk cost bias clouds their judgment and creates a tunnel vision mindset.
I’ve always been a pragmatic person, but my experience as an entrepreneur and my current role as CEO at SALT have helped hone my ability to compartmentalize and look at things from different angles. I make a conscious effort to take a step back and look at problems from a really plain, simplistic view.
For me sunk cost equates to learning, not failure. In leading a business I’ve learned that when it comes to problem-solving and decision-making, you have to invest time and energy and take note of the process and the journey as you go along.
With this mindset, I’m able to emotionally detach from the investment itself and look at it not as a sunk cost, but as a necessary process that has enabled me to make more informed, objective, and sound decisions.
Q. Where do you see things headed for you and the company in the next five years?
As crypto becomes more widely adopted and emerging businesses continue to challenge the traditional financial system, we want to help consumers achieve financial freedom by shifting the way they think about credit and wealth.
The traditional system does not set consumers up for financial success. In fact, it does the opposite, as it is structured in such a way that encourages the accumulation of “bad debt” and borrowing against future income to enable living outside of one’s means.
Once consumers fall into this trap, it’s extremely hard for them to get out of it and it becomes cyclical. We want to fundamentally change the way people think about their finances by educating them and building products like the SALT Card that incentivize good habits like saving and building generational wealth.
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.
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.
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.
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.”
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.
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.
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.
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.
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.
This new model will allow SALT to distribute risk, enhance security, reduce interest rates, fund loans more swiftly, and focus on expanding its suite of wealth preservation products
We’re excited to announce Fireblocks, a platform that secures digital assets in transit, as our first partner for securely storing and transferring customers’ collateral assets. The partnership with Fireblocks marks a shift in SALT’s business model from self-custody to a more distributed custody approach that will allow us to onboard additional partners in the future and add greater flexibility for capital providers. This new approach also enables us to distribute risk, fund loans and conduct transactions more quickly, and provide customers with enhanced security for their cryptoassets, as well as lower interest rates on crypto-backed loans.
“When SALT was founded in 2016, custody wasn’t where it is now, so we built a proprietary custody solution to keep our customers’ collateral assets safe,” said Justin English, CEO of SALT. “Now that the industry has matured and companies like Fireblocks have come to the forefront, we’re excited to work with them to streamline our operations and expose their networks to our suite of wealth preservation products. They have a proven ability to safely and securely store and transfer collateral assets and to do so swiftly, which will inevitably allow us to provide faster service to our customers and focus more on product development.”
The move toward third-party custody solutions will also enable SALT to provide greater security and flexibility to capital providers that may prefer to work with a specific custodian, provided the custodian meets our rigorous security standards.
“MPC has quickly become the industry standard among the largest and most trusted institutions in the digital asset space,” said Michael Shaulov, CEO and co-founder of Fireblocks. “We’re proud to partner with the SALT team to help them strengthen security, reduce costs and expand operations as they move into the next stage of their growth.”
Fireblocks meets these security standards by combining multi-party computation (MPC) with Intel SGX technology to create a proprietary, defense in-depth approach to digital asset security — this allows organizations to accelerate operations without relying on physical hardware or slow, manual processes.
“Security is our top priority as we make this shift to be commensurate with our growth and distribute risk among trusted custodians,” said Dirk Anderson, chief technology officer at SALT. “The primary reason we’ve chosen Fireblocks as our first partner is because of their approach to MPC technology. Not only does it meet our security standards, but it will grant us more flexibility and increase the speed at which we can conduct transactions. This means we can fund stablecoin loans much faster and reduce the turnaround time for returning customers’ collateral assets once their loan has matured.”
From a customer standpoint, the biggest and most exciting changes to note are increased security, faster services, and the offering of lower interest rates. Aside from these changes, the customer experience will largely remain the same. Just as they do now, borrowers will still be able to make deposits and withdrawals, and will be able to continue tracking the health of their loan via our Loan-to-Value monitoring and real-time notification systems.
“We believe working with Fireblocks and other custody partners in the future is in the best interest of both the business and our customers,” said English. “Not only will we be able to offer more competitive interest rates, but we will have the time and resources to focus on expanding our offerings to include products that are designed to help our customers build and preserve their wealth.”
SALT, the pioneer of crypto-backed lending, offers a way for individuals and businesses to use their cryptoassets as collateral to secure a fiat or stablecoin loan without having to worry about credit checks. SALT offers flexible loan terms and accepts multiple cryptoassets as collateral including cryptocurrencies, stablecoins, and tokenized gold. SALT also offers competitive interest rates and does not charge origination or prepayment fees. As cryptocurrency becomes more widely adopted and additional real-world assets become tokenized, SALT’s mission is to offer solutions that make it possible for people to securely hold, manage, and borrow against their cryptoassets. Founded in 2016, SALT is headquartered in Denver, Colorado. For more information, visit www.saltlending.com or follow us on Twitter, Facebook and Medium.
All SALT loans are subject to KYC, AML, and other Terms, Conditions, and Restrictions. Please see saltlending.com/terms and FAQ for additional information. Loan options and terms may not be available in your jurisdiction, for your loan amount, and/or collateral type. SALT Loans are subject to jurisdictional limitations and other restrictions. SALT may not be able to offer a loan to all borrowers. SALT loans are originated by Salt Lending LLC. NMLS #1711910. NMLS Consumer Access (https://www.nmlsconsumeraccess.org/).
Fireblocks is an enterprise-grade platform delivering a secure infrastructure for moving, storing, and issuing digital assets. Fireblocks enables exchanges, custodians, banks, trading desks, and hedge funds to securely scale digital asset operations through the Fireblocks Network and MPC-based Wallet Infrastructure. They have secured the transfer of over $70 billion in digital assets and have a unique insurance policy that covers assets in storage & transit. For more information, please visit www.fireblocks.com.
Cryptocurrency is a disruptor. Not only has it changed the way we conduct business, but it has changed the way we think. The most obvious manifestation of how cryptocurrency has disrupted our thought patterns is in the way we think about money — about who issues it, how to transact with it, how to put it to work and how to keep it safe. It also has changed the way we think about our government, our right to privacy and our financial freedom. What’s less obvious is how cryptocurrencies are disrupting the way we think about and participate in asset-based lending. The advent of Bitcoin catalyzed the creation of a myriad of cryptocurrencies, many of which became viewed as assets, yet at the time, there was no way for crypto investors to unlock the value of these assets without selling them. This is the problem SALT’s founders set out to solve in 2016 and in doing so successfully, made asset-based lending as we once knew it a thing of the past.
Creating a New Asset Class
As Bitcoin began to experience wider adoption following its release in 2009, it became clear that some investors were purchasing crypto to trade on a daily basis while others were choosing to invest long-term, viewing Bitcoin more as an asset than as a spendable currency. As more investors adopted this long position and began to think of cryptocurrencies as an asset class in their own right, the term “HODL” emerged in 2013 on a bitcoin-talk forum and has since become one of the most commonly used words in the crypto vernacular. This HODL culture has grown significantly over the years and has evolved to where investors are buying, selling and trading these assets not only for themselves but on behalf of others. This activity has taken the form of crypto portfolios and crypto funds, which offer access to this new asset class for individuals and allow them to diversify their portfolios while eliminating some of the overhead of learning how to purchase and safely hold cryptoassets. By providing a way to collateralize cryptoassets to secure a cash or stablecoin loan, SALT provides opportunities for individuals, businesses and capital providers to build and preserve wealth.
How to Lend Cryptoassets
As the first-ever crypto-backed lender, SALT has developed the technology and processes required to successfully lend against cryptoassets, giving borrowers a way to unlock the value of these assets without selling them. Take Bitcoin for example. It’s one of many cryptoassets we accept as collateral on our platform, yet it makes up more than 80% of the collateral securing our loan book.
What makes Bitcoin a strong form of collateral? The answer lies in Bitcoin’s combined characteristics. Like gold, Bitcoin is scarce, fungible, divisible, transferable and durable. It is also extremely liquid given it is traded on global exchanges every day. Additionally, as a decentralized asset, Bitcoin is highly secure. All of these properties make Bitcoin both a viable asset and a highly efficient form of collateral that has piqued the interest of some of the largest financial institutions in the world.
One thing to note is Bitcoin’s volatile nature, which can pose challenges specifically for the ABL market. However, SALT’s risk management technology effectively manages this volatility. Our technology includes real-time loan-to-value (LTV) monitoring, margin call and liquidation triggers, real-time notifications and the safekeeping of assets through institutional grade custody solutions. For example, our loan-to-value (LTV) monitoring system tracks the prices of assets 24 hours a day, 365 days a year, providing borrowers with the ability to monitor the health of their loan in real-time. If, during periods of heightened volatility, a borrower’s collateral declines in value and their LTV breaches our margin call threshold, we protect the borrower by issuing a margin call that prompts them to take action to restore the health of their loan. Actions borrowers may take include paying down principal or depositing additional collateral to recalibrate their LTV to an appropriate level (70%). If no action is taken and asset prices continue to decline, SALT has the ability and the right to liquidate collateral assets to preserve lender capital. The overcollateralized nature of our loans combined with our risk management technology and ability to liquidate assets enables us to protect the lender, and as a result, we’ve experienced zero losses of principal to date.
Choosing a Crypto-Backed Lender
SALT’s business model is attractive to crypto investors (e.g. traders and asset managers) and businesses (e.g. mining operations and exchanges) for a few reasons. First, we provide access to liquidity, offering loans ranging from $5,000 to the millions. Typical use cases include businesses seeking working capital to fund operational costs and large capital expenditures, or investors seeking leverage, diversification or risk management. Second, since our model is asset-based and requires overcollateralization, we do not rely on a borrower’s credit profile and can fund loans within 24 to 48 hours, assuming the borrower meets our strict AML/KYC requirements. Third, customers know their assets are safely and securely held with institutional-grade custody providers for the duration of their loan. Fourth, our loan process is straightforward and customizable. We allow borrowers to lend against a single cryptoasset or a portfolio of cryptoassets and offer flexible loan terms, including durations ranging from three to 12 months, LTVs up to 60% for individual loans or up to 70% for business loans, and competitive interest rates ranging from 5% to 12% depending on the borrower’s jurisdiction, loan amount and LTV. While we are no longer the only crypto-backed lender in the world, we are one of the few that incorporate a human element into our business model. Unlike completely automated lenders, SALT offers both phone and online support, and assigns each customer a loan support specialist at the time of loan origination. These human touches positively impact a borrower’s experience with the platform; they know that by choosing SALT, they will always have the option to speak with someone about their financial needs.
The Evolution of the Crypto Market and Tokenization
Since SALT’s founding in 2016, the crypto lending market has grown exponentially. According to a report from Credmark, the crypto lending market reached $8 billion in total lifetime loan originations as of Q4/19 and has since surpassed $10 billion following Q1/20. These numbers not only indicate the growing demand for liquidity among crypto holders but also the growing interest among capital providers to get involved in the crypto market. For example, we’ve witnessed an influx of both crypto native (BitGo Prime and Genesis Capital) and traditional financial institutions (Silvergate) that provide leverage and liquidity vehicles at the institutional level.
Another thing to consider regarding the evolution of the crypto market is that as the world becomes tokenized, the very definition of the term “crypto market” is changing. With the emergence of companies like Paxos and Harbor, we’re beginning to see increased tokenization of real-world assets like gold and real estate. At SALT we already accept Pax Gold (a gold-backed cryptoasset) as collateral on our platform and our vision for the future goes well beyond our current collateral scope.
The Role of Alternative Investments
As crypto becomes more widely accepted, a growing number of people are assessing their own risk profiles and determining the best way for them to participate in the crypto market. For those with lower risk profiles, the market has evolved in recent years to offer individuals or businesses indirect exposure to this new asset class. As previously mentioned, crypto portfolios and crypto funds are part of this evolution along with alternative investment companies like Cadence (portfolio company of Coinbase Ventures). Cadence is a securitization platform for private credit that grants access to exclusive high yield, short term investments traditionally reserved for institutions. In February 2020, we partnered with Cadence to offer prospective investors the opportunity to gain exposure to cash flows associated with a portfolio of underlying loans collateralized by cryptoassets. The first note of $500,000 was oversubscribed in five days and we have since worked with Cadence to issue $2.9 million in notes to investors to date. As more companies like Cadence provide structure, liquidity and indirect exposure to alternative asset classes like crypto, we expect to see even greater demand from investors seeking attractive risk adjusted returns.
Opportunities for Institutional Investors
There’s no doubt cryptocurrency has changed the way we think about asset-based lending. It has formed a new asset class and also has catalyzed the trend of broader tokenization — a trend that will inevitably expand the universe of collateral options and have a meaningful impact on the ABL industry. If you’re a decision maker at an institution and are interested in learning more, email [email protected] to discuss opportunities to build and preserve wealth in this rapidly evolving industry.
From business closures to event cancellations and stay-at-home orders, the coronavirus pandemic has had its way with the United States. Millions are unemployed, and millions of small businesses struggle to stay afloat in the punishing economic downturn.
The Federal Reserve, or “the Fed,” has been making headlines as it tries to limit the pandemic’s economic damage, including by lending $2.3 trillion that the government called for in its relief package, dubbed the CARES Act. This action has left many Americans wondering where the Fed got so much money, what the Federal Reserve can and can’t do, and what power the Fed has over our nation’s economy.
What Is the Federal Reserve, anyway?
It’s essential to define what the Fed is to understand its role in our economy. The Federal Reserve is America’s central banking system. Before the Federal Reserve, people panicked their bank would fail when a neighboring one closed its doors. Hordes of customers would run to withdraw their money, ultimately causing those banks to go belly up, too.
After a particularly terrible panic in 1907, Congress stepped in to create the Federal Reserve in 1913 through the Federal Reserve Act. The initial goal was to avoid these bank runs and provide banks with emergency funding. But today, the Federal Reserve System takes other measures to ensure the health and stability of the economy and a secure banking system.
How does the federal reserve work?
The Federal Reserve Act created a decentralized bank that functions without government financing or approval but still protects both public and private interests as a mixed organization.
It has three key entities:
1. Board of Governors
At the heart of the Fed is the Board of Governors, made up of seven officials appointed by the government and confirmed by the Senate. It acts as an independent federal agency, and its job is to direct the monetary policy — the money supply and interest rates. Its goal is to make sure we maintain a stable economy.
2. Reserve Banks
There are 12 Federal Reserve Banks spread throughout the U.S., each one having nine directors. Six directors are elected by commercial banks and three by the Board of Governors, protecting interests from both parties.
Reserve Banks are structured similarly to private corporations. They oversee member banks and carry out the monetary policy in their region. Reserve Banks act independently, but the Board of Governors supervises their actions.
These banks also have other vital roles like distributing currency to other banks, placing money into circulation, acting as a bank and fiscal agent for the U.S. government, and providing critical information about their local, national, and international economies to the Federal Open Market Committee.
3. Federal Open Market Committee (FOMC):
The FOMC is a committee comprising the Board of Governors, the Federal Reserve Bank of New York President, and four members from the other 11 Reserve Banks, who serve for one-year terms.
The FOMC’s primary role is to determine whether the Federal Reserve should buy or sell government bonds, known as Open Market Operations (OMO), to maintain the economy’s stability. It also establishes a target federal funds rate, which is the interest rate banks charge one another for overnight loans.
Where does the Federal Reserve fit into the government?
The role of the Federal Reserve within the government can seem confusing since it has public and private aspects. The Fed is accountable both to Congress and the public and maintains transparency in all its operations.
Ultimately, the Fed is a product of the government because it was created by an act of Congress, which still oversees the whole system and can amend the Federal Reserve Act at any time.
But Congress created the Fed to work autonomously and to be shielded from political pressures by using a privatized structure for the Reserve Banks. It also keeps a hands-off approach by letting the three entities carry out their core responsibilities independently of the federal government.
Can anyone override Federal Reserve decisions?
There isn’t a formal legal power that can supersede the Fed’s monetary policy decisions. Still, the Federal Reserve Act allows the Treasury to “supervise and control” the Fed where jurisdictions overlap.
But the Treasury hasn’t needed to do this because a system of checks and balances keeps the Fed’s operations transparent and answerable to the public and Congress. Just because the Fed can influence the economy, doesn’t mean it doesn’t have to follow the rules.
Independent public accounting firms audit Reserve Banks annually. The Board of Governors also gets audited by its Office of Inspector General and an outside auditor. The Board of Governors annually publishes the results on its website.
The House of Representatives and the Senate hold the Fed accountable by requiring it to report twice a year on its monetary policy and economic decisions. Fed officials also deliver speeches throughout the year to the public so that everyone understands the reasoning for its decisions and actions.
Does the Federal Reserve print money?
If you’re a Bitcoiner, or you spend a decent amount of time on Twitter, you’ve most likely seen the “money printer go brrrr” meme that went viral in March of this year. It cropped up in response to the Fed’s announcement on March 12, 2020, that it would offer $1.5 trillion in short-term loans to banks to help combat “unusual disruptions” in financial markets as a result of the coronavirus. The meme, while more of a social commentary than an accurate depiction of the Fed’s responsibilities, expresses frustration regarding the government’s role in inflation and the devaluation of the US Dollar — as evidenced by the meme’s numerous likes and shares, many Americans share this same sense of frustration. While the meme is accurate in many ways, it unintentionally brings to light the common misconception that the Fed prints money. In reality, printing money is the responsibility of the U.S. Treasury. The Bureau of Engraving and Printing prints paper currency, while the U.S. Mint makes coins. The Treasury oversees both offices.
While it doesn’t print money in the literal sense, the Fed does buy cash as needed from the Bureau at cost to put into circulation, but the monetary base in circulation and at central banks typically stays the same.
The Fed manages the money supply by creating and destroying money. It swaps old, ragged bills for fresh ones or adds and deducts from digital balances. But it also manipulates the amount of money in circulation. The FOMC decides on whether to add or remove cash from the economy by buying or selling government bonds and other securities. This influences the amount banks will lend out and keep on deposit, which then affects interest rates.
That being said, where the misconception holds some truth is in the way the Fed puts more money into circulation; the Fed can’t print money, but it does have the power to essentially create money out of thin air. As a banker’s bank, it does so by making “large asset purchases on the open market and adding newly created electronic dollars to the reserves of banks.” In exchange, the Fed receives large amounts of bonds including US Treasury securities, mortgage‐backed securities, corporate debt and other assets. Rather than paying for these bonds in cash or gold bars, the Fed instead credits the account of the bank selling the bonds so that digital money moves from one place into the other.
The process is like taking out a personal loan of $10,000 at the bank. The bank doesn’t give you a suitcase full of cash. What you get is a credit that shows up as some numbers on a screen, reflecting your new account balance.
Because the Fed operates digitally, it can create money with a few keystrokes and use it to purchase assets or lend money. On a televised interview with “60 Minutes,” Former Fed Chairman Ben Bernanke said, “To lend to a bank, we simply use the computer to mark up the size of the account they have with the Fed. So it’s much more akin, although not exactly the same . . . to printing money, than it is to borrowing.”
The Fed did this when it promised to lend Americans $2.3trillion, as called for in the CARES Act for economic relief and stability across the nation for those who were struggling because of the pandemic.
What can the Federal Reserve do or not do?
If the Fed can make money but not print it, what other actions is it able to take or is prohibited from taking?
What can the Federal Reserve do?
The Fed is an emergency lender for banks in financial distress, so it can lend money to failing banks to keep them afloat. But the Fed’s core responsibility is to manage the money supply, which has far-reaching effects on regulating the financial market.
It’s permitted to use four main tricks to change the amount of money in the economy:
1. Changing the reserve requirement
The Fed dictates what percent of deposits banks have to keep on hold. It usually ranges from zero to 10 percent and is currently set at zero because of COVID-19. The more banks have to keep on reserve, the less there is to go out into the market.
2. Changing interest rates on reserves
The Fed pays commercial banks interest rates on their required and excess reserves, a rule that went into effect in 2008. When the Federal Reserve wants to speed up the economy, it lowers the interest rate so that banks have less of an incentive to hold on to money.
3. Changing the discount rate
The Fed encourages and discourages banks from borrowing money from it by raising or lowering its lending interest rates. When the discount rate is low, banks borrow more to lend to each other and the public.
4. Conducting open market operations
The FOMC decides how many bonds to buy or sell. When it wants more money in the market, it buys these bonds from banks to put more money into their account. When it wants to slow down the economy, it sells the bonds to take away bank money.
This is the Fed’s most common tactic to influence the economy. For example, from 2008 to 2009, it bought over a trillion dollars of government bonds to inject money into the stumbling financial market. This lowered interest rates on short-term loans to almost zero percent.
But the recession went too deep. So, the Fed did something it hadn’t done before. It started buying long-term assets from banks in a process that’s known as quantitative easing (QE), boosting the money supply further and stimulating lending and investment.
What can’t the Federal Reserve do?
The Fed can only indirectly influence the nation’s economy. This means it does not have the power to take any of the following actions:
Set the federal funds rate
The federal funds rate is the amount of interest banks charge to lend their excess cash reserves overnight to each other. Banks frequently do this to meet the Fed’s reserve requirement.
While the Fed can’t set this number directly, the FOMC sets a target federal funds rate depending on what direction it wants the economy to go. Then, it works within what it’s permitted to do to influence banks and reach the benchmark rate.
Set the prime rate
Banks use the prime interest rate for commercial and consumer borrowing for things like credit cards and personal, car, and home equity loans. Banks often set the prime rate based on the Fed’s target federal funds rate.
Hike up mortgage and student loan rates
Mortgages and student loans are long-term assets whose rates are determined more by market-driven factors than FOMC decisions.
That said, the Fed purchased mortgage-backed securities to lower long-term rates on mortgages in 2008 so that banks wouldn’t need to borrow from each other to meet the reserve requirement. But these actions still affect federal funds rates significantly more than mortgage and student loan interest rates.
Use taxpayer money to fund its operations
The Fed doesn’t get any funding from taxpayers because its money comes from interest accruals on government securities and treasuries purchased through its OMO. There are other sources, too, such as foreign currency investments. After paying its expenses, the Fed turns any extra money over to the U.S. Treasury because it’s not operated for profit.
What’s the potential impact of the Federal Reserve’s powers on the economy?
Although the Fed can only work behind the scenes to stabilize the economy, it exerts a massive influence on its operations.
For example, the Fed can speed up or ease the economy by manipulating the money supply to increase or decrease consumer spending. It starts by influencing bank lending rates through selling and buying government bonds.
When banks have more excess reserves, there’s more to lend to the public, so interest rates are lower. Lower interest rates encourage people to borrow money, which is then spent on goods and services. More consumer spending generally means a better economy, while “even a small downturn in consumer spending damages the economy” and can even lead to a recession. Below is how the Fed’s actions impact specific aspects of the economy.
The Fed uses a trickle-down effect to influence interest rates. Remember, they can’t set federal funds or prime interest rates, but they can bend them to their will through OMO.
The Fed buying back government bonds from banks leaves more money for banks to play with while selling them means banks have to be more cautious about lending out their reserves. The economics of supply and demand shows excess cash in the market will drive down the interest rates banks charge to each other and the public, while a lack of money has the opposite effect.
The Fed also raises or lowers the discount rate and reserve requirements to change the interest rates commercial banks ultimately offer customers.
Inflation and deflation
When federal funds rates drop because of the Fed’s actions, prime rates usually drop with them. Consumers then borrow money for business and personal purposes to take advantage of lower interest rates. With greater amounts of money in their pockets, people spend more on goods and services, creating a spike in demand.
The larger demand pushes wages and costs higher to meet the production necessary to keep up with supply, causing a ripple effect. Prices increase across sectors, leading to reduced purchasing power. This is inflation and explains why a dollar today is worth less than a dollar last year.
Some annual inflation is good. It’s a sign the economy is doing well because consumers are spending. The Fed has a target core inflation rate of two percent. When inflation goes above or below the benchmark amount, the Fed steps in and works within its limits to move the needle toward inflation or deflation.
Although directing the U.S. monetary policy for the nation’s economic benefit is a crucial part of the Fed’s job, it also has foreign concerns.
Financial crises within our borders often have a global impact. The 2008 recession strained international markets because many countries have at least some assets and liabilities dominated by the dollar, causing them to sometimes borrow and lend in dollars.
To address the dollar scarcity, the Fed started swapping currencies with foreign economies in dire need of U.S. currency — over 583 billion dollars’ worth — at a predictable and fixed rate to keep struggling foreign banks afloat and prevent their economies from plummeting.
The Federal Reserve: A system of the People, by the People, and for the People?
The Federal Reserve’s power and influence over our economy leaves many asking if it’s an unconstitutional entity. Though Congress takes a laissez-faire approach to the Federal Reserve, the system teeters between public and private domains.
The effect of its present monetary policy decisions on the future economy could determine which direction future reform sways. It could also decide if the century-old institution modernizes into a structure more accurately reflecting the concerns and voice of the people, and one maintaining greater transparency while ensuring the long-term economic stability of the nation.
ICYMI: SALT Announces Justin English as Chief Executive Officer
In case you missed it, we recently announced that Justin English has been named chief executive officer at Salt Blockchain Inc., parent company to SALT Lending. Co-presidents Rob Odell and Dustin Hull, who have been working together for the past six months to fill the CEO role and onboard English, will remain co-presidents and will continue to support SALT in their respective roles as chief product officer and chief financial officer.
As operations at SALT carry on, it is not lost on us, as a company nor as individuals, that Black Americans continue to fight for racial justice. We are committed to hearing, learning from, and supporting our Black customers & communities in this fight for a more inclusive world.
We’re excited to announce our partnership with Uphold — the leading digital money platform democratizing access to investments and payments using blockchain technology — to provide Uphold users with seamless cash or stablecoin loans using cryptocurrencies as collateral. Uphold users can now secure loans through SALT in as little as 24-hours against their holdings in Bitcoin, Ether, Litecoin, Bitcoin Cash, Dash, and as of today, XRP. The integration of the two platforms provides enhanced access to liquidity, enabling users to unlock additional value in their holdings.
In addition to bringing leading credit solutions to Uphold users, we’ve integrated Uphold wallets into our platform, allowing the company’s large and rapidly growing user base to access Uphold’s products through their dashboard. The integration streamlines the lending experience for shared users through seamless collateral transfers and loan proceed payouts.
“SALT has given its users the flexibility to access loans using their cryptocurrency holdings. Our integration with the SALT platform allows us to grow our service offering and provides another real-world use case for Uphold members,” said Robin O’Connell, Chief Revenue Officer, Uphold.
With a crypto-backed loan from SALT, Uphold users can unlock liquidity from their crypto assets without having to sell them. Unlike traditional financial institutions, we allow customers to use their crypto assets as collateral to secure a cash (USD) or stablecoin loan in as little as 24 hours, providing them with the opportunity to reach their personal financial goals including but not limited to funding a large purchase, consolidating debt, or accessing working capital to scale their business.
When applying for a loan through SALT, Uphold users can customize their loan by choosing their preferred loan type, loan amount, duration, and Loan-to-Value (LTV) ratio with options ranging from 30%-70%. There are no credit or income checks required and no origination or prepayment fees. With a crypto-backed loan from SALT, Uphold users can keep their crypto and get cash.
“Uphold has built an impressive platform that provides a seamless on-ramp into the digital economy and a simple method to transact across diverse asset classes. We’re excited to bring our leading crypto-credit products to Uphold’s global customer base and enhance our borrower experience through a direct integration with Uphold wallets on our platform,” added Jarrett Abraham, Director of Corporate Development, SALT. “Together, we’ll provide ultimate flexibility for crypto holders who need access to liquidity across a range of crypto assets and fiat currencies. This is an exciting strategic partnership for us that helps further our mission to accelerate the world’s ability to embrace crypto assets and participate in the token economy.”
Uphold is a digital money platform democratizing access to investments and payments using blockchain technology. With more than 1.5 million users globally, Uphold has powered ~$5.3bn in transactions (9/30/19). Uphold provides both retail customers and businesses worldwide with easy access to fiat and digital currencies, as well as precious metals. The San Francisco based firm is opening up global access to financial services that are either ‘hard to reach’ or simply not available in certain regions. Available through the web, iOS, and Android, Uphold is the only financial platform to publish its reserve holdings in real time. The company also has offices in New York, Portugal and London. More information can be found at www.uphold.com, or follow us on Twitter, Facebook, and LinkedIn. Uphold is registered with Fincen in the United States and is an EMD agent of an FCA licensed e-money institution in Europe. Uphold is not a lender, loan broker, or loan arranger and is not offering anyone advice or assistance in obtaining a loan.
After identifying and evaluating new ways to add value for SALT Membership Unit (“SALT”) supporters, we’re excited to announce that we’re 1. now accepting SALT as collateral for a cash or stablecoin loan and 2. switching from a staking model to a redemption model.
How will this work when the price of SALT varies across exchanges?
Since Binance and Bittrex delisted SALT in February and May respectively, we’ve been searching for a valid third-party pricing source by which to value SALT. We define valid exchange pricing as the trading price on an unmanipulated market where the trading volume is high enough that a sufficient number of buyers and sellers can establish a price at which to transact. We determined that Binance and Bittrex were the only two exchanges to offer a sufficient market for SALT to provide validity in the previous year. To mitigate this change in pricing validity, we have taken the 60-day moving average from Coinmarketcap.com, using the 60 days prior to the delisting announcement by Bittrex. Using this pricing mechanism, we are recognizing a price of $0.15 per SALT on our platform. If, in the future, SALT is listed on an exchange with adequate trading volume, accessibility, and market depth to provide us with price validity, we will immediately recognize such third-party pricing.
What does this mean if I’ve already staked SALT to secure a loan?
If you currently have a loan with us and you staked SALT to get a reduced interest rate, your SALT will automatically be recognized as collateral in your collateral wallet and your interest rate will remain the same.
What else can I do with my SALT?
We are moving from a staking model to a redemption model. This means that while you can still use your SALT to secure a lower APR on your crypto-backed loan, the new redemption program will allow you to redeem your SALT rather than stake it. The reason we’ve switched to this new model is to offer you value for your SALT upfront. From now on, you can redeem your SALT to reduce your interest rate for lower monthly payments (go to saltlending.com for loan terms and options). The amount of SALT required to do so depends upon the size of your loan.
What if I don’t own SALT?
If you don’t own SALT, these changes will not impact you. Our goal with switching to a redemption model and adding SALT as a collateral type is to reward early supporters of SALT by offering them additional ways to use their SALT tokens the way they were intended to be used — to engage with our lending platform.
Having participated this week in the ADC Global Blockchain Summit held in conjunction with the South Australian Government and the Australian Digital Commerce Association (ADCA) in Adelaide, SALT is actively incorporating its technology services into the burgeoning Australian market. With a particular focus on strategies and practical applications for business growth via blockchain technologies and systems, SALT spoke to the Summit’s key topics from experience intersecting business, public policy, and the regulatory environment.
Australia has demonstrated a keen interest in developing its blockchain industry. The Ministry for Industry, Science and Technology today announced a blockchain roadmap with AU$100,000 in federal funding for “regulation, skills and capacity building, innovation, investment, and international competitiveness and collaboration.” Working directly with blockchain businesses at the ADC Summit, SALT is deploying its Software as a Service packages, which allow traditional companies to easily add cryptocurrency and blockchain offerings into their product portfolio including lending technology, wallets, monitoring, and blockchain analysis. With Australia’s continued commitment to developing blockchain services responsibly, SALT looks forward to working with interested parties and stakeholders across the Australian market to bring their vision into reality.
Crypto companies looking for extra liquidity to expand their businesses, such as exchanges or mining companies, can join SALT and apply for a crypto-backed loan.
As SALT continues to grow, we remain focused on further expanding our technology products, allowing both crypto and traditional companies to integrate blockchain services into their software stacks.
Salt Lending LLC: Salt Master Fund II, LLC – NMLS 1711910
This website contains depictions that are a summary of the process for obtaining a loan and provided for illustrative purposes only. For example a one year $10,000 loan with a rate of 6.00% APR would have 12 scheduled monthly payments of $861. There is no down payment required. Annual percentage rates (APRs) through the website vary. The use or access of the website or platform does not guarantee the availability of any current and/or future offer, promotion, terms, loan, or return. Additional terms, conditions, requirements, suitability, and screenings, among other restrictions, may apply at the sole discretion of SALT. Salt Lending LLC’s loans are issued pursuant to private agreements. You should review the representations and warranties described in the loan agreement.
Borrowing against collateral entails risk and may not be appropriate for your needs. Rates for SALT products are subject to change. Digital currency is not legal tender, is not backed by the United States or any other government, and SALT accounts are not subject to FDIC or SIPC protections.
No Investment Advice
Nothing on this website should be construed as an offer or sale of SALT Tokens, or any endorsement or recommendation regarding any type of digital assets. The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website’s content as such. You are encouraged to conduct your own research and due diligence and to consult your financial, tax or legal advisors before making any investment decisions. Digital assets are highly speculative and the market is largely unregulated. Anyone considering investing in or with digital assets should be prepared to lose their entire investment.
Third Party Information
Third party information, advertisements and hyperlinks on this website, including information about certain secondary exchanges on which the SALT Tokens trade, do not constitute an endorsement, guarantee, warranty, or recommendation in any way by SALT. Your access or use of any such third party services, including purchasing or selling SALT Tokens on a secondary exchange, is at your own risk and SALT will have no liability for any access or use of such services.
Accuracy of Information
Third party information, advertisements and hyperlinks on this website, including information about certain secondary exchanges on which the SALT Tokens trade, do not constitute an endorsement, guarantee, warranty, or recommendation in any way by SALT. Your access or use of any such third party services, including purchasing or selling SALT Tokens on a secondary exchange, is at your own risk and SALT will have no liability for any access or use of such services.