SALT Expands Lending Opportunities to Businesses in Australia

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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.

Evaluating Interest-Bearing Crypto Accounts

By Zev Shimko, Jenny Shaver and Blake Cohen

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The latest offering in crypto custody is an interest-bearing crypto account. Although marketed similar to cash deposit savings accounts offered by traditional banks, the structure of this type of interest-bearing crypto product is more closely analogous to securities lending and should be viewed as such when assessing the risks associated with placing crypto in an interest-bearing account.

There are certainly benefits to interest-bearing crypto accounts — namely the ability to earn a return on a custodied asset beyond its possible appreciation value. However, those interest benefits aren’t without their own risks. Here are some important considerations when assessing if an interest-bearing crypto account might be suitable for your risk appetite*:

When opting for an interest-bearing product, your crypto assets may be commingled (where funds belonging to one party are mixed with those of a second party), and rehypothecated (practice whereby a broker or lending agent uses assets in their possession, but owned by their customer, to invest with or lend to a third party). In this structure, your funds may be taken by your custodian (acting as a lending agent), pooled with other assets owned by other customers of your custodian, and lent to a third-party. As a result, and in return for interest payments, you may forfeit several rights associated with your crypto assets. For example, you may be unable to quickly withdraw your crypto in whole or in part and you may lose, due to the commingling of your assets with assets owned by other customers, the ability to independently verify the security of your assets on-chain. Instead you may be supplied with a percentage statement or value statement regarding your interest in the crypto collateral you deposited into your account.

With a traditional bank savings account, your cash deposits may be lent to other financial institutions and vetted borrowers who have a multitude of options for generating wealth with the borrowed funds. In many cases, these traditional bank accounts are also insured and operate within strict regulatory guidelines and limitations on the collateral percentage, number of parties, among other restrictions for and to which the deposited assets can be lent, distributed, and relevered. These regulatory guidelines and restrictions prevent traditional financial intermediaries of this type from participating in some high-risk lending behaviors when it comes to their customer assets, but do not, generally, prohibit the rehypothecation of deposited assets under certain conditions. These intermediaries then cover their costs, not by the fees charged on the interest-bearing customer accounts, but through the income generated by lending and investing those assets during the rehypothecation process. While this process seems straight forward and analogous to what might happen with the crypto you deposit in an interest-bearing account, some additional crypto market specific comparison will help to highlight the difference in rehypothecated use between cash denominated and crypto denominated accounts.

While there are certainly financial institutions which take short and long positions on various currencies, the typical use case for rehypothecation in cash accounts is the lending or investment of the cash deposited directly to a third-party and not for direct speculative purposes in that asset. However, for many institutional crypto holders, the primary use case for generating returns with crypto assets is often to take a speculative position on the asset itself. An institution with a bearish view on the market, for example, may look to short sale opportunities — borrowing crypto and immediately selling it in hopes of a future purchase at a lower price to close the position. The institution will only net a profit if the value of the crypto falls below their initial sale price, which means you and the counterparty borrower are betting on opposing outcomes. As a HODLer of crypto assets, it’s important to understand the motives of each party involved aside from what traditional rehypothecation in cash accounts might suggest. This comparison highlights the operational difference in the rehypothecated use of cash deposits and crypto deposits in interest-bearing accounts and should motivate anyone seeking to deposit their crypto into such an account to carefully inspect the intended and permitted uses of the assets they plan to deposit.

Any custodian or intermediary entrusted with your crypto may be required to act in a responsible capacity either by their position as a custodian or fiduciary or by some applicable regulatory regime. However, there are still strategic and operational choices which may put your assets at risk. For companies offering interest-bearing crypto accounts, how might they be regulated? Traditionally chartered banks, for example, are regulated by the FDIC and must carry insurance and maintain fractional reserves to address withdrawal, and other requests without becoming overextended. Lending intermediaries are also often required to maintain capital reserves to cover risk exposure of defaults in capitalized accounts and through bonds or other insurance policies.

Given that crypto regulation is scant, the savvy crypto account holder may want to make a detailed investigation of how and through what methods companies offering interest-bearing crypto accounts have structured their risk mitigation. For example: Does the company carry insurance for your assets? What is the claims process in the event of an incident? In a relatively nascent industry, transparency of risk mitigation protocols should be table stakes for any interest-bearing products. In addition to the primary lender or custodian involved, downstream market participants face similar responsibilities as any loss throughout the ecosystem may lead to direct counterparty effects.

As an extension of assessing operating risk, a savvy account holder should also understand how counterparty risk is being mitigated and which or what counterparties may be involved. When it comes to borrowers of your crypto assets, who are they and how have they been vetted for their own operational risk? Should a third-party default on their obligation, what are the implications for your account? For loan agreements, it’s important to know how they are being structured to mitigate default risk. For example, in securities lending, borrowers are often required to post collateral. In this case, it’s important to understand what the lender is doing with the collateral and how the collateral account is being managed. Is the collateral itself being rehypothecated to earn additional returns? If so, what are those direct or indirect investments and how risky might they be? Transparency and accountability are key and so is a keen eye for the fine print.

Since all-time highs, the price of Bitcoin has dropped roughly 80%, with the largest recent weekly drop of 22% and one-day drop of 12%, both in November 2018. Heightened volatility is no stranger in the cryptocurrency world as the market can turn meaningfully in a period of days, or even hours. It is important to take note of an extended lock-up period (or simply a delay in withdrawal) associated with any interest-bearing deposit account as any delay in or restriction on your ability to liquidate or transact your assets may subject you to additional market risk. Alongside normal course market volatility, an increase in borrowing crypto for the purpose of a taking a short position, especially if undertaken by a large subset of holders in a particular asset, may potentially exacerbate any downward pressure on price, heightening lock-up risk through increased intensity in negative peak volatility.

Before depositing crypto into an interest-bearing account, take a look at the fine print. Returns initially quoted may carry restrictions on the period of time they are available, may require additional deposits or transfers, and may have additional caveats regarding market conditions and other impediments. It is important to understand the process and any notice requirements or promises made by your lender or custodian for any changes to the quoted interest rate. Depending on the size of the custodian or lender, interest bearing accounts which carry guaranteed interest rates may require significant cash outlays by the custodian or lender as a cushion for the quoted returns. Understanding the custodian’s cash and balance sheet position may also be important depending on the amount of crypto being deposited.

There is a place for interest-bearing accounts in the crypto ecosystem and as the market matures so will the terms and safeguards associated with these accounts. In the meantime, you must seek transparency for how your funds may be distributed and how risks are being mitigated. It’s important that you request adequate information, and that you handle your crypto assets with a full understanding of the risks and tradeoffs. Happy HODLing.

  • None of the information contained in this post should be taken as investment advice or any suggestion for or against the suitability of any interest-bearing, custody, or other crypto currency product for any investment, diversification, or market strategy. Salt does not offer investment advice. Please speak to your advisor, tax accountant, and/or legal counsel regarding the suitability, risks, and legality of any crypto market position or strategy. Salt is not a bank and is not FDIC insured. Please see www.saltlending.com for additional information, references, and disclosures.

Loan to Value (LTV) Explained

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When you apply for a traditional loan, the lender uses your credit score, as reported by third-party credit agencies, to determine your credit worthiness or financial “reputation.” The higher your credit score, the lower the risk. To offset your credit score or in some cases even completely remove it from the equation, you can apply for an asset-backed loan. With this type of loan, you can offer up your assets — anything from your house or car to your stock portfolio — as collateral to act as “insurance” for the lender. In asset-backed lending, borrowers typically secure loans for an amount that’s less than the total value of the collateral.

The measurement of the balance of the loan relative to the value of the collateral asset is represented as loan-to-value or LTV. For example, you may have a loan for $320,000 for a home that is valued at $400,000, in which case your loan is 80% of the total value of the home.

As an asset-backed lender, one of the things that makes SALT unique is that we don’t even look at your credit score. With a SALT loan when you have collateral — whether you’re unbanked, haven’t accumulated credit, or have poor credit — you can still get a loan. Instead, SALT uses loan-to-value of your collateral to assign risk. As LTV is a measure of risk, the lower the LTV, the lower the risk for the lender (and therefore the lower the interest rate for the borrower).

How is LTV calculated?

Good question.

LTV is calculated as the loan amount in USD divided by the value of the collateral in USD, expressed as a percentage.

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As an example, if you have a current loan balance of $100,000 and your total collateral asset balance is $200,000, you have an LTV of 50%. To make things easier, we’ve added an LTV Helper to the borrower portal that illustrates exactly how the LTV is calculated. See below.

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Understanding LTV and how it’s calculated is essential to making an informed decision about your loan terms. Liquidation events benefit no one, which is why we provide the tools like our automated notification system to help you avoid them. Before you apply for a loan, you should ask yourself:

  • How much do I need?
  • How much total crypto do I have?
  • Am I prepared to deposit more crypto if necessary to lower my LTV?

Once you answer these questions, you can choose the LTV that’s right for you.

Starting LTV

When you are taking out a loan against your crypto assets with SALT, you presently have 3 options for your starting LTV; 30%, 40% and 50%. The starting LTV will determine approximately how much (in terms of dollars) of the crypto asset you will need for that loan.

From the example above, for a $100,000 loan, you would need $200,000 in Bitcoin, Ether, Doge, or Litecoin to secure the 50% LTV loan option. For a 40% LTV, it would be $250,000 and for 30% LTV, it would be approximately $333,333.

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Using LTV as a measure of risk, the 30% LTV option is the lowest risk.

Why is a lower LTV seen as less risk?

As the LTV goes up, the value of the underlying asset goes down. In the case of a crypto asset-backed loan, the value of Bitcoin, Ether, Litecoin, or Doge is trending down.

If the price of the crypto asset falls too low, the LTV will continue to increase. As it approaches 100%, there is a threshold where the collateralized asset will be sold to pay back the loan. This is known as the liquidation threshold. This threshold can vary from business to business and loan to loan.

For our example, let’s say the liquidation threshold is set to a 90% LTV.

When the LTV ratio reaches 90%, the crypto asset will be sold to reduce the LTV back down.

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Timeout. Liquidations!?!

At SALT, we pride ourselves in having a robust notification system that relays important account activity to borrowers via our portal, text, phone calls, and emails. We give you control of how you want to be notified about each activity. You can be notified of everything from deposits and withdrawals to LTV warning thresholds.

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As a borrower, you always have the option to transfer more collateral at any time.

Back to LTVs.

Why does this matter?

As you might be aware, the price of Bitcoin (or any crypto asset) can move up and down. As the price moves up, your LTV goes down. As the price moves down, your LTV goes up.

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To build on our earlier example of a $100,000 loan with a 50% LTV, let’s use Bitcoin as the underlying crypto asset. In this example, let’s use $4,000 as the US dollar price of 1 Bitcoin.

Loan Amount = $100,000

Starting LTV = 50%

Price of 1 Bitcoin = $4,000

Doing the math $200,000/$4,000, you would need approximately 50.00 BTC to get a $100,000 loan with a 50% starting LTV.

Bringing it all together!

From above, assuming the liquidation threshold is set at 90% LTV, the price of 1 Bitcoin would need to go all the way down to approximately $2,222 to raise the LTV up to the liquidation threshold of 90% LTV.

A $100,000 loan with a starting LTV of 40%, would require 62.50 BTC at a price of $4,000 per Bitcoin. However, the 90% liquidation threshold would not be reached until the price of 1 Bitcoin went down to approximately $1,778.

Repeating the example with a 30% LTV, you would need 83.33 BTC at a price of $4,000 per Bitcoin and would reach the 90% liquidation threshold when the price of 1 Bitcoin was approximately $1,333.

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STABILIZE IT

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Today we’re proud to announce a partnership with CENTRE Consortium to accept USD Coin (USDC) as collateral.

A product of a collaborative effort between, Coinbase, Circle, and the CENTRE Consortium, USDC is a new stablecoin backed by the US dollar. According to Coinbase, “One USDC is a 1:1 representation of a US dollar on the Ethereum blockchain” and “each USDC is 100% collateralized by a corresponding USD held in accounts subject to regular public reporting of reserves.” From a credibility standpoint, Circle has partnered with accounting firm Grant Thornton LLP to conduct monthly audits of US dollar reserves backing the number of USDC tokens in circulation.

Why add USDC?

We’re constantly evaluating and analyzing new collateral options to determine how a given collateral will benefit our customers. Typically, we base our decision to add a new collateral type on a number of factors including the voting feature on our borrower portal. In this case however, we deliberately chose to add USDC in direct response to the market volatility we’ve recently experienced.

When there’s volatility in the market, it directly impacts your LTV, which can result in an undesired loss of collateral. We’ve heard your feedback regarding the need for transfer options that can be implemented on nights, weekends, and holidays. We’re adding USDC to the mix because we want you to keep your crypto, markets don’t.

By adding USDC we’re providing a quick, easy way for you to stabilize your LTV when there’s a rapid drop in the market. Given it’s backed by the US dollar but isn’t wholly tied to the U.S. banking system, you can transfer USDC as collateral at any point in time to bring your LTV back down. Now, rather than waiting for the bank to open to lower your LTV with a wire transfer, you can take immediate action when you notice your collateral is declining in value due to market volatility.

With the addition of USDC, SALT now offers loans backed by Bitcoin, Litecoin, Ethereum, DOGE, and USDC — you can secure a loan backed 100 percent by a single collateral type or combine them in a way that works for you.

Interested in applying for a loan? Sign up here. Or visit saltlending.com to learn more about SALT’s offerings.

Read more about the USDC Ecosystem.

SALT Expands U.S. Reach to 86%, Offers Blockchain-Backed Loans™ in Washington, D.C.

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We’re now offering Blockchain-Backed Loans™ in Washington, D.C., Oklahoma, Arkansas, and Montana, meaning we can now lend in 86 percent of the United States.

As SALT continues to grow, we remain focused on continuing to expand our lendable jurisdictions not only within the United States, but throughout the entire world. “We recently announced a significant increase in our international jurisdictions and have continued to build upon that progress over the past couple of months,” said Bill Sinclair, CTO and Interim President and CEO of SALT. “With the addition of our nation’s capital and three other U.S. jurisdictions, we’re that much closer to achieving our goal of being able to provide loans to the entire country.”

For more on SALT’s lendable jurisdictions, visit saltlending.com.

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Pass the SALT, Grow Your Wallet

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Love SALT? Tell your friends about us! Many of you have already been spreading the word about SALT and have helped us grow our community (Thank you!). That’s why starting today, we’re offering $50 in Bitcoin to you and your friends when they take out a Blockchain-Backed Loan™.

How does it work exactly? Like this:

Step 1: Log in to your SALT account to access your unique referral code

Step 2: Share it with the world

If you don’t already have an account, sign up today to get your code and start growing your wallet.

Just share your code or link with your friends via email or use the hashtag #PassTheSALT to share it with your Twitter community — as soon as someone achieves an active loan status using your referral code, you’ll both receive $50 in Bitcoin from SALT. It’s that simple.

Our Two Satoshis on the 10th Anniversary of Bitcoin

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Ten years ago today Satoshi Nakamoto announced his vision to change the world. This vision came via the Bitcoin White paper, which defined Bitcoin as “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” Since the publishing of the white paper, Bitcoin has completely revolutionized the way we think about the world — not only in how the world works today, but in how it can work in the future.

As we acknowledge the tenth anniversary of Satoshi’s white paper, we at SALT are proud to not only be contributors to the blockchain space, but to be among those working to advance the capabilities of humanity via blockchain. Ten years later and Satoshi’s work is still inspiring people throughout the world — it’s the catalyst for individuals and companies to find new ways of addressing challenges with global finance, real estate, and healthcare, to tracking everything from global food supply, to votes to donations. It’s not just a new technology but a new way of thinking — and one thing’s for sure — SALT wouldn’t exist without it.

To commemorate this moment in time, we spoke with SALT’s team and clients about what Bitcoin means to them, how it’s impacted their lives, and how it’s changed the world. Here’s what they had to say:

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Blockchain: The Path Forward

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What began just over 10 months ago as high-level conversations around blockchain technology culminated this week with what was arguably the world’s most significant blockchain conference. Hosted by the Organization for Economic Co-operation and Development (OECD) and designed for regulators and industry participants, the OECD Blockchain Policy Forum was the most important discussion around the deployment of blockchain in dozens of industries to date. The OECD is an intergovernmental economic organization committed to democracy and developing best practices across domestic and international policy that lead to improved social, economic, and environmental health on a global scale.

As a premier sponsor for the event, SALT is proud to say that our Co-Founder and Director of Global Strategy, Benjamin Yablon, has not only served as Special Advisor to the OECD for the past year, but also that he had the opportunity to represent SALT this week as a company leading the global conversation around blockchain.

According to Ben, the forum led to three major positive outcomes, all of which illustrate the promise of blockchain and the international community’s ability to work together to fulfill that promise:

“The sheer fact that three heads of state attended the forum speaks to the fact that a broader audience is recognizing the value of blockchain technology,” said Benjamin Yablon. “This level of international participation is unheard of in this emerging space and I’m grateful to both José Ángel Gurría Treviño, Secretary-General of the OECD, and Greg Medcraft, Director of the Directorate for Financial and Enterprise Affairs of the OECD, for allowing me to contribute in an advisory capacity with a platform starting to address the OECD directorate in such a direct way. Our collaborative work is what made this Forum happen.”

Ben is looking forward to continuing to serve as an advisor to the OECD, helping to shape the global narrative around blockchain, and execute on many of the ideas and proposals that came out of this week’s Forum. “There’s more interest and excitement around this topic than you can imagine, and the

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OECD was the perfect conveyer to have this type of discussion, primarily because the global ecosystem values the OECD as a neutral standard setting body that is uniquely positioned to bring our voices together for the greater good — an environment that others just can’t offer,” he said.

As Ben noted in his panel discussion earlier this week, achieving mass adoption of blockchain technology and digital financial assets will require the development of a taxonomy — an agreed-upon set of terms and definitions that will enable us to speak about these concepts in way that drives understanding and alignment among industry and governmental leaders. “Once we have a true taxonomy, principles-based regulatory frameworks will to start to exist,” Ben noted.

It’s clear from this week’s forum that a lot of progress has been made in the past couple of days, but it’s even more evident that there’s still a great deal of work to be done. It will take years to bring this process to maturity, but as long as we have solid leaders in place to guide discussions, propose solutions, and make decisions, we can feel confident that we’re heading in the right direction.

OECD Blockchain Policy Forum: Maximizing the Potential of Blockchain will require LEADERSHIP

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“The opportunities of the long-term developments of blockchain far outweigh its risks.” 

These are the words with which Prime Minister of the Republic of Mauritius Pravind Kumar Jugnauth kicked off the OECD Blockchain Policy Forum. Not only did these words set the stage for the event, but they reflect the very sentiment of it — it’s not about whether we should take blockchain to the next level, but how we should go about doing so. Leadership was the recurring theme throughout the day’s discussions and, more specifically, how we as leaders have a responsibility to leverage blockchain technology in ways that benefit the greater good.

As Editor of The Economist and today’s emcee, Anne McElvoy, so elegantly put it, “At first we thought this technology was the engine of security, then it was thought to be the engine of trust — and it is all that — but I think of it as the engine of innovation.” While blockchain has changed the way we think about security and trust via trustless transactions, it now calls on us to continuously develop new ways to apply the technology to our everyday lives. How can we leverage blockchain technology to positively impact our societies and economies? How can we continue pushing the limits of innovation when there are still so many variables? What steps can we take as an international community to drive universal alignment and understanding as it relates to blockchain tech? Collaborative leaders — people committed to working together to effect change — will be paramount to pushing blockchain technology to its full potential.

As an advisor to the OECD for the past year, it was exciting to see SALT’s co-founder and Head of Global Strategy, Ben Yablon, foster discussion around these challenges during his panel, titled “Building a Global Policy Environment for Digital Financial Assets.” Of note, he touched on the need to develop a single lexicon as an initial step toward creating a framework around how we describe blockchain technology and digital financial assets. It’s an ongoing discussion, and I’m proud that Ben will continue to offer his leadership to the OECD on how to begin working through some of blockchain’s biggest roadblocks. While there were numerous panelists and speakers at the event, all with different expertise and perspectives, the underlying theme of all of them was the same — we must take it upon ourselves to ensure we are leveraging blockchain technology in the best ways and remaining open-minded as we think about the opportunity it creates for the world.

-Jennifer Nealson, SALT CMO