SALT is an Ethereum token that is used to gain access to the SALT Lending Platform. This platform allows for ‘Blockchain Backed Loans’, which enables holders of blockchain based assets to stake these assets as collateral for a cash loan. This Secured Automated Lending Technology can be ideal if users need to pay-off an unexpected expense or want to make a larger purchase without having to sell-off their blockchain assets.
Why are blockchain assets ideal? A quote from SALT’s official site.
Blockchain assets are an ideal form of collateral because they are inexpensive to transfer, store, and liquidate when compared to traditional forms of collateral like real estate or stocks. The key innovation of the blockchain is its distributed, peer-to-peer ledger. The blockchain allows for the highly efficient management of collateral in a transparent and publicly viewable manner. This eliminates fraud and greatly lowers transaction costs. Because SALT Lending is built to capitalize on the advantages of the blockchain, we can offer more competitive interest rates to both our borrowers and lenders.
Unlike a bank, SALT works to connect lenders with borrowers. Borrowers are automatically matched with capital from an extensive network of lenders. SALT keeps collateral assets safe in an audited, and secure smart contract wallet. This is a specially designed wallet that four individuals hold the key for: the lender, the borrower, a third party custodian and the SALT Oracle. In order for funds to be moved, at least three of those parties must enable it.
Taking a look at the first party in the system are the members and borrowers themselves. There are three different tiers of membership, each costing a different amount of SALT tokens per year. Each tier has different financing options and loan capital limits. Members have to go through a Know Your Customer process yet never inquired about their credit score. Instead, the SALT platform uses the value of their crypto collateral to calculate the terms of their loan.
Where there are borrowers, there has to be a party that lends the capital. SALT provides the infrastructure lenders need to accept blockchain assets as collateral. Lenders have traditionally not dealt with this new asset class because of the lack of compliance, security and general infrastructure. SALT gives lenders these tools in exchange for also paying for a SALT membership, same as borrowers.
To start the loan process, lenders post their lending terms on the platform (lenders are screened, accredited investors). This gives the borrowers an opportunity look at the different terms from unique lenders and pick the one best suited to their situation. When a loan term is selected, both parties submit their assets into a smart contract. Once the digital assets are in the contact, the cash is deposited into the borrower’s bank account.
The smart contact in which the funds are submitted is called the SALT Oracle Wallet. Trusted infrastructure in the form of a multi signature blockchain wallet stores the collateral and automatically enforces the agreed upon lending terms. With the value fluctuation of blockchain assets, the Oracle is also used to continuously calculate these changes in price. For instance, if the value of the collateral falls below an agreed upon amount, the Oracle triggers a maintenance call to the borrower. The borrower is then told to either deposit additional collateral, or simply make a cash repayment. On the other hand, if the value of the collateral increases, the borrower could add increased value to the loan and get additional cash or simply withdraw the excess collateral from the smart contract.
The SALT tokens function more than a simple membership tool. They can act as a way to pay loan interest, and get more favorable rates on loans. The tokens have a set value on the platform which will be increased and decreased by the project’s team.