“Keep your crypto – get your cash”. The SALT business model does this by having users purchase SALT tokens, in order to purchase a membership on the SALT lending platform. Then, users can draft loan agreements with the SALT network of lenders. Borrowers use their crypto as collateral to obtain US Dollars or other fiat currency. No credit checks are performed. Interest rates and loan durations are up to lenders and borrowers. SALT’s target market are those who want to make purchases with returns they’ve earned on their crypto investments, without actually having to sell their crypto (thus foregoing any future returns, and having to pay capital gains taxes on closing their position).
Traditionally, collateralized loans involve putting up a relatively stable asset (land, car, etc.), to obtain a loan. If borrowers miss payments, thus defaulting on the loan, the lender can then repossess the collateralized asset (land, car, etc.) to help cover their losses.
SALT designed loans to make your blood pressure rise because they are not backed by assets that keep a relatively stable value; they are backed by the unestablished and volatile asset class of cryptocurrency.
Imagine what happens when the crypto market takes a hit. Borrowers have more incentive to default on their loans because the crypto they were trying to preserve is no longer as valuable. Lenders are then left with a defaulted loan and an asset that can’t cover their losses. More trustworthy borrowers might still repay the loan, only to get potentially worthless crypto back, in the end. Yet defaulting will likely be the more common out, considering projects like SALT (or their network of lenders) are probably not recognized by official credit bureaus, to have any influence on the defaulted borrower’s credit score.
If you want to make the bet that crypto will continue to boom – throughout the life of your loan – enough to justify interest rates to the lender(s) and cost of SALT membership, then maybe this is a good move for you. If you see it more how I do, run the other way, while warning your homies mid-stride. Notice that SALT doesn’t even directly take on the risks of the loans they are promoting. They are instead compensated by users buying the SALT membership.
Thank you for reading! Here is a supplementary video, of my passionate rant against such business models, and why they are so dangerous, on a potentially global scale: