Not sure SALT is a good idea using cryptos as in BTC etc.. as collateral. BTC is so volatile that you could be underwater when BTC move down. However, my guess is that once cryptos are held, they are converted to fiat thus maintaining the collateral value si it doesn't matter if the BTC value goes down. However not sure what is paid out fiat or cryptos? I assume it must be fiat because price appreciation of the BTC will likely be with SALT and you just make the interest collected on the loan. Another type of similar investment vehicle is Populous which is structured better for the investor.
Agree, but it's not for fiat only. For example, you can use BTC as a collateral and lend ETH. If you're sure that ETH will rise and BTC will not, then can make a lot of profit from that, similarly to margin trading.
More likely they are hedged with leveraged shorts.
Once your cryptos are converted to fiat, what do you get in return for your investment- fiat? You then lose the appreciation value of your cryptos.
I said "hedged with leveraged shorts", not converted to fiat. Short-selling is when you borrow the asset being traded in order to sell it with the implicit promise to settle the debt at a later time (either by directly settling the debt, or buying back the shorted asset). If you hold BTC and wish to hedge against volatility, you can can shortsell an equal amount of BTC - then, if the price goes down, the coin you hold loses value but your short contract gains an equal amount of value; if the price goes up, you short contract loses in value while the coin you hold increases by an equal amount. The loan of the BTC you are shorting must be collateralized, but the collateral ratio can be less than 1:1 if you short with leverage (with 5:1 leverage, you only need 20% of the equivalent value in collateral).
Off the top of my head, I'm a little uncertain on how to apply the principle to the manner of secured loans they are offering, but I don't see another way they can possibly make good on the promise of returning the coin you put up to secure a loan, rather than the dollar value of it a the time that you borrow.
If they need to hedge with leveraged shorts then it just telling me that they do not have a stable plan going forward. To me a loan company is all about stability and consistency of income.
I'm speculating about how they might be doing it, and I could be way off. I also don't see how using industry standard techniques for hedging come off as not having a stable plan going forward. To reiterate, I could be way off. Does anyone have a different/better idea about how they might be able to make good on their sales pitch?
I guess we will know the answer when it goes live. They will have devised a way to skim their share of the profits from the investors after all they are backed by bankers!
I'm speechless.
As the time goes by, expect BTC and ETH to be MUCH less volatile. This 2018 will see a much more linear movement, as some financial products tied to the price start to work in the financial industry. Not saying it will be as boring as gold this last years, but definitely the $500 up or down days are likely over. And with Bitcoin at $25,000 , a small jump of a couple hundreds will not trigger your margin call ^_^
I think as the masses start to jump in volatility will go through the roof. Cryptos are not on the radars of the masses yet and when it is there will be a fireworks display.