Withdrawals were halted by the crypto lender in mid-November. It will begin operations in the first quarter of 2023, boosted by a Series A recapitalization.
The crypto winter and the FTX meltdown have wiped out the ranks of cryptocurrency lenders. Genesis, BlockFi, Voyageur Digital, and Celsius Network have all declared bankruptcy in the last seven months, and the virus may still be spreading. However, at least one crypto lender looks to be on the mend.
SALT Lending, one of the world’s first cryptocurrency lenders, stated on February 8 that it has finalized a $64.4 million fundraising to improve its balance sheet and replenish capital reserves. In exchange for their investment, accredited investors will obtain shares of the company’s preferred stock. The Series A recapitalization attempt is still subject to regulatory clearance, but it should allow the business to resume full operations in the first quarter.
As previously reported, SALT Lending, located in Denver, issued a “pause,” i.e. a freeze, on withdrawals and deposits to its lending platform in mid-November, shortly after the FTX meltdown. SALT, like some other crypto businesses, has utilized the Bahamas-based FTX to fund its lending activities.
“In 2022, cryptocurrency experienced a perfect winter storm, displacing important industry actors including as Terraform Labs, Voyager Digital, Celsius Network, Three Arrows Capital, FTX, and BlockFi. SALT was not immune to market dynamics, but we are committed to emerge stronger than ever,” Shawn Owen, SALT’s creator and interim CEO, said in a statement today.
While SALT Lending never declared bankruptcy, their November withdrawal freeze sparked a mini-storm on social media. The company also lost its California lending license, and an agreement to sell it to BnkToTheFuture fell through.
The California license is still suspended, but Owen told Cointelegraph in an interview that the company is working with state officials to have it reinstated. “We’re being as honest as possible, and we’re teaching them on every element of how the business model works.” However, Owen is unable to predict when or if the license will be reinstated. “You can’t make any guarantees because they have discretion. But we’re doing our best to be decent performers.”
SALT intends to seek further funds later in 2023 — a Series B financing in the $100 million area — to expand its capital buffer, according to Owen.
The failure of FTX had a noticeable impact on SALT’s business. “We had accounts on FTX,” Owen explained. He was taken aback when the Bahamas-based exchange abruptly failed. “We thought that FTX was another platform that had strong liquidity and a solid UI and was one of ours until 48 hours before it failed.”
Individuals and corporations may use Bitcoin and other cryptocurrencies as collateral for fiat loans on SALT’s platform, but borrowers may desire to pay off their debts and retrieve their collateral.
As a result, a lender like SALT must be able to demonstrate that it “can sell collateral pretty much instantly at a specific price,” he added. “And to achieve that, you either have contacts with buyers – or you must be the buyer.” As a result, additional funds are required.
“The freeze on withdrawals and deposits in November was alarming for our consumers,” said one customer. As you can expect, some of them had already been locked up and had lost money in Celsius and Blockfi. ‘This is just another one,’ they thought. ‘Everything is falling apart.'”
He stated that it would take a Herculean effort to settle things down. “I’ve basically been working days, evenings, and weekends for 60 days straight, communicating directly to individuals.” He set out on a quest to “talk to each and every one of our consumers in person.”
When asked about the company’s clients, Owen stated that they were mostly people and businesses that were keeping and storing Bitcoin for the long term, as BTC is the primary asset on SALT’s platform. Customers want to monetize their cryptocurrency “whether it’s for purchasing real estate, paying bills, or whatever,” but they need to know they can pay off the loan and get their collateral back if they want to.
SALT, which was founded in 2016, claims to be the first platform to provide collateralized blockchain-backed loans, albeit it remains a minor player when compared to three other businesses with whom it is frequently compared: BlockFi, Celsius, and Nexo.
But when FTX crumbled, “it stunned us beyond what we were prepared for,” so we “ducked our heads and basically said, ‘We don’t know how terrible this epidemic is. We’d best find out where this is going.'”
According to Owen, this is when the business decided to “essentially suspend our service” in order to safeguard money. “We’d never done anything like it before. The company was never intended to be a toggle switch or to be switched on and off.”
Of course, many other individuals were astonished and appalled, and cries for the crypto business to be more controlled were heard almost immediately. Is regulation something that crypto lenders will just have to accept in the future years?
“The regulation, in our perspective, is already in place.” Lenders in the United States are needed to be licensed on a state-by-state basis. The issue was not a lack of laws or rules. “It was only that they weren’t following the regulations,” Retail clients were persuaded to deposit monies on platforms that were neither banks nor licensed securities businesses in order to receive exorbitant “yields.” “That was plainly unlawful, and we never did it. “I don’t think that will ever be permitted now that the public is thoroughly informed,” Owen added.
Others argue that the crypto loan failures have created a market vacuum, and that traditional financial institutions, such as banks, will now rush in to fill the space. What is Owen’s point of view?
“I believe banks will become engaged when they can, but I don’t believe we’re there yet.” Recent occurrences have dissuaded them from participating. “There is a lot of retreat.” In fact, he feels that many institutions today are more interested in central bank digital currencies than in crypto.
“If you had asked me a year ago, I would have responded that banks were probably becoming more interested. If you asked me today, I’d say they’re probably three or four years away.”
Have you learnt anything in the last year? “The overriding one is deception. You must constantly be on the lookout for counterparty risk because there are bad actors.” However, there are certain immediate actions that may be performed.
“First and foremost, there is the notion of having collateral to back up any type of loan.” So many of the recent financial meltdowns were the consequence of unsecured lending. “Lending against an asset that is over-collateralized can be more safer.”
The second lesson is one of transparency. “I think a lot of people feel exploited because they were told one thing and it turned out to be something different.” A final lesson is the need of capital reserves. Because there is no FDIC insurance for cryptocurrency, having sufficient capital reserves is especially important. “That’s why we want to ramp up for a large Series B $100 million-plus funding round, because to expand our model, we’re going to require significant capital reserves, much more like a bank,” says the company.
The crypto business isn’t out of the woods yet, but SALT Lending’s interim CEO believes a better market will emerge sooner or later.
“To use a technical phrase, Bitcoin and cryptocurrency are ‘antifragile.'” It’s used to being attacked, and each time it comes back stronger than before. “I think right now there’s no doubt we’ll come back much stronger.”
“Though it feels like we’re passed the worst of it,” Owen says of the storm. But I don’t want to bring us down.”
