Next, you will need to deposit your cryptocurrency collateral. At this time, Salt only accepts Bitcoin and Ether as collateral. The company claims that they plan to expand to other currencies at a later date. At one point, their main page included listing XRP and NEM as potential collateral choices.
Once your loan is approved, the US dollars will be sent to your bank account within a few days and a loan contract will begin. Once a month, you will need to make a loan payment.
As you can imagine, this process is much more complicated and slower than ETHLend’s. By using ETHLend, there is no need to verify yourself with your ID, nor to wait days to get your money. You cannot be a lender at Salt, and Salt users need to have a US based bank account, while you can be both a borrower and a lender at ETHLend, based anywhere in the world.
Only Accredited Investors and qualified financial institutions can become lenders on the SALT Platform. All interested parties must complete the SALT Lending “Suitability Test” and meet a minimum investment threshold.
ETHLend vs Elixir
When comparing ETHLend to Elixir there are a lot of similarities. Both projects are focused on P2P lending and build on top of the Ethereum blockchain. The big difference is that ETHLend already has a working model which incorporates collateral. This makes it way safer option for lenders. Another thing what makes ETHLend stand out is their team. ETHLend has a huge team with a lot more experience compared to Elixir. When looking at their recent developments this becomes more evident, ETHLend seems to be steps ahead concerning the development of their DAPP, their business model etc.
While ETHLend, Salt and Elixir are three services that are currently operating, they all still have a long way to go and are all admittedly in early development stages. Therefore, the environment in which they operate is likely to change in the next few years. It is also possible that blockchain collateralized loans could be picked up by big established banks at some point in the future.
Margin Call Risk
The problem with these lending platform is that there is a strong risk of losing your collateral. This would happen in the event of a margin call.
A margin call is when the valuation of your collateral goes down to such a degree that the Smart Contract will demand that you pay them to rebalance the loan-to-collateral ratio. In simple terms, imagine that you borrowed $10,000 and you used 1.25 Bitcoin as collateral when Bitcoin was priced at $10,000 exactly. At this point, your loan is 125% over-collateralized. This means that there is a little wiggle room in the event that Bitcoin drops as much as 25%. If, however, Bitcoin values drops to let’s say $5000 each, your loan-to-value ratio is now unfavorable to the Smart Contract. At this point, a margin call would occur and the borrower could claim your tokens.
However, ETHLend offers the ability to loan in Ether. In this way, there is less chance of a margin call. Only the value fluctuations between Ether and the tokens that you have used as collateral are taken into account. You are solely responsible for not taking on too much debt. Always keep in mind your tokens can decrease in value rapidly, especially during bear markets.
Within the new version of the DAPP, ETHLend manged to significantly reduce the margin call risk. ETHLend added an option to refill your collateral if needed. A margin call can be avoided in this way. The team also announced they will include an option for borrowers to withdraw some of their collateral in case of an increase in value.
In this version lenders will have the option to do collateral refilling, which means that they can add collateral in case
ETHLend is currently working on a decentralized credit rating system which can be used in order to identify borrowers who are less likely to default a loan.