The SALT Arbitrage Mystery - How (I think) It Works

In case you have not heard yet, SALT has launched its lending platform to the public.
you could consider it a soft launch at this point, since only Enterprise tier members with a US account
seem to be able to receive loans for now. But thats just a minor detail: the platform is live and so far over 6mil USD in loans have been granted (and according to their telegram channel, a backorder of 300mil being processed as we speak!)

Now here's the big mystery that has all of us scratching our heads: SALT has set the value of their token at $27,5 USD. apart from using it to buy products in their webstore
and paying for your membership, SALT can also be used to repay both your loan and interest. this would not be such a big deal if it weren't for the fact that the SALT token
currently trades on the public exchanges for roughly 13 USD at the time of writing.

THE ARBITRAGE OPPORTUNITY

Soon as this news got around, blog posts popped up left and right with how-to guides on how to take advantage of this situation:

1. apply for a loan (you can loan 80% of the collateral you pose. numbers are still a bit unclear since examples change a bit but as I was explained, loaning 10k needs 12.5k collateral. Currently only BTC is accepted as collateral, ETH to be supported soon.)

2. buy SALT tokens on the public market. at their rates, it would take roughly 364 tokens to repay 10K (plus some extra for interest etc.)

3. repay your loan with salt and pocket the difference. at the current rate you would profit 400 salt from this, or 5200 USD.

Do keep in mind that SALT only loans Fiat, which takes a few days to arrive in your bank account. This also means that none of the 3mil currently loaned out has arrived in people's bank accounts yet, which explains in part why this arbitrage push is not visible yet. UPDATE it seems SALT also loans crypto instead of fiat, though I dont have any official references for this yet.

PIECING THE PUZZLE

So why would SALT pay so much extra for their own token?
IF you look at their telegram chat right now, most of the questions asked are about whether the 27,5 USD is a typo or not, and how this could be possible.
Due to very strict regulations, the admins are unable to go into any details on this, which has led to quite a bit of confusion.
But if you read between the lines, this is what you find out:

• The team can not discuss price, at risk of their token being classified as a security rather than a utility.

• The team has set a value based on what they think it is worth, with the intention to not lower this price. however they reserve the right to change this value at a later time.

• All parties giving out loans are invested in salt for a certain minimum value.

• The SALT team holds roughly 67 mil tokens. total token supply is 120mil, trade volume today is 46mil USD.

• the tokens currently held by salt are for sale through their platform at their retail price (currently 27,5 USD)

• for every 25k tokens sold at retail through their platform, the price goes up by 2,5USD. This is subject to change at any time, but this is how it works right now.

• SALT does not issue loans, SALT is a fintech company. the people issueing loans are anonymous individuals going through SALT. So SALT is just as much a loanshark as airBNB is a hotel.

• Regulation is very strict and the admins are very well aware of that, being very careful with their wording.

Here's what I make of it:

at 13USD per token, SALT currently holds 871M USD in tokens. total cap for 120m tokens is 1.56B USD

at 27,5USD per token, SALT holds 1.85B USD in tokens. total cap for 120m tokens is 3.3B USD

To get from the current price to the desired price, SALT needs a useful token and a working platform.

To actually be able to redeem their value, SALT also needs trade volume.

With the right incentive, people will use the SALT platform. an arbitrage gap of more than 50% definitely is an incentive.

SALT won't have to buy back ALL tokens at their retail price. token popularity will do the real work, once word gets out SALT guarantees their retail price for a token people won't even have to sell it back to the team, there will be plenty of demand on the public markets.

And since every 25k retail tokens raises the retail value by 2.5USD, we'll see a staircase effect for as long as demand remains in place (once again - subject to change, however I believe this to be one of the core workings of salt)

So how do the loans fit into this?

SALT needs liquidity to purchase their tokens at retail. since this is quite costly, it provides an opportunity for wealthy individuals to issue loans at good rates. and since no one in their right mind would repay these loans with anything but SALT tokens, the token value creeps up.
SALT can redeem their tokens at will on the public market, which will net them less than retail but since the token value is higher than starting point to begin with, the cost is neglectible. also, keep in mind the production cost of tokens is quite a bit less than retail and with a stack of 67Mil tokens, the team will have no real liquidity issues.

If you fast forward in time we can have a look at the endgame. at some point, SALT will find equilibrium when it no longer becomes worth it to buy up market cap and volume. this will also provide a pretty stable fixed redeemable token value, which is good for the loaning model. in a way, price will become self regulated.

SO WHAT ARE WE WAITING FOR?

Short term, what needs to happen is a success story. as we speak, loans are being processed. We are waiting for FIAT to transfer from one account to another (which is slow) and then back to coinbase (which also takes time). UPDATE with salt also doing crypto loans, this process may be a bit faster.

as soon as these loans are reissued into crypto, someone will be able to validate whether or not the retail value of 27.5USD actually repays the loan + interest. when this happens, we can expect stories to pop up here on reddit and everywhere, talking about successful arbitrage upwards of 50%.

Meanwhile, SALT is very carefully processing loan requests. this will ramp up once they get the hang of it and once their concept proves true.
if you put these two together, slowly but surely more people will want to take advantage of this and as long as SALT is able to process the load, there is no reason for this arbitrage to stop before it hits retail.

The main risk I see right now is momentum, this needs to build and keep up right now. Things are going very well (just look at the 300m backorder) and its crucial it stays this way. SALT needs the volume and cap to function properly so this first phase is actually quite crucial. but if they make it, there's no reason for SALT to stop.

After hanging out in the public channel and the user run channels (where speculation is not as moderated) I have also heard plenty of good things for the future - things like overhauled referral programs and more usage incentives to come soon. I'll definitely be keeping my eye on this project for a while.