Galoy Inc. is the team behind El Salvador’s Bitcoin-based circular economy Bitcoin Beach wallet. Now, they are adding a new feature: bitcoin-backed synthetic US Dollars.
A BTC-backed US dollar will allow anyone to hedge against bitcoin’s volatility, which is often viewed as a necessity by citizens from developing countries. Although bitcoin is considered the best currency, it could still be used in daily transactions. However, some people see value in both saving and spending in USD. Galoy’s latest product feature, Stablesats allows users to do all of that in Bitcoin. .
Galoy CEO Nicolas Burtey stated that users can send, receive and keep money in USD accounts with stableats-enabled Lightning vaults. This statement was sent to Bitcoin Magazine. “The dollar value of your BTC accounts fluctuates but $1 in your USD account stays the same regardless of the bitcoin exchange rate.
Galoy’s implementation is different from other “stablecoins” such as Tether’s USDT. It doesn’t have a token; it’s bitcoin that has been stabilized on a dollar balance.
Galoy shared with us that he raised $4 million to develop GaloyMoney. This open-source Bitcoin banking platform has a flexible API and an enterprise-ready Lightning Gateway that allows organizations to make Lightning payments. Hivemind Ventures led the round, along with Valor Equity Partners. Timechain, El Zonte Capital and Kingsway Capital were also included. Trammell Venture Partners was also involved. AlphaPoint was among those who participated in the round.
GaloyMoney’s open-source core banking platform is secure and includes mobile wallets, point of sale applications, administrative controls, and a backend API,” said the company in a statement.
STABLESATS: HOW DO THEY WORK?
Stablesats offer a steady dollar balance that is backed by bitcoin via reverse perpetual swaps. To purchase these derivative contracts, the wallet will pledge the bitcoin of the user to OKX, Galoy’s centralized exchange. These contracts are used to hedge BTC backing the dollar account.
While reverse perpetual swaps can be denominated using fiat currency, any profits or gains, as well margin (collateral) are priced in bitcoin. The user’s dollar account is subject to unrealized BTC gains or losses, depending on the bitcoin price. However, the dollar balance remains stable.
Let’s simplify the situation: If the user holds 1 BTC in their stablesats enabled Lightning wallet and wants to convert it into USD, the 1 BTC would be pledged to secure the purchase of the appropriate number of reverse perpetual switch contracts. If bitcoin has a price of $20,000 and each contract is worth $1, then the synthetic balance of $20,000 of the user would equal 20,000 contracts with $1 each and 1 BTC collateral.
The user would still be able to buy $20,000 worth contracts if bitcoin prices rise to $40,000 as their dollar value does not change. However, now that bitcoin is worth only $20,000, it would result in an unrealized loss equal to half of bitcoin. . If bitcoin prices dropped to $10,000, then the user would still have $20,000 worth contracts. However, this amount would now be worth 2 BTC. This would result in an unrealized gain equal to 1 BTC.
Galoy is able to “stabilize” a user’s bitcoin using this mechanism. The account must be denominated US dollars. It is important to remember that the dollar balance will only be used for transactions on the Bitcoin network. Stablesats cannot interact with traditional banking systems.