El Salvador Issues Bitcoin Backed Stablesats

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Key Takeaways:

  • Galoy, the open-source banking system used by the Bitcoin Beach Wallet in El Salvador, has started to release its Stablesats.
  • With Stablesats, people can use Lightning for routine payments and stay protected from short-term volatility.
  • The company believes that allowing the use of bitcoin (BTC) will lessen the likelihood of short-term price volatility.

Galoy, the open-source financial platform that powers the Bitcoin Beach Wallet used in El Salvador, introduces Stablesats. The company also disclosed that it had been successful in raising $4 million to support the ongoing development of its GaloyMoney bitcoin banking platform.

The new stablecoin would be an artificial dollar that was pegged to the value of the dollar and was secured by Bitcoin. These coins, known as Stablesats, can be used without tokens and are straightforward to spend.

This round of funding was spearheaded by Hivemind Ventures, with involvement from Valor Fairness Partners, Timechain, El Zonte Capital, Kingsway Capital, Trammel Business Partners, AlphaPoint, and other significant Bitcoin investors.

Galoy, which provides a set of tools that enable people and organizations to use the Lightning network for payments and build solutions for bitcoin-native financial services, was founded in 2019 by Nicolas Burtey and Chris Hunter.

Stablesats were introduced with bringing the intention of bringing another stablecoin infrastructure in addition to the existing one.

A statement from the company explains,  that Stablesats, the newest function to be added to the platform, function as an alternative to stablecoins or fiat bank integration, and use derivatives contracts to produce a synthetic dollar backed by bitcoin that is pegged to the US dollar. Due to the Lightning Wallet’s ability to support dollar-equivalent USD accounts, one of the biggest issues with using bitcoin for daily transactions—short-term exchange rate volatility—has been resolved.

Since bitcoin is the only stablecoin or token that underpins Stablesats, this results in better connectivity and reduced fees for users.

This also implies that it cannot be controlled by a third party, giving some countries with high inflation and significant exposure to the US dollar a crucial tool.

The functionality, which will give users access to a US dollar account on their lightning wallet, is intended to support regular payments by protecting users from the short-term variations in the exchange rates between the US dollar and bitcoin, as per the press release.

The new crafted  dollar would maintain its value beyond the reference change fee, as per Nicolas Burtey’s explanation in  the press release

With Stablesats-enabled Lightning wallets, users can send to, receive money from, and keep money in a USD account in addition to their default BTC account. While the dollar value of their BTC account fluctuates, their USD account’s value remains constant regardless of the bitcoin exchange fee.

This is essentially a derivative product, and Bitmex must be given credit for developing it. Bitmex first mentioned it in 2015 as a potential solution to the extremely high volatility of Bitcoin and other digital currencies.

The website states that in order to lock in the exchange rate, Galoy would short the current amount of US dollars at a given bitcoin price. The agreement is eternal, so it never ends. Instead of actual US dollars, bitcoin is used to settle the contract.

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Aadrika Sharma
Aadrika Sharma

I enjoy writing and try to learn new things every passing day!

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