Galoy, the open source platform powering El Salvador’s Bitcoin Beach Wallet, has announced the launch of a new synthetic stablecoin pegged to the dollar.
New stablecoin issued by El Salvador coming soon
On Wednesday, Galoy, the El Salvador banking platform that launched the Bitcoin Beach Wallet in November 2020 in the town of El Zonte in El Salvador, announced the launch of a new stablecoin pegged to the dollar.
The new stablecoin would be a synthetic dollar collateralized by Bitcoin and pegged to the value of the dollar. These are coins, called Stablesats, that do not require tokens to function, and would be easily spendable. In order to improve its platform for this new project as well, the company also announced that it had made a $4 million capital raise.
Hivemind Ventures led this funding round with participation from Valor Equity Partners, Timechain, El Zonte Capital, Kingsway Capital, Trammel Venture Partners, AlphaPoint and other leading Bitcoin investors.
A note from the company reads:
“Today the company announced Stablesats, the latest feature to be added to the platform. An alternative to stablecoins or fiat bank integration, stablecoins use derivatives contracts to create a bitcoin-backed synthetic dollar pegged to the USD. This enables dollar-equivalent USD accounts inside the Lightning Wallet, solving one of the biggest problems for daily transactions using bitcoin: short-term exchange rate volatility”.
The system uses the Lightning Network in order to function, unlike all other stablecoins on the market.
The note then continues:
“There is no stablecoin or token other than bitcoin underlying Stablesats, which means better interoperability and lower fees for users”.
This means there is no third party that can control it, providing, according to some, an important tool in the hands of countries with high inflation and large US dollar exposure.
What will be the benefits of the new stablecoin for the entire ecosystem
As Nicolas Burtey explained well to the press, the new synthetic dollar would maintain its value beyond the reference exchange rate:
“With Stablesats-enabled Lightning wallets, users are able to send from, receive to and hold money in a USD account in addition to their default BTC account. While the dollar value of their BTC account fluctuates, $1 in their USD account remains $1 regardless of the bitcoin exchange rate”.
This is basically a derivative product whose pioneering work must be credited to Bitmex, which first spoke of it in 2015 as a solution to the very high volatility of Bitcoin and other digital currencies.
Galoy explains in the note:
“We see the integration of more exchanges, hedging strategies and currencies furthering resiliency and optionality. Ultimately, we can unlock the ability for every Lightning user to choose their own units of account without ever leaving the network”.
The Galoy platform has also recently developed a digital wallet in Costa Rica and Panama, and has long been considering opening its business to other South American countries.