Bitcoin-backed Stablesats, Alternative Payments thru Lightning Network

by Crypto Drive

Stablesats, a new product of Galoy the company behind the banking platform that powers El Salvador’s Bitcoin Beach Wallet is now being offered available to the crypto community.

Stablesats is designed as an alternative to stablecoin that uses derivatives contracts to create a bitcoin-backed synthetic dollar pegged to the U.S. dollar.

Quoting report, Galoy “believes that allowing dollars to flow through bitcoin (BTC) will help solve short-term volatility price risk, which currently stands as one of the biggest hurdles to the growth of bitcoin as a means for casual payments.”

Galoy CEO Nicolas Burtey in a press release stated “Bitcoin has brought digital transactions to previously unbanked communities across Latin America, Africa and beyond… However, its volatility makes managing financial obligations difficult. With Stablesats-enabled Lightning wallets, users are able to send from, receive to, and hold money in, a [U.S. dollar] 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.”

The following is an explanation regarding how stablesats work in an article by Pat Rabbitte.

“How does Stablesats work?

The Stablesats product differs from existing stablecoins like USDT or USDC in that it’s just a dollar balance representation through bitcoin. No actual stablecoin or fiat integration is required. As there is no token involved, this means better interoperability, lower fees for users and no liquidity concerns.

The goal of this synthetic US dollar product is to solve one of the biggest problems for people that live off Bitcoin – short-term exchange rate volatility. If someone tries to live off Bitcoin in a world dominated by fiat money, it’s inevitable they will have short term commitments in currencies like US dollars.

How Stablesats works

Galoy has developed this product through the use of inverse perpetual swaps. A user’s bitcoin is pledged as collateral via a cryptocurrency exchange. For example, with Galoy’s partners, OKX. The swap contract is denominated in USD but any unrealized gain or loss is priced in BTC.

Let’s say 1 BTC from the Lightning Network wallet is converted by the user to a USD balance. Behind the scenes, 1 BTC is pledged to purchase the corresponding amount of inverse perpetual swap contracts.

If 1 BTC is equivalent to $20,000, that would mean 20,000 contracts of $1 each. If the bitcoin price doubles or halves, the gain or loss is unrealized and the amount of $20,000 is still represented courtesy of the underlying inverse perpetual swap contracts.”

With this new btc-backed product, it is expected that bitcoin ecosystem will continue to expand thereby driving more BTC transactions on the Ligtning Network hastening further adoption of this leading and pioneering cryptocurrency.

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