If this works as promised, Stablesats could change the game. It could change the world, even. The new Galoy product solves a problem and an urge that the bitcoin community has had for ages. Synthetic dollars that don’t need a token or rely on a third party to work. In fact, if Stablesats works as promised it will solve the most difficult of the tasks that Strike and The Human Rights Foundation offered a bounty of one BTC for.
We thought this day would never come, but here.we.go. In a press release shared with Bitcoinists, Galoy says:
“Today the company announced Stablesats, the latest feature to be added to the platform. An alternative to stablecoins or fiat bank integration, Stablesats uses derivatives contracts to create a bitcoin-backed synthetic dollar pegged to USD. This enables dollar-equivalent USD accounts inside of Lightning wallets, solving one of the biggest problems for people using bitcoin for everyday transactions: short-term exchange rate volatility.”
The implications are immense. First of all, the Stablesats imply that no token is necessary. The system leverages the bitcoin network and nothing else. “There is no stablecoin or token other than bitcoin underlying Stablesats, which means better interoperability and lower fees for users,” the document says.
Secondly, there’s no third party. Even though Galoy created the product, they do not control it. There’s no token, no issuance, and the only collateral is the user’s own bitcoin. Plus, their software is open source. And since there’s no third party, there’s no issuer counterparty risk. The elephant in the room for classic stablecoins is the inherent counterparty risk.
Does Stablesats Solve The Problem Posed By The HRF And Strike?
It certainly sounds like it. In the article about the bounties, Bitcoinist described the situation as if its solution was beyond our wildest dreams:
“The second challenge seems to be even more difficult, at least on a conceptual level. The HRF and Strike want a wallet that enables “anyone to “peg” an amount of bitcoin to U.S. dollars without needing an exchange or another token.” That’s right, without a centralized entity. And relying only on sats and bitcoin.”
Congratulations to Galoy for solving the puzzle. The press release quotes the company’s CEO Nicolas Burtey, who explains:
“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.”
That’s the dream, right? But…
How Do Stablesats Work, Exactly?
The exact method might be above most of our paygrades. In the press release, Galoy introduces the Stablesats concept like this:
“The idea of synthetic dollars has been the topic of articles and conversation for years. BitMEX even described the idea in 2015. Burtey thinks that with the state of Lightning adoption and the emergence of circular bitcoin economies globally, now is the time for this solution to take off.”
The process described by BitMEX is somewhat complicated and opaque. “The current Stablesats implementation uses bitcoin derivatives markets, specifically an instrument called perpetual inverse swap,” Galoy says without further explanation. The UX demo video above makes it seem simple, though. The press release then quotes “Sebastien Verreault, lead contributor to the Stablesats GitHub repository,” who says:
“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.”
Also, as the project’s website puts it, “In the future, adding more exchanges, hedging strategies and currencies can drive resiliency and optionality for Bitcoin banks and their users.”
BTC price chart for 08/03/2022 on BinanceUS | Source: BTC/USD on TradingView.com
Galoy Raises $4M To Develop The Stablesats Project (Among Other Things)
The company is not playing around. If Stablesats works as intended, they have a winner on their hands and they know it. That may be the reason that the press release pivots and informs us of a recent injection of funds.
“A new $4M raise for Galoy enables further development of the GaloyMoney open source core bitcoin banking platform, a versatile API, and an enterprise-ready Lightning gateway providing organizations access to Lightning payments.”
The companies involved are, “Hivemind Ventures led the investment round with participation from Valor Equity Partners, Timechain, El Zonte Capital, Kingsway Capital, Trammell Venture Partners, AlphaPoint and other leading Bitcoin investors.” The amount is $4M. The time is now. Time for Stablesats to disrupt the market.
This might be the product that brings the next billion people to bitcoin.
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