If there are countries that are very dynamic in the adoption of cryptocurrencies, El Salvador is one of them. Because since its legalization of bitcoin in September 2021, several crypto-related projects have emerged from this Central American country. The most recent relates to the issue of a stablecoin indexed to the dollar called Stablesats.
Stablesats, the stablecoin signed Salvador
Yesterday we learned of the existence of a stablecoin backed by the US dollar that El Salvador had just launched, in partnership with Galoy. This is the Stablesats, a stablecoin backed by bitcoin for Salvadorans. And you are not unaware that bitcoins, El Salvador has amassed several.
The particularity of the Stablesats lies in the absence of tokens and ease of use. Thanks to its products, Salvadorans will be able to make transactions via the Lightning Network, a device recently endorsed by the FED of Cleveland.
To be able to set it up, Nayib Bukele called on Galoy. This is the local banking platform that is behind the Bitcoin Beach Wallet. Moreover, the latter has also developed a digital wallet in Panama and Costa Rica.
Here is an excerpt from Galoy’s note on Stablesats:
“ Today the company announced Stablesats, the latest feature added to the platform. An alternative to stablecoins or integrating fiat banks, stablecoins use derivative contracts to create a synthetic dollar backed by bitcoins and pegged to the USD. This allows dollar-equivalent accounts to be created inside the Lightning Wallet, solving one of the biggest problems for day-to-day transactions using bitcoin: short-term exchange rate volatility. »
How does Stablesats work?
As Stablesats is part of Galoy’s open-source philosophy, it is possible to learn more about it by going to GitHub.
Otherwise, it should be mentioned that the Stablesats is based on a financial instrument called ” perpetual inverse swap » designed by BitMex. This device uses perpetual futures contracts, which represent an agreement facilitating the purchase or sale of a specific asset without having to worry about the time parameter.
It is thanks to the reverse perpetual swaps » that the Stablesats can benefit from a guarantee by bitcoins. These BTCs are pledged by the user to OKX, a centralized exchange, before they can buy derivative contracts that perfectly hedge bitcoins.
Concrete use cases:
Fabio is a Salvadoran holder of 1 BTC on his wallet Lightning compatible with Stablesats. If he wants to convert it to US dollars, he has to pledge the bitcoin in order to buy himself a reverse perpetual swap contract.
Let’s assume that the unit price of BTC is $20,000 and the contract price is $1. Fabio’s synthetic balance is therefore equivalent to 20,000 dollars, and this would represent 20,000 contracts of 1 dollar.
In case the price of bitcoin increases and reaches $40,000, this will not affect the value of Fabio’s contract: $20,000 in contracts. But here the $20,000 will mean 0.5 BTC of unrealized loss. And if the price of bitcoin goes down to $10,000, the difference will be called unrealized gain in BTC.
Admittedly, El Salvador has made risky bets in embarking on cryptocurrencies, its Stablesats could meet the fate of exchanges and cash-strapped lenders like Celsius and the like. But we must recognize a real desire to appropriate the concept in all its splendor in Nayib Bukele. Thus, it sets an example for other Third World countries in search of a way out to free themselves financially and to take poverty by its horns.
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