With just a click of a button, dollars on the Lightning Network can become a reality. An innovation from Galoy, the provider of open source banking platforms such as the Bitcoin (BTC) Beach wallet, could provide a safe haven from the volatility of BTC.
The innovation, called Stablesats, uses derivative contracts to create a Bitcoin-backed synthetic dollar pegged to the US dollar. Galoy’s founder, Nicholas Berti, told Cointelegraph in a “explain like I’m five” sort of way the wallet works like this:
“When we receive SATs over Lightning, we convert them into dollars so that the user is not affected by fluctuations even if the bitcoin price changes.”
But why do we need dollars within the Lightning wallet – isn’t that the purpose of stablecoins? In fact, stablecoins like USD Coin (USDC) and Tether (USDT) already offer the functionality of synthetic or digital dollars.
In a YouTube video, Bertie explained that “Lightning [Network] is the best payment protocol out there, so instead of using all the different payment protocols that stablecoins use,” it keeps users in one place in one app or wallet. According to the website, “Stablesats rely solely on the Bitcoin payment network to operate.”
The idea was built on a proposal made by Bitmex in 2015 to create a synthetic US dollar. However, in a press release, Bertie suggests that the idea may have been ahead of its time: there was no Lightning Network and no state adoption of Bitcoin.
As bitcoin continues to make waves in emerging markets, price volatility is often called into question. For example, the head of the Bank of England argues that bitcoin is too volatile for legal tender. The ease with which users can access dollars is at odds with this argument. Speaking to Cointelegraph, Bertie summed up the situation:
“Because lightning is gaining a lot of momentum in developing countries, but that’s also where people live with paycheck to pay. So they can’t necessarily afford the fluctuations so they can have some savings.”
According to a Cointelegraph report, stablecoins pegged to the US dollar are “viable alternatives” in emerging markets, and appetite for them is growing in countries with high inflation and unstable regulations. Innovation on the Lightning Network offers users another way to get exposure to the dollar.
Dollar exposure is just the first step, explained Sebastian Viriault, lead contributor to the Stablesats repository GitHub: “Ultimately, we can unlock the ability for every Lightning user to choose their own account units without leaving the network.”
Related: Busking on Bitcoin: How the Lightning Network Beats Ethereum in Tipping
Galoy is behind the Bitcoin Beach Wallet in El Salvador, the Bitcoin Jungle app in Costa Rica, and the Guatt Wallet in Panama, which has yet to be released. El Zonte’s most popular Bitcoin Beach Wallet is the heart of Bitcoin adoption in El Salvador.
Nicholas Berti (right) with central bankers explaining the Bitcoin Beach wallet in May. Source: Twitter
Central bankers from around the world tried out the Bitcoin Beach Wallet on a visit to El Salvador in May this year. According to Bertie, the team at Galoy is writing merchant code for StacbleSats “so that it can be easily run by non-custodial wallets in the future.” The US dollar on the Lightning Network could become a more permanent advantage.