Crypto: El Salvador gets its stablecoin – Stablesats

Thu 04 August 2022 ▪ 13:00 ▪

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If there are very dynamic countries in the adoption of cryptocurrencies, El Salvador is one of them. Because since its legalization of bitcoin in September 2021, several projects related to cryptocurrencies have emerged from this Central American country. The most recent concerns the question of the a stable currency indexed to the dollar called Stablesats.

Stablesats, Salvador’s stablecoin

Yesterday we learned of the existence of a stable currency backed by the US dollar that El Salvador had just launched, in partnership with Galoy. This is the Stablesats, a stable currency supported by bitcoin for Salvadorans. And you are not aware that bitcoin, El Salvador has accumulated several.

The peculiarity of the Stablesat lies in the absence of tokens and ease of use. Thanks to its products, Salvadorans will be able to transact through the Lightning Network, a device recently approved by the Cleveland FED.

In order to configure it, Nayib Bukele called Galoy. This is the local banking platform behind the Bitcoin beach wallet. The latter has also developed a digital wallet also 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 fiat bank integration, stablecoins use derivative contracts to create a synthetic dollar backed by bitcoin and pegged to the US dollar. This allows you to create dollar-equivalent accounts within the Lightning Wallet, solving one of the biggest problems for everyday transactions using bitcoin: short-term exchange rate volatility.

How does Stablesats work?

Since Stablesats is part of Galoy’s open source philosophy, you can learn more by going to GitHub.

Otherwise, it must be said that the Stablesats is based on a financial instrument called ” perpetual reverse exchange »Designed by BitMex. This device uses perpetual futures contracts, which represent an agreement that facilitates the purchase or sale of a specific asset without having to worry about the time parameter.

It is thanks to the inverted perpetual exchanges »That the Stablesats can benefit from a bitcoin guarantee. These BTCs are committed 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 who holds 1 BTC on his wallet Lightning compatible with Stablesat. If he wants to convert it into US dollars, he has to commit the bitcoin to buy himself a perpetual reverse swap contract.

Suppose the unit price of BTC is $ 20,000 and the contract price is $ 1. Fabio’s synthetic balance is therefore $ 20,000, and this would represent 20,000 $ 1 contracts.

In the event that the price of bitcoin rises and reaches $ 40,000, this will not affect the value of Fabio’s contract: $ 20,000 worth of contracts. But here the $ 20,000 will mean 0.5 BTC of unrealized loss. And if the bitcoin price drops to $ 10,000, the difference will be called the unrealized gain in BTC.

Stablesats synthetic dollar methodology

Sure, El Salvador has made risky bets by launching into cryptocurrencies, its Stablesats could meet the fate of cash-strapped exchanges and lenders like Celsius and the like. But we must recognize a real desire to appropriate the concept in all its glory in Nayib Bukele. Thus, it sets an example for other Third World countries looking for a way out to break free financially and take poverty by the horns.

Sources: The Cryptonomist; Cryptosaurus; exchange counter; Blockchain Reporter; Bitcoin magazine

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The blockchain and crypto revolution is underway! And the day the impacts are felt on the most vulnerable economy in this world, against all hope, I will say that it has something to do with it.

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