Thu 4 August 2022 ▪ 13:00 ▪
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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 latest concerns the question of a stablecoin indexed to the dollar called Stack rate.
Stablerate, the stablecoin signed Salvador
Yesterday we learned about the existence of a stablecoin backed by the US dollar that El Salvador had just launched, in collaboration with Galoy. This is the stack rate, one stablecoin backed by bitcoin for Salvadorans. And you are not unaware that bitcoins, El Salvador has collected more.
The special feature of Stack rate lies in the absence of tokens and ease of use. Thanks to their products, Salvadorans will be able to make transactions through the Lightning Network, a device recently approved by the FED of Cleveland.
In order to set it up, Nayib Bukele called Galoy. This is the local banking platform behind it Bitcoin Beach Wallet. The latter has also developed a digital wallet in Panama and Costa Rica.
Here is an excerpt from Galoy’s note on Stack rate:
“ Today, the company announced Stacksats, 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 bitcoins: short-term exchange rate volatility. »
How does Stack rate work?
Since Stacksats 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 Stack Rate is based on a financial instrument called ” perpetual inverse swap » 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 reverse perpetual swaps »that the stack rate can benefit from a guarantee from 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 Stacking Kit. If he wants to convert it to US dollars, he has to pledge the bitcoin 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 therefore equals $20,000, and that would represent 20,000 contracts of $1.
In case the price of bitcoin rises and reaches $40,000, this will not affect the value of Fabio’s contract: $20,000 in contracts. But here $20,000 will mean 0.5 BTC 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 venturing into cryptocurrencies, its Stack rate could meet the fate of exchanges and cash-strapped lenders like Celsius and the like. But we must recognize a real desire to acquire the concept in all its splendor in Nayib Bukele. Thus, it is an example for other third world countries that are looking for a way out to free themselves economically and take poverty by the horns.
Sources: Kryptonom; Cryptosaurus; code desk; BlockchainReporter; Bitcoin Magazine
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The blockchain and crypto revolution is underway! And on the day when the effects will be felt on the most vulnerable economy in this world, against all hope, I will say that I had something to do with it