Using Synthetic Stablecoins with Kollider Wallet
Today we'd like to show you how to use Kollider's synthetic stablecoins within Kollider Wallet.
Kollider's synthetic stablecoins are stablecoins that are created using derivatives on the Kollider Exchange. These synthetic stablecoins (also called synthetic fiat accounts) offer users the ability to hedge their price exposure to Bitcoin by pegging all or part of their balance to a fiat currency.
Kollider Wallet offers these stablecoin accounts natively, meaning that users can easily hold USD and EUR balances within Kollider Wallet by depositing directly to those accounts, or by converting from another balance within the wallet.
Kollider synthetic stablecoins live within the wallet. Users can hold their funds in these balances, and they can also deposit into and spend from them. Deposits and withdrawals from synthetic stablecoin balances in Kollider still take place over the Lightning Network, in sats. But Kollider Wallet automates and abstracts all of the back-end infrastructure needed to make those conversions in real time. When a user spends from their USD balance, those funds are automatically converted to sats and sent across the Lightning Network to the recipient. When a user receives a payment to their USD balance, the sats received are automatically converted into USD.
Depositing or recieving USD or EUR on Kollider Wallet is easy. Simply click on the currency you'd like to deposit, select the deposit button, enter an amount, and click create.
This process will automatically generate a Lightning Network invoice that can be paid by any Lightning Wallet. The payment will be sent in sats over the Lightning Network, but those sats will be automatically converted into USD (or EUR) and added to your local balance as soon as they're received.
Users can send funds from their synthetic stablecoin balances in much the same way.
Simply choose which balance you'd like to send from, and then follow the prompts to add a recipient and an amount to send.
Alternatively, you can simply paste in any Lightning Network invoice and pay that. Those funds will be debited from your USD balance.
Conversions Between Funds
Kollider Wallet makes it easy for users to swap between balances, all without leaving the wallet.
Simply navigate to the swap section of the app, select which balance you'd like to convert from, select a target balance, enter an amount, and click swap.
Lightning Addresses & Stablecoin Transfers
We've integrated Lightning Addresses to make it easy to send funds to other users with simple human-readable account names.
All users of Kollider Wallet get a Lightning Address automatically. They can use this to receive payments, and they can also send payments to any other Lightning Address.
If you're sending to another user of Kollider Wallet (indicated by a firstname.lastname@example.org Lightning Address), you can send fiat balances directly between users! That means that you can send USD and the user will receive USD directly, rather than having the payment convert into sats.
We've also built a contacts list into the wallet so that you can easily send to users you've interacted with prior.
How Do Synthetic Stablecoins Work?
Synthetic stablecoins (or fiat accounts) are short positions in an inversely priced perpetual swap that is settled in Bitcoin. Kollider Synthetic Stablecoins use the open source project LndHubX to provide this functionality. In essence, LndHubX is nothing more than an accouting system as well as a connection to the Kollider Exchange to buy and sell these perpetual swaps.
When a user pegs a certain part of their BTC balance to USD, Kollider takes that bitcoin and uses it to create a position on the Kollider Exchange. The account simultaneously holds the bitcoin (meaning it’s long bitcoin) while also opening a perpetual short position (meaning it’s short the same amount of bitcoin). Taken together, these two positions mean that the account has zero exposure to the price movements of bitcoin.
If the price of bitcoin goes up, then the long position gains value, and the short position looses value. Importantly, the value gained by the long position and the value lost by the short position are the same. This means that the dollar value of the position does not change. The same goes in reverse— if the price of bitcoin goes down, the short position gains value and the long position looses value. As a result, these positions maintain a stable value in dollar terms.
Here's a specific example:
On the Kollider Exchange one BTC/USD perpetual swap contract is always worth $1. If the current Bitcoin price is $10,000 then you would need to send (1 / 10000 * 100,000,000) = 10,000 Sats to sell (short) 1 contract. This would be the same if you were to buy a contract (long). However, since Kollider Synthetics only involve shorting we'll just talk about the short side here.
If the price of Bitcoin goes down to $5,000 then your position would make a profit of ((1/5,000 - 1/10,000) * 100,000,000) = 10,000 Sats and when you close it you would get 20,000 Sats (10,000 initial margin + 10,000 profit). You can see that 20,000 Sats are exaclty worth $1 at a Bitcoin price of $5,000 so you maintained the same dollar value in Bitcoin.
Conversely, if the Bitcoin price goes up to $20,000 then your loss would be ((1/20,000 - 1/10,000) * 100,000,000) = 5,000 Sats. If you close the position at this point you would be returned 5,000 Sats (10,000 initial margin - 5,000 loss). However, at a Bitcoin price of $20,000, 5,000 Sats are exactly worth $1 so you again maintained the same dollar value in Bitcoin.
Kollider Synthetic stablecoins are simply short contracts that are made on the user's behalf and managed until the user wants to withdraw their funds. The amount of Bitcoin that a user holds in their wallet (denominated in sats) will change over time as the Bitcoin price moves, but the amount of value they hold in their account, denominated in fiat currency, will remain constant.
You can learn more about Kollider Wallet (and sign up to be part of our beta testing group) here. We're sending out invites to users daily.
If you have questions, feel free to hop into our Telegram group or message us on Twitter. We'd be happy to chat!