Synthetic stablecoins backed by bitcoin are currently available on the bitcoin derivatives exchange, and a Lightning-enabled bitcoin wallet is in the works.
Exchange for bitcoin derivatives Lemniscap, along with Castle Island Ventures, Polychain Capital, Alameda Ventures, Pfeffer Capital, Okex, and other investors, secured a $2.35 million seed fundraising round on Kollider.
The company plans to utilize the money to grow its exchange business and increase the number of Lightning-native financial solutions it offers in addition to its current product line. On top of the Bitcoin blockchain, a Lightning network facilitates quicker and less expensive bitcoin transactions.
The fundamental offering of Kollider is “the first Lightning-native derivatives exchange in the world.” Additionally, the business is developing a bitcoin wallet with Lightning support and synthetic stablecoins backed by bitcoin.
“We had to test the exchange in a battle. In an interview with CoinDesk, Kollider co-founder Konstantin Wünscher said, “It’s an exchange entirely developed from scratch. We made it better, built on it, and added some exclusive features, including native Lightning integration.
What’s A ‘Lightning-Native’ Derivatives Exchange?
Users must fund their accounts before trading on the majority of derivatives markets. Depending on the asset, that process may be quick or slow. Bitcoin and other cryptocurrencies typically require up to six confirmations, which generally take an hour.
Kollider seems to have found a way around Bitcoin’s inconvenient wait time – native Lightning integration.
“Kollider Exchange uses the Lightning Network on Bitcoin to enable users to open and close positions quickly from and to their Lightning wallets. Users are not required to pre-fund their accounts or make advance deposits, according to a press statement that the Kollider team sent to CoinDesk.
Users who don’t use Lightning can still make traditional on-chain bitcoin deposits, according to the website documentation for Kollider.
Users must fund their accounts before trading on the majority of derivatives markets. Depending on the asset, that process may be quick or slow. Bitcoin and other cryptocurrencies typically require up to six confirmations, which usually take an hour.
With the help of native Lightning integration, Kollider appears to have discovered a solution to Bitcoin’s annoying wait time.
“Kollider Exchange uses the Lightning Network on Bitcoin to enable users to open and close positions quickly from and to their Lightning wallets. Users are not required to pre-fund their accounts or make advance deposits, according to a press statement that the Kollider team sent to CoinDesk.
Users who don’t use Lightning can still make traditional on-chain bitcoin deposits, according to the website documentation for Kollider.
Although bitcoin’s volatility is currently at a two-year low, historically, bitcoin has displayed extreme volatility defined by dramatic price movements, rendering it primarily unsuited for regular payments. Stablecoins are helpful in this situation. A stablecoin is a cryptocurrency or token backed by assets and intended to reduce price fluctuation.
Bitcoin-Backed Synthetic Stablecoins
Although bitcoin’s volatility is currently at a two-year low, historically, bitcoin has displayed extreme volatility defined by dramatic price movements, rendering it primarily unsuited for regular payments. Stablecoins are helpful in this situation. A stablecoin is a cryptocurrency or token backed by assets and intended to reduce price fluctuation.
With a little more abstraction, synthetic stablecoins effectively imitate stablecoins without producing a stablecoin token. When a synthetic stablecoin is backed by bitcoin, it maintains both a long (buy) and short (sell) position in bitcoin to preserve stability.
“The concept is that holding one bitcoin makes you long. But after that, you short one bitcoin simultaneously by using a futures contract, Wünscher said. “When the price rises, your holdings of bitcoin will undoubtedly increase in value, and the value of your short position would decrease, canceling each other out. You essentially adopt a neutral stance toward the market.
But it goes further than that. Kollider users can produce artificial stablecoins pegged against various currencies since they can place short positions in some fiat denominations.
“Therefore, if you short bitcoin in the euro market, you tether it to the euro. You were shorting bitcoin on the USD market values against US dollars. As long as a futures market enables you to short bitcoin, you can peg against any fiat currency, according to Wünscher.
No over-collateralization (putting up collateral worth more than the stablecoin itself) is another advantage of Kollider’s synthetic stablecoin methodology. The MakerDAO decentralized finance project is well-known for its DAI overcollateralized Ethereum stablecoin.
In August last year, MakerDAO’s over-collateralization rate for DAI was 170 percent. To put it another way, users would have to deposit $170,000 in ETH as collateral to get a value of $100,000 in DAI.
How Does MakerDAO Work? Understanding the ‘Central Bank of Crypto’
“With Kollider, you only need to put in the base amount that you intend to hold for a long time; you don’t need to overcollateralized. Your risk is zero since you are simultaneously short on it, regardless of how much the price changes, according to Myles Snider, Kollider’s head of marketing and business development, in an interview with CoinDesk.
Kollider’s artificial stablecoins are now in “alpha,” which allows users to experiment with them in modest doses. Snider stated, “We have hard-set restrictions, but we are still testing and developing.”
The Kollider Lightning Wallet
The Kollider Lightning wallet is another essential item that has not yet been shown in its entirety. According to the startup, it will be fully integrated with Kollider’s stablecoins and other applications within the Kollider ecosystem, which characterizes it as a Google Chrome plugin.
According to the company’s press release, “Users will be able to effortlessly move funds between a BTC balance, a USD balance, and a EUR balance using a simple and easy-to-use interface.”
