Founder: Nicolas Burtey
Establishment Date: September 2019
Headquarters Location: United States
Employee Count: 11
Website: https://www.galoy.io/
Business Type: Private
Recently, Galoy introduced Lana, an innovative software solution that empowers banks to accept bitcoin as collateral for loan purposes.
Lana is designed to assist both community banks and challenger banks, which are the primary focus for Galoy. This enables them to provide bitcoin-secured loans tailored for a diverse customer base.
“Some banks may aim to offer this to retail clients, while others may target commercial enterprises or affluent individuals,” Burtey shared with Bitcoin Magazine.
By providing loans to a broad spectrum of clients, Burtey anticipates a reduction in the steep borrowing costs that currently characterize these offerings.
“Currently, interest rates range from 12% to 15% for loans secured by bitcoin,” stated Burtey.
“These elevated rates stem from the limited availability of financial institutions providing such products. With evolving regulations now permitting banks to engage with bitcoin, we see a prime opportunity,” he elaborated.
“We believe that many banks will be eager to enter this sector.”
If Burtey’s insight holds true, and banks show interest in bitcoin-backed loans, this will not only drive interest rates down but also integrate open-source Bitcoin software into banking frameworks, potentially sparking a shift in the industry.
But before diving deeper into that, let’s explore the background of Galoy.
Galoy’s Journey: From Blink Wallet to Lana
Established in September 2019, Galoy initially aimed to facilitate banks in adopting bitcoin, though they faced a challenging regulatory climate that delayed these aspirations.
In the meantime, they directed their energy towards creating and maintaining the Blink wallet (originally the Bitcoin Beach wallet, which Galoy has since sold). This custodial Bitcoin and Lightning wallet gained traction in El Salvador before expanding across Bitcoin circular economies worldwide.
“Galoy’s goal was to onboard banks to Bitcoin five years ago,” Burtey remarked.
“However, the pervasive regulatory challenges during that time prompted us to pivot towards Blink. Now, with the conclusion of Choke Point 2.0 and the repeal of SAB 121, we believe it is the right moment to assist banks in the adoption of Bitcoin.”
Burtey fondly reflected on the development of Blink, explaining that he had to shift focus due to the complexities of managing a burgeoning project while also aiming to serve a distinct clientele.
“Blink operates as a B2C (Business-To-Consumer) model, and it’s challenging for an early startup to juggle too many objectives,” Burtey noted.
“Galoy, on the other hand, is primarily B2B (Business-To-Business) oriented, and our focus is on collaborating with banks and financial institutions,” he added.
“Maintaining focus on a single goal is beneficial.”
And that singular goal is now centered on Lana.
How Lana Operates
Lana serves as software that Galoy provides to banks, who can then integrate and manage it for a subscription fee. This platform allows banks to offer bitcoin-backed loans according to their own established criteria.
“We don’t set the interest rates or any other lending terms,” Burtey clarified.
“Instead, we enable banks with the platform to determine their capital costs, loan durations, liquidation thresholds for the collateral bitcoin, and their preferred lending rates,” he elaborated.
“Our role is to deliver the software and assist with its automation and management.”
Additionally, Galoy does not provide custody for the bitcoin pledged as collateral for the loans issued by the banks. Each partnered bank selects its own custodian.
“Options include BitGo, Fireblocks, or even a unique multisig arrangement for each loan,” mentioned Burtey. “We maintain neutrality regarding custody.”
Nonetheless, Lana aids banks in monitoring the condition of their custodial bitcoin to ensure they remain aware if collateral values approach liquidation facers.
“Risk management is a crucial element of this product,” stated Burtey.
“Given bitcoin’s volatility, banks require tools to effectively manage risk. Therefore, we will furnish banks with a dashboard for risk monitoring,” he continued.
Who Are the Users of Lana?
Galoy’s target audience for this innovative product primarily consists of community banks and smaller financial institutions, which they believe will gain the most advantages from it — unlike larger banks that may not require such a service.
“We don’t expect JP Morgan to collaborate with us,” noted Burtey. “They’re likely developing something similar in-house, whereas smaller banks, credit unions, or local enterprises probably won’t.”
Burtey acknowledges that smaller financial institutions stand to save considerable time and resources by adopting Lana rather than attempting to construct a similar system independently.
“Our proposal is simple: ‘You can undertake this development internally, which will take at least six months or even a year based on your Bitcoin knowledge,’” Burtey said. “‘Alternatively, we present you with a ready-to-launch lending service.’”
As Burtey and his team welcome their initial cohort of smaller banks, they not only pave the way for a historical moment in enabling increased acceptance of bitcoin as loan collateral, but they also may be reshaping the banking landscape by integrating open-source technology.
Open-Source Bitcoin Banking
Burtey envisions a transformative future for Galoy that extends beyond simply facilitating bitcoin-backed loans. He aims to integrate open-source solutions into the banking sector as more institutions adopt Bitcoin.
It’s crucial to mention that while Lana is not open-source at this point, it operates under a fair-source license, which will transition it to open-source status after two years.
“It’s a phased approach to open-sourcing, but the code is available on GitHub,” stated Burtey. “You can explore it, test it, and experiment with it as you wish.”
Thanks to this fair-source model, only Galoy can currently sell this product to banks, allowing the company to generate revenue while still developing with transparent and auditable code.
“We handle the deployment and assist banks in integrating their custodial solutions,” Burtey explained. “We aim to build transparently while generating income.”
Beyond the implementation of Lana, Burtey aims to pioneer open-source “core banking software,” intending to challenge the established “core ledger” oligopoly.
“The core ledger is the foundation where banks store pivotal data about accounts, customers, and transactions,” Burtey explained. “It forms the bedrock of truth for banks.”
Currently, this market is largely dominated by three megacompanies — FIS, Fiserv, and Jack Henry.
“These are massive corporations, each worth billions, operating mostly under the radar as they focus solely on providing software solutions to banks,” Burtey remarked.
“Our ultimate aim is to disrupt this sector by creating something that is open-source,” Burtey stated. “At present, no organization is tackling core banking with an open-source philosophy, and that’s where we intend to head.”
Burtey envisions a scenario where open-source software significantly simplifies the process of launching a Bitcoin bank. (To those uncomfortable with the combination of “Bitcoin” and “bank,” remember that the iconic Hal Finney once suggested that bitcoin-backed banks could offer scalable solutions.)
“Starting a bank today is an arduous and expensive endeavor,” Burtey commented. “To acquire core ledger technology alone often costs upwards of $100,000.”
He continued, reflecting on his experiences launching the Blink wallet, essentially an open-source bitcoin bank.
“When I initiated operations in El Salvador, I effectively established my own bank out of sheer determination,” Burtey recounted.
“We must revolutionize how core banking software is developed in the context of Bitcoin, and that’s where open-source becomes vital,” he added.
“This is fundamentally why I believe the banking landscape will diverge significantly when juxtaposed with traditional fiat systems, and I see us at the forefront of this evolution.”
