Creator: Nicolas Burtey
Establishment Date: September 2019
Main Office Location: United States
Staff Count: 11
Website: https://www.galoy.io/
Is it Public or Private? Private
Recently, Galoy introduced Lana, a platform that allows banks to accept bitcoin as security for loans.
Lana aids community and challenger banks (the institutions Galoy intends to partner with) in providing bitcoin-collateralized loans to various customer segments.
“Some banks may wish to utilize it for retail customers, while others may focus on commercial clients or high-net-worth individuals,” Burtey shared with Bitcoin Magazine.
By extending such loans to a diverse clientele, Burtey is optimistic that the steep borrowing costs typically linked with these products will decrease.
“Interest rates are currently between 12% and 15% for loans backed by bitcoin as collateral,” stated Burtey.
“The high rates are due to the limited number of financial entities offering this kind of product. We see a chance now that regulations are permitting banks to engage with bitcoin,” he added.
“We believe many banks will want to tap into this market.”
If Burtey’s forecast that banks are eager to provide bitcoin-collateralized loans turns out to be accurate, it will result in not only reduced rates for these loans but will also bring open-source Bitcoin software into the banking arena, possibly sparking a new trend in the sector.
But more on that point shortly. First, let’s delve into some history about Galoy.
Galoy’s Background: From Blink Wallet to Lana
Founded in September 2019, Galoy aimed from the outset to enable banks to utilize bitcoin, though it had to pause this initiative due to an unwelcoming regulatory landscape.
Consequently, it redirected its focus to creating and supporting Blink wallet (initially referred to as the Bitcoin Beach wallet, which Galoy has recently divested), a custodial Bitcoin and Lightning wallet primarily used in El Salvador and subsequently in bitcoin circular economies worldwide.
“Galoy’s objective was to onboard banks to Bitcoin five years back,” said Burtey.
“However, due to the unfavorable regulatory climate over the last five years, we opted to create Blink. With the cessation of Choke Point 2.0 and the repeal of SAB 121, we believe now is the ideal moment to assist banks in adopting Bitcoin.”
Burtey reflected positively on his experience in developing and expanding Blink and noted that he had to halt his work on the project purely because it would be too challenging to continue managing it while also attempting to serve a new category of clients.
“Blink operates as a B2C (Business-To-Customer) model, making it difficult for an early-stage startup to juggle multiple initiatives,” Burtey clarified.
“Galoy is a B2B (Business-To-Business) focused enterprise, and our goal is to collaborate with banks and financial organizations,” he continued.
“It’s essential to concentrate on a single objective.”
And, as stated, this sole focus will now be on Lana.
Functionality of Lana
Lana is software that Galoy assists banks in integrating and administering for a subscription fee. With this platform, banks can provide bitcoin-collateralized loans based on their own terms.
“We do not dictate the interest rates or any similar aspects,” Burtey clarified.
“We offer banks the infrastructure to accomplish this, and they can determine their capital costs, the loan period, the liquidation price for the bitcoin used in the loan, and the interest rate at which they wish to lend,” he added.
“We provide the software and assist in its operation and automation.”
Additionally, Galoy does not take custody of the bitcoin utilized as collateral for the loans issued. Each bank partnered with the company is responsible for selecting its own custodian.
“You may choose BitGo, Fireblocks, or each loan can implement its own multisig arrangement,” stated Burtey. “We remain neutral regarding custody.”
That said, Lana aids banks in overseeing the bitcoin held in custody, which allows them to keep track of whether collateral is approaching liquidation thresholds.
“An essential component of this product is risk management,” Burtey emphasized.
“Bitcoin’s volatility necessitates that banks have a tool to demonstrate they are taking calculated risks. We will provide banks with a dashboard to monitor this risk,” he added.
Target Audience for Lana
Galoy aims this new solution at community banks and smaller financial institutions primarily because they believe these smaller entities will gain the most advantages from it — and because larger banks are unlikely to require such a product.
“We don’t think JP Morgan would want to collaborate with us,” Burtey advised. “They are likely developing something similar in-house, whereas a smaller bank, credit union, or a petite institution probably isn’t.”
Burtey also recognizes that implementing Lana instead of creating a similar solution in-house can ultimately save smaller lenders considerable time and resources.
“Our aim is to illustrate, ‘Look, you could develop this on your own, which could take six months, a year, or longer depending on your knowledge of Bitcoin,’” stated Burtey. “‘Alternatively, we have a lending product available as a service that you can roll out more swiftly.’”
As Burtey and his team onboard the initial set of smaller banks, they will not only be pioneering the acceptance of bitcoin as collateral for loans but potentially reshaping the banking landscape by introducing open-source software.
Open-Source Bitcoin Banking Vision
Burtey envisions a future for Galoy that extends beyond simply assisting banks in issuing bitcoin-collateralized loans. He aims to incorporate open-source software into banking as more institutions embrace Bitcoin.
Nonetheless, it is crucial to point out that Lana is not yet open-source. It is fair-source software, meaning the code will become open-source after a two-year period.
“It operates on a delayed open-source model, but all codes are accessible on GitHub,” Burtey noted. “You can explore, test it, and experiment with it independently.
According to the fair-source license, no entity other than Galoy can sell the product to a bank at this time, allowing Galoy to profit while simultaneously building with verifiable code.
“We oversee the deployment and assist banks in connecting to their custodians,” explained Burtey. “We’re innovating transparently — while also aiming to generate income.”
Beyond aiding banks in implementing Lana, Burtey seeks to create open-source “core banking software,” as he aims to challenge the oligopoly in “core ledger” systems.
“The core ledger is where institutions maintain account details, customer data, and transactional records,” Burtey explained. “It serves as the definitive source for banks.”
Currently, only three firms — FIS, Fiserv, and Jack Henry — dominate the core ledger market.
“These firms are primarily hundred-billion-dollar companies that you may not be familiar with as they primarily concentrate on selling software to banks,” Burtey remarked.
“Our long-term ambition is to disrupt this sector through developing something open-source,” Burtey asserted. “Presently, no company is providing core banking with an emphasis on open-source, and we’re striving towards this.”
Burtey imagines a scenario where open-source software simplifies the establishment of a Bitcoin bank. (For those concerned with the terms “Bitcoin” and “bank” appearing in conjunction, it’s worth recalling that the legendary Hal Finney himself stated that bitcoin-backed banks would act as a scalable solution.)
“Initiating a bank in today’s landscape is both costly and complex,” remarked Burtey. “You would need to allocate over $100,000 just to obtain core ledger technology.”
Burtey then reflected on his experience in founding Blink wallet, effectively a bitcoin banking operation utilizing open-source code, before continuing.
“I simply traveled to El Salvador and initiated what was nearly my own bank because I was motivated,” Burtey shared.
“We must reinvent how core banking software is designed within the Bitcoin ecosystem, and I believe this is where open-source plays a crucial role,” he added.
“This is fundamentally why I believe the intersection of banking and Bitcoin will look significantly different from traditional banking with fiat, and I am confident we are among the companies leading this evolution.”
