Galoy, a pioneering financial technology firm based in the United States, has recently launched its innovative software, Lana, designed specifically to enable banks to offer bitcoin-backed loans. Founded in September 2019 by Nicolas Burtey, Galoy aims to reshape the banking landscape by allowing financial institutions to accept bitcoin as collateral for loans.
This revolutionary approach seeks to address the high interest rates traditionally associated with such loans, which can range from 12% to 15%. Burtey emphasized that the limited number of banks currently offering these products has kept rates high. However, as more banks begin to recognize the potential of bitcoin, Galoy believes this will create a competitive market that can help lower borrowing costs for consumers.
Lana functions as a software as a service solution, enabling banks to issue loans under their own terms. As Burtey explained, “We’re not the ones deciding how much interest will be charged or anything like that. We give banks the platform to do this, and then they can figure out their cost of capital, the duration of the loan, and the rate at which they want to lend.” This flexibility allows banks to tailor their offerings according to their target markets, whether retail, commercial customers, or high-net-worth individuals.
In terms of risk management, Lana provides banks with a comprehensive dashboard to monitor the bitcoin collateral, ensuring that lending institutions remain aware of potential liquidation levels due to bitcoin’s volatility. Furthermore, Galoy remains agnostic regarding the custody of bitcoin, allowing banks to choose their own custodians such as BitGo or Fireblocks, thus fostering a customizable borrowing experience.
Targeting Smaller Financial Institutions
Galoy’s main focus with Lana is on community banks and smaller financial institutions, as these entities often lack the resources to develop in-house solutions. Burtey pointed out that large banks like JP Morgan may prefer to create their own systems, while smaller banks can benefit significantly from adopting a ready-made solution like Lana.
The long-term vision for Galoy is not just limited to offering software for bitcoin-backed loans. Burtey aims to introduce open-source software to the banking industry, which could potentially disrupt traditional financial systems. Although Lana is currently fair-source, meaning it is not yet fully open-source, Burtey envisions a future where open-source core banking software becomes the norm, significantly lowering the barriers to entry for new banks.
The path forward is set for Galoy to assist banks in transitioning to the Bitcoin economy with innovative solutions such as Lana, thereby revolutionizing banking for the digital age.
