Stablecoins: A Stable Solution for the Unstable
Eric Choi (’25) | Mar 3, 2023
Cryptocurrencies have become increasingly popular over the past decade, but the recent emergence of US dollar-backed cryptocurrencies could potentially be a game-changer for unstable countries. These currencies are known as stablecoins and are designed to be tied to the value of the US dollar, providing a stable alternative to the often-volatile world of cryptocurrencies.
In countries with unstable economies or currencies, citizens often struggle with inflation and unreliable financial systems. The use of stablecoins could potentially provide a haven for individuals and businesses to protect their assets from the volatility of their local currency. By using stablecoins, individuals can hold their wealth in a currency that is backed by the stability of the US dollar, which is recognized globally as a safe and secure currency. Stablecoins have the potential to increase financial inclusion for individuals and businesses in these countries as well. Traditional banking systems may be difficult to access for individuals in remote or rural areas, but the use of stablecoins and decentralized finance (DeFi) platforms can provide access to financial services to a wider population. With DeFi platforms, individuals can access lending, borrowing, and investment services without needing to go through traditional financial institutions.
One example of how stablecoins are helping unstable countries is in Venezuela, where the economy has been plagued by hyperinflation and a shortage of US dollars. Venezuelans have turned to stablecoins like Tether (USDT) and Dai (DAI) to protect their assets and engage in international commerce; Venezuela has the highest adoption rate of cryptocurrencies in the world, with a significant portion of these transactions being in stablecoins. Another example is in Argentina, where the government has implemented capital controls that limit the number of US dollars that individuals and businesses can access. This has led to a surge in demand for stablecoins like USDT, which can be freely traded and used for international transactions.
Some relevant startups and cryptocurrencies working in this space right now are:
- Bitso: Bitso is a Mexican cryptocurrency exchange that allows users to buy and sell cryptocurrencies using Mexican pesos. Bitso recently launched a stablecoin called Bitso USD (USDB) that is backed 1:1 by US dollars. This stablecoin provides Mexican users with a way to protect their assets from the volatility of the Mexican peso.
- Paxful: Paxful is a peer-to-peer Bitcoin marketplace that allows users to buy and sell Bitcoin using over 300 payment methods. Paxful recently added Tether (USDT) as a payment method, providing users in countries with unstable currencies a way to protect their funds from volatility.
- Reserve: Reserve is a cryptocurrency project that aims to create a stablecoin that is backed by a basket of assets, including US dollars, gold, and Bitcoin. Reserve’s stablecoin, RSV, is designed to provide individuals in unstable economies with a way to protect their assets and engage in international commerce.
- MakerDAO: MakerDAO is a decentralized autonomous organization (DAO) that operates the Dai stablecoin. Dai is a stablecoin that is pegged to the value of the US dollar and is backed by collateral in the form of cryptocurrencies. MakerDAO’s Dai stablecoin provides users with a way to hold their assets in a stable currency, even in the face of market volatility.
These startups and cryptocurrencies are using stablecoins to provide financial services to individuals and businesses in unstable countries, offering a way to protect assets and engage in international commerce without having to rely on traditional financial systems, which is the core vision of cryptocurrencies.