In the 16th century, early explorers first named the land of the modern-day Argentine Republic for its abundance of silver, which, at the time, made the South American country a prized possession for the then-expanding Spanish empire. Centuries later, Argentina’s focus has shifted towards a more advanced and less orthodox way to amass wealth: stablecoins.
At the moment, Argentina is in the midst of yet another currency devaluation cycle, with the peso dropping sharply against the dollar amid soaring inflation, which is nearing 140%. Amid recent economic instability, stablecoin transactions are becoming increasingly popular among Argentinians looking to trade currencies and assets without worrying about the peso’s fluctuating value.
According to reports from Chainalysis, a blockchain analysis firm, Argentina leads Latin America in raw transaction volume of cryptocurrencies, with more than $85bn in value received in the year to July 2023. Within that number, the sale of stablecoins amounts to roughly 31% of Argentina’s small retail-sized crypto transaction volume.
“The peso is crashing. The amount of money that you would spend over two decades ago to buy an apartment in Argentina is equal to the price of a dinner now,” says Pablo Larguia, CEO of SenseiNode, a Latin American blockchain infrastructure firm with headquarters in Buenos Aires.
Mr Larguia says stablecoins are important for people to protect their savings. “Due to the economic collapse, a lot of people don’t want their money to go through the banking system; instead, they prefer to invest in stablecoins that are pegged to the US dollar,” he says.
A report recently published by IOV Labs on how DeFi is reshaping finance in hyperinflationary countries in Latin America finds populations in these countries, especially the underbanked, have been leveraging dollar-pegged stablecoins as ”a reliable hedge against inflation” to navigate economic instability and protect their financial assets. According to MasterCard data, more than a third of Latin Americans have embraced stablecoins for everyday purchases, far surpassing the global average of 11%.
Although Latin America as a whole has a smaller crypto economy than other parts of the world, the sector is developing at a rapid pace throughout the region. According to Chainalysis, Latin America accounted for 9.1% of the global crypto value received in 2022, totalling $562bn between July 2021 and June 2022, which represents 40% growth.
The pros and cons of stablecoins for Argentinians
Argentina is no stranger to economic uncertainty. Since the 1980s, it has dealt with recurring cycles of extreme currency devaluation, which have seriously affected people’s ability to make long-term business plans and, for many Argentinians, made it extremely difficult to save money.
In times of high inflation, stablecoins can offer a valuable alternative to other cryptocurrencies thanks to their ability to maintain a relatively stable value through their link to assets with low volatility, such as fiat money or gold.
Additionally, transactions using stablecoins are typically faster and more efficient than traditional payment methods such as wire or bank transfers, which can take days or even weeks to reach the beneficiary. Stablecoin transactions can be settled within minutes or even seconds, which benefits both companies and individuals looking to cut waiting times and reduce expensive transaction costs.
According to Binance, which expanded its presence in the Argentine market earlier this year, stablecoins are used primarily in Argentina as a store of value and a method of payment. “Because it is a digital asset, it is possible to store it virtually in a wallet that keeps the assets safe and accessible in case you want to keep them, transfer them or convert them into other fiat currencies or cryptocurrencies when needed,” a spokesperson for the crypto exchange explains.
A further advantage of stablecoins is transparency. A record of every transaction is kept on the blockchain, allowing both the buyer and the seller to track the progress of their transactions more easily, while more traditional payment methods often require further steps and many more intermediaries.
Nevertheless, trading stablecoins also comes with its fair share of risks. The most recent example is the Terra/Luna collapse in mid-2022, which wiped some $60bn from the crypto market and raised concerns about the effectiveness of algorithmic stablecoins.
Last year’s so-called ‘crypto winter’ challenged the stability of stablecoins pegged to the US dollar. These events helped pave the way for the introduction of the EU’s Markets in Crypto-Assets Regulation framework, the world’s first comprehensive framework for the regulation of digital assets, including stablecoins.
Marcelo Cavazzoli, CEO of Argentine crypto exchange Lemon, says that although stablecoins offer more security than traditional cryptocurrencies, their value remains volatile and pegged to assets that can have high risks.
He believes firms should carry out extensive research on the tokens they are using to facilitate trade. “We do take a lot of care about what we list on our platform because some stablecoins may be less secure than others based on who backs them. That is why we usually do a lot of business with dollar coins, among other businesses, because they have higher standards of transparency, which makes them more trustworthy,” says Mr Cavazzoli.
While new projects are constantly being launched, it is of paramount importance for users to keep themselves informed, carry out their own research and ensure that the stablecoin they choose is certified and supported, says Binance. Ways to verify the security of a stablecoin investment include ensuring that there are clear public verifications in place, such as third-party audits of the dollars backing the stablecoin.
Latin America’s first stablecoin
Argentina is not only facing a currency crisis. A close-run presidential election has seen far-right populist Javier Milei, who refers to himself as an ‘anarcho-capitalist’, promise that if he wins the race, he will reduce the size of the government, abolish the Argentine central bank and remove the peso in favour of the dollar.
Throughout his campaign, Mr Milei expressed a positive viewpoint towards crypto and defined bitcoin as the “instrument” that will bring money back to the private sector. He has also called for the full dollarisation of the Argentine economy and actively encouraged voters to stop saving the peso, which led president Alberto Fernández to accuse the candidate of “inciting public fear”.
According to data shared by Lemon, the crypto exchange saw the number of users purchasing stablecoins over the primary election weekend hit three times the normal amount, and saw a 20% increase in registered users buying and selling stablecoins on the platform. The firm also stated that its crypto holdings in user custody grew by 27% in just 30 days.
In the midst of the economic and political turmoil, Buenos Aires-headquartered crypto service provider Ripio recently announced the release of what is considered to be Latin America’s first stablecoin, Criptodólar. As the name suggests, the stablecoin is pegged to the US dollar and marks a turning point for the local crypto business because it represents the beginning of Latin America’s push towards developing its own blockchain technology.
“We were expecting a lot of volatility around election time, so we decided to launch Criptodólar two weeks before the primaries,” says Ripio CEO Sebastián Serrano. “We saw that there was a market for it and that there weren’t other companies working on releasing their own Latam-native stablecoin.”
While Argentinian banks are not allowed to facilitate crypto trades, Mr Serrano believes that in a few years, stablecoins and cryptocurrencies in general will become an integral part of the financial ecosystem. “Because of the restrictions in place, this integration will not be happening today, but I believe that the more people start accessing these assets, the faster the economy will move towards the digital realm,” he says.
