Latin America: A natural vanguard for stablecoin revolution

Latin America’s young, highly connected population and long history of political instability and currency volatility make it a natural home for the right kind of stablecoin.

Latin America has high levels of intra-regional migration and a young population rapidly leaving behind its traditional, cash-based model of transacting in favor of debit cards and mobile payments.

For myriad reasons, it’s also one of the most inflationary parts of the world, with an average inflation rate of 14.41% compared to a global average of 6.78%.

In other words, it’s one region where the case for stablecoins practically makes itself.

Consider what stablecoins are and what they have to offer. They are digital tokens with all of the portability and security of the most well-known digital assets such as BTC but without the volatility: rather than each token’s value being determined by the wild west of the market, their value is instead pegged to another more stable asset—usually some fiat currency. This peg is most commonly preserved by the stablecoin issuer maintaining a reserve fund of the pegged-fiat—such as USD—that accords with the number of their stablecoin in the market; in theory, anyone purchasing the stablecoin can be assured that is represented by an equal amount of fiat held by the issuer.

That kind of asset can offer a level of stability that many of the region’s national currencies have been unable to match.

Latin America is a natural stage for stablecoin adoption

In many ways, the region is already primed for the stablecoin revolution: after all, the digital asset project has already gained a solid foothold in the region, which currently accounts for 10% of all the digital currency value received globally, according to Chainalysis.

The reasons for this are also what makes stablecoins such an attractive option for the local population. Latin America is built of closely interdependent but distinct economies, with most South American countries sharing land borders with more than one neighbour. With a shared history of political upheaval creating exports of refugees and other migrants, the region has a storied tradition of intraregional migration. This means a surplus of people needing to send cash across borders to stay mobile in response to an informal job market, to send wages to family back home or both.

However, cross-border money transfers are complicated by the lack of any currency shared between these nations. This has been alleviated somewhat by (and likely has precipitated) the rapid uptake of more sophisticated banking, particularly in recent years. According to McKinsey, as of 2019, the percentage of the population with a bank account in Latin American countries hovered between 30 and 50%. By 2021, this figure had grown to roughly 73%.

No doubt, this has also partly driven digital asset adoption in the region. However, buying a fraction of a $60,000 BTC with prohibitively expensive transaction fees limits its ability to be used in everyday transactions, meaning that even with this digital adoption, the looming spectre of national currency is never too far away from any digital asset transaction. In turn, this means that users are largely still at the mercy of often volatile fiat.

And in Latin America, many national fiat currencies are nothing if not volatile, with the rate of inflation in the region over double that of the global average (an average of 14.41% across LatAm vs the 6.78% global average).

Argentina is the unhappy emblem of this problem. Argentina has been battling hyperinflation since the 70s, and notwithstanding some brief interregna, the peso/USD chart tells the story of the drastic devaluation of the nation’s currency. The latest turbulence has come from the policies of ‘anarcho-capitalist’ President Javier Milei, whose radical policies saw the inflation rate in Argentina grow from an already-blistering 140% at the time of his election to over 270% within months. Though inflation has since rapidly reduced, Argentinians are unlikely to be looking to the Peso as a safe, stable store of value any time soon.

Though care should be taken not to paint the region with the same brush, Argentina’s recent currency tumult will remind the entire region that fiat can be fickle and is entirely at the mercy of global geopolitics that can work against the region’s population.

Together, these factors make Latin America a region with plenty to gain from a stable, borderless digital asset with all of the self-sovereignty of something like Bitcoin with none of the volatility. In theory, this is the offering of stablecoins.

Stablecoin adoption is outpacing BTC

The same story can be seen in-micro throughout the region. For example, according to Chainalysis, Brazilians overwhelmingly use global exchanges to trade BTC, the most popular digital asset. However, for stablecoins, volume on global exchanges is decreasing in favour of an explosion of activity on local exchanges—which saw a 207.7% year-on-year increase to June 2024.

“Many of Brazil’s exchanges and fintech brokerages offer USD-pegged stablecoins to their customers, with the idea of offering USD exposure as a store of value,” Chainalysis quotes Brazilian crypto analyst Aaron Stanley.

“This has definitely gained traction, but at this stage, it appears that the main use cases for stablecoins are on the B2B cross-border payments side.”

As popular as an option as stablecoins have become for Latin Americans, this does not mean that consumers and issuers should feel free to throw caution to the wind as the transition continues. As with ‘crypto’ in general, trust in stablecoins can be fickle. Typically, it takes a single high-profile scandal to dominate the headlines for months.

Just look at the controversy that has emerged from Argentine President Javier Milei’s promotion of the $LIBRA token, a hitherto unknown asset. Milei posted to his X account, implying a connection with investment into Argentina and linking to a website where the token could be purchased, which contained his signature slogan—‘long live freedom’. Predictably, $LIBRA saw an immediate increase in value, rising from practically zero to $5 dollars in a matter of hours. Just as predictably, the coin quickly crashed back to less than $1, taking Argentinian savings with it.

Argentinian Congress is now investigating President Milei’s involvement in the scandal.

Perhaps paradoxically, the scandal may serve to highlight the benefits of stablecoins over and above the rank-and-file crypto offerings that get peddled at the bottom of X threads. After all, the $LIBRA scandal was only possible because its price was purely detached from any fundamentals beyond how many people had already purchased it (a feature it shares with countless other, more prominent coins). Stablecoins, by contrast, offer the opposite proposition: they are tied to the value of something far more tangible, such as USD.

But, it is an important reminder that trust in the digital asset industry can be slow to build and easy to destroy. In theory, stablecoins are less prone to the excesses of speculation than something like $LIBRA is, provided they are backed by fiat or related reserves to sufficiently enable their peg.

Not all stablecoins are created equal

Where stablecoin adoption is not as driven by necessity, first-movers such as Tether and USDC will likely maintain dominant positions as users have little reason to look beyond the most prominent offerings.

This is self-evident: Tether (USDT) and Circle (USDC) have both maintained market dominance despite well-documented scandals over the degree to which either is truly backed by fiat currency. In a spectacularly embarrassing episode for Tether, it was forced to admit—only following an investigation by the New York Attorney General’s Office—that contrary to what it had long promised, it did not maintain a 1:1 reserve of fiat to hold against the USDT in issuance. However, Tether trucked on as the stablecoin of choice for much of the world.

In places like Latin America, however, where the performance and reliability of stablecoins will have a much bigger impact on users’ everyday lives, users will inevitably flock to those projects which are the fastest and most reliable. In the long term, that is unlikely to be something like Tether, which is already plagued with scandal and fears that its fiat reserves are not as reliable as advertised.

Therefore, consumers in Latin America will inevitably become more discerning and explore lesser-known but more well-suited stablecoins. They can’t afford not to.

This is likely why the market is now seeing the launch of a new generation of stablecoin offerings, which focus on useability and practicality.

One of these is MNEE, a USD-backed stablecoin which recently announced its launch on the 1Sat Ordinals protocol via the BSV blockchain. This is a significant step for stablecoins, particularly for jurisdictions that likely need to use them as both a store of value and a method of transacting.

The BSV blockchain’s core selling point is its ability to process large volumes of transactions nearly instantly, which also helps keep transaction costs at a minimum. So minimal are these costs that transaction fees on BSV are regularly denominated in fractions of a penny. Compared with protocols used by the likes of USDT or USDC, which attach transaction fees of anything from $0.40 to $6.50 and beyond depending on the implementation used, MNEE’s use of BSV has the potential to introduce a new era of utility for the stablecoin market.

If you live somewhere where the value of your national currency is as unreliable as BTC, the ability to not just store your money in an asset that is pegged to a much more stable currency, but to use it to transact in everyday life—is truly invaluable. As Latin America grapples with these issues, stablecoins will continue to play an increasing role in daily life. It’s also likely to make the region an exciting testing ground for new stablecoin projects—like MNEE—as it is in these regions that the case for stablecoins can be made the strongest.

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