Crypto, Web3 and the Global Unleashing Part Deux

This time - an examination of global demand, bottom up, for stablecoins.

As you know I've been unpacking the quiet, but significant rise of crypto use cases in emerging markets. I say “quiet” because crypto is too often dismissed as a tool of wealthy oligarchs moving money from their countries, bad actors hoping to be uncaught, or wild speculators investing on FOMO. Day to day usage just isn’t as good copy.

But as I argued here last week, there is a great deal happening well beyond the hype – and unsurprisingly in emerging markets. I say “unsurprisingly” because if one can only move money through high cost and worlds of constant devaluation, one would certainly seek an alternative.

Then as now, I’m examining this with one of our partners, Falgu Shah – who has an unique lens working in and thinking about Africa.

Framing our most recent catch up were two fascinating reads.

Co-Founder of Carbon (a leading credit-led fintech in Nigeria), Ngozi Dozie writes thoughtfully of the rise in use cases of stablecoins, noting “Individuals will gravitate towards options that give them more flexibility or value.  So a currency that is accepted universally and preserves purchasing power will always be chosen over one that is limited to a region and prone to devaluation. Every day, SMEs and individuals are making this choice not because they have strong hands or are HODLers, but because using stablecoins makes their life easier, and opens up opportunities that didn’t exist before. And with increased adoption of cashless globally, there will be greater the adoption of stablecoins.”

And  here notes that global remittance provider MoneyGram has actively embraced the cryptocurrency space not only for money transfers and settlement but to reach potential purchasers. CEO, Alex Holmes, notes: “We don’t have to buy, sell and own crypto to offer it to the consumer. We’re enabling cash-in and cash-out of wallets, and the wallets are then linked to the ability to buy/sell crypto.”

To think of the crypto debate as fundamentally about Bitcoin and Ethereum and other decentralized currency is tempting. It is a generational story of a young people making fortunes on ideas and capabilities the established order cannot dream of let alone understand.

But what is potentially more interesting and bigger is the wider swath of people taking to stablecoins, especially in rising markets globally.

And why wouldn’t we all?

Such users  1) receive 10% yields or alike in their wallets; 2) believe that being tied to the dollar is "safe" right or wrong; 3) desire to move value in dollars and not their local currency right now but simply can't get access to dollars; 4) increasingly “sell” the benefits to senders or recipients of money overseas to the value of doing so through stable coins; 5) seek the ability to move money INTRA Africa this way; and 6) are looking for massive opportunity in the B2B spaces across their, usually other emerging, markets.

Here are some amazing anecdotes.

To move currency between African countries often requires first exchanging local currency to US dollars and then into the destination currency. Banks in Rwanda, for example, don’t want to be left holding Ugandan Shillings, even if it’s their neighbor. It’s simply too illiquid. Without stepping outside of Africa, you’ll have to find buyers and sellers of USD to get your money to where it has to go – and the fees are steep. Average -- average -- costs on any transaction on payments intra-Africa are 10%. Second, companies in Africa are already figuring out innovative ways of paying bills to US or European service providers through tech-enabled currency exchanges or even stablecoins. Think of a startup having to pay AWS or other infrastructure bills in USD – it’s traditionally been a hard thing to do when you’re generating revenue in local currency.

Looming over all of this is the regulatory environment whose unpredictability simply cannot be ignored.  And most governments are struggling to come to terms with what they want here and what they can embrace (if they should embrace) non-state crypto. They, too, sadly conflate discussion of stablecoins and all crypto as if it were one thing.

Yet in listening to people on the ground a world of stablecoins seems a clear win-win. It doesn't kill Bitcoin or Ethereum (they will play a role in store of value, investments etc.  and many people will simply trust the stability of a decentralized offering over time).

But the massive use case for stablecoins offer convenient and cheap access to currencies that millions find value in.

And as an aside, wouldn’t the United States have a rare competitive advantage here?

This of course suggests that in the end millions in Africa and other emerging markets globally still hold that the dollar is the safest thing out there.  This is a proposition somewhat more dubious than I had ever imagined in my lifetime, but still fundamentally the case, for now.

But in all of my digging in, I’ve not heard many on the ground yet say they’d prefer China’s digital yuan…