The stablecoin Tether (USDT) logo.
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In the middle of the United States military intervention in Venezuelaresidents rushed to secure their savings by converting their bolivares into dollar-pegged digital tokens called USDT. The timing of the attack may have surprised some, but Venezuelans’ subsequent adoption of stablecoins did not.
From the Middle East to Latin America, ordinary people are turning to USDT to hide and preserve their wealth from authoritarian regimes and protect against hyperinflation. And now with the American president Donald Trump by threatening to intervene in local affairs in Colombia and Iran, this survival strategy could gain even more ground.
“Stablecoins are worth better dollars, but the reason people get them is out of necessity and self-preservation,” Mauricio Di Bartolomeo, co-founder of digital asset lender Ledn, told CNBC. “Wherever they have limits on the free flow of dollars, stablecoins are going to explode.”
Since 2014, the digital currency issued by stablecoin giant Tether has become increasingly common in Russia, Iran and other emerging economies, particularly during times of increased political instability, according to Di Bartolomeo. Using USDT, people can send and receive funds, protect their money from local currency depreciation, and pay for goods and services.
Not so stable? Although USDT may seem like a perfect solution to using “virtually worthless” fiat currencies like the Iranian rial and Venezuelan bolivar, the token – like most things – is not perfect, Di Bartolomeo noted.
Even though stablecoins like USDT are designed to always be equal to $1, their prices do not always remain stable, especially when demand increases.
Earlier this month, demand for USDT surged due to the US attack on Venezuela, causing the token to trade as high as around $1.40 on some peer-to-peer exchanges.
This cost fluctuation highlights ongoing liquidity issues in the cryptocurrency market that have hampered mass adoption of digital assets. However, it also shows how virtual currencies are seen as an “escape valve” among individuals living in extreme political and economic conditions, Haonan Li, co-founder and CEO of stablecoin infrastructure company Codex, told CNBC.
“This was a violent price overhaul driven by fear,” Li said. “As confidence in the bolivar collapsed, demand for dollars through Tether exploded, driving the peer-to-peer price of USDT in Venezuela up by around 40% almost overnight.”
He added that the event was not due to speculative activity among retail traders. Rather, “they were trying to get out of fiat as quickly as possible,” in an emergency situation, Li said.
“This increase in demand has created arbitrage opportunities, but more importantly, it has highlighted how stablecoins function as a real-time safety rail in emerging markets when traditional systems crack,” he added.
The situation temporarily hurt some Venezuelans who were trying to secure their savings through a dollarized digital solution, forcing them to pay a premium to convert their bolivares to USDT. And this is one of the few potential risks that stablecoins could pose.
Converting high volumes of fiat currency into dollar-pegged stablecoins results in large capital outflows, which could contribute to local currency depreciation, Austin Campbell, CEO of Zero Knowledge Consulting, told CNBC.
“If you have a very repressive regime that, frankly, doesn’t care about all of its citizens, gives everyone a way to get their money out of the regime so they can do whatever they want, that could cause the local currency to collapse,” said Campbell, who is also an assistant professor at NYU.
However, this kind of situation is not always a bad thing, the stablecoin expert noted. The depreciation of the local currency can also serve to “put[ting] pressure on the diet and causes[ing] these problems. So this may be a feature and not a bug,” Campbell said.
And, of course, any risk incurred when using stablecoins in authoritarian regimes is certainly worth it, he noted.
“When the only other option is for the government to steal all your money, [USDT] is always the best option,” Campbell said.
