Welcome to Latam Insights Encore, a deep dive into Latin America’s most relevant economic and crypto news from the past week. In this edition, we examine how stablecoins have become a tool for preserving value in Venezuela, facing increasingly high inflation and devaluation indices.
Latam Insights Encore: Venezuela Is a Statement on the Possibilities Brought by Stablecoin Adoption
Stablecoin have taken the world by storm, and their adoption has reached peak numbers in Venezuela, an economy that is facing distressing circumstances. The local and international press have reported an increasing adoption of stablecoins, principally USDT, as a tool for managing devaluation indices that reach double digits.
While using stablecoins is not really new for Venezuelans, an increased vigilance and enforcement of the existing exchange controls by the Venezuelan government towards cash has increased the demand for stablecoins.
Furthermore, as stablecoins are not regulated directly by the government, they are allowed to be traded at higher exchange rates than physical dollars, allowing citizens to run positive arbitrage operations.
Stablecoins have even reached the treasuries of companies, which also take advantage of their advantages, allowing them to make international payments for foreign providers or even serve as tools for saving value.
Even when pegged to the value of an imperfect fiat currency, in distressed economies, stablecoins allow citizens to bypass economic roadblocks by residing in alternative decentralized systems that are difficult to control.
Reports also refer to the government leveraging stablecoins to receive payments for crude shipments and taking advantage of the arbitrage possibilities mentioned before.
Venezuelans and Argentines learnt to follow the same stablecoin-based playbook, with their citizens having to rely on arbitrage operations to maintain their purchasing power.
Sadly, in the case of Venezuela, this devaluatory escalation is unlikely to cease in the short term, as the government is unable to supply the internal market with all the dollars needed to move its economy.
Nonetheless, stablecoins present the possibility of opting out of this dilemma by providing easy access to dollar proxies.
