If I give you 1 yuan, or give you virtual currency worth 1 yuan, which would you choose?
Most Chinese people are likely to choose their own legal currency, after all, fiat currency is easy to circulate and its value is stable. As for virtual currency, the price goes up to the sky one moment and plummets the next; it's too risky and not stable enough.
However, if this issue is placed in Africa, Southeast Asia, South America, or the Middle East, the answer might be just the opposite; people would rather have virtual currency than hold the equivalent value in fiat currency.
01 The poorest continent falls in love with virtual currency
The image of poverty and backwardness in Africa has long been deeply rooted in the hearts of the people, and when everyone thinks of Africans, the image that comes to mind is that of scrawny refugees, pitifully holding a few crumpled banknotes to buy things.
You might not believe it, but people are now using online payments. While we are still stuck in stereotypes, Africa has become the fastest-growing region for digital finance and the widest application of virtual currencies.
In 2023, the number of registered digital payment accounts in Africa reached 856 million, accounting for 50% of the global registered accounts and contributing to over 70% of the total growth of registered accounts worldwide. In Kenya, the proportion of adults using digital payments reached 75.8%, while in South Africa it was 70.5%, in Ghana 63%, and in Gabon 62.3%. What does this mean? These countries, located in impoverished "Black Africa," have a higher penetration of digital payments than many developed countries, for example, Germany, where the penetration rate is only 42%.
So, the reality is that you can see the familiar payment codes and QR code cash registers everywhere in Africa.
The more outrageous point is that even Africans who are struggling with basic necessities are actually "addicted to trading cryptocurrencies". From July 2023 to June 2024, "Black Africa", which refers to the region south of the Sahara Desert, traded a total of $125 billion in on-chain cryptocurrency. Just Nigeria alone accounted for $59 billion in transactions. If we look at the growth rate, it becomes even more frightening; since 2021, the number of cryptocurrency users in "Black Africa" has actually increased by 25 times, making it the fastest-growing region in the world, surpassing all internet-developed areas.
Many Chinese netizens' understanding of the concept of cryptocurrency mainly comes from Bitcoin, whose price often experiences wild fluctuations. Therefore, people easily attribute the trend of Africans engaging in virtual currencies to "being driven crazy by poverty, wanting to get rich overnight through gambling on coins." However, this is not the case; more than 50% of the cryptocurrencies traded by Africans are a specific type of coin, stablecoins.
Medium
Stablecoins, simply put, are a type of cryptocurrency that is pegged to fiat currencies or real-world assets. Their purpose is to provide price stability for market transactions in cryptocurrencies. One of the representatives of stablecoins, USTD, commonly known as Tether, is designed to be anchored 1:1 with the US dollar. For every Tether issued, the issuing company holds 1 dollar in asset reserves.
At the beginning of the birth of stablecoins, in order to lock in the income of speculation, users may face the problem of "inconvenient withdrawal" after making profits by buying and selling unstable currencies such as Bitcoin, and the best solution is to create a new currency with a stable price, exchange the income for it, and continue to store it in the virtual world. To use an inappropriate analogy, Bitcoin is like a stock in a virtual world, and stablecoins are cash in a virtual world.
This characteristic of stablecoins has caught the attention of Africans, as if a lifeline has appeared before them.
For them, high inflation is an inescapable psychological shadow. Since most "Black Africa" countries have poor economic and governance capabilities, they are easily impacted by international situations. When the government runs out of money, it resorts to printing money to cover the deficit, and then occasionally there are coups and civil wars. These chaotic phenomena lead to frequent hyperinflation. In 2024, the average inflation rate in Africa reached an astonishing 18.6%, far exceeding the recognized 3% red line, while Zimbabwe, a peculiar case, even pushed its inflation rate to 92%.
In other words, the money you earn with great effort could lose 1/5 or even 1/2 of its value in a year, and if inflation spirals out of control, it could even turn into worthless paper.
After years of tossing and turning, Africans naturally lose confidence in their country's fiat currency, and want to exchange their income for a more stable foreign currency, and in terms of recognition and liquidity, the first choice is, of course, the US dollar. However, African countries are not like us, they can rely on the status of the world's factories to create trade surpluses, they only sell some ores, fruits, do not earn much dollars, and have to import all kinds of scarce materials, in fact, there are not enough foreign exchange reserves in the bank. And the adults above are not stupid, they directly control foreign exchange, and even if they have dollars, they will not exchange them for you.
Moreover, Africans find it extremely difficult to find a bank to exchange money due to underdeveloped infrastructure and a lack of bank branches. Over 350 million adults in Africa cannot access financial services, and 55% of adults do not have a bank account at all.
If the common people really want to exchange for US dollars, they can only get ripped off in the black market. As we mentioned earlier about Zimbabwe, the black market exchange rate is nearly double the official rate, with the official rate being 27 Zimbabwean dollars to 1 US dollar, while the black market rate is 50:1. Two years ago, after Sudan was engulfed in war, the official exchange rate of the Sudanese pound to the US dollar remained at 560:1, while the black market rate was 2100:1.
No dollars, no banks, so what does Africa have? The answer is mobile phones. Thanks to a certain industrial Cthulhu from the East, Africa has gained access to a large number of cheap smartphones, with a penetration rate exceeding 70%. In this situation, Africa is bound to seek a way to survive through digital finance.
And the answer they found is stablecoins. Virtual currency trading platforms represented by Yellow Card allow users to purchase stablecoins with the legal tender of various African countries, while stablecoins led by Tether are directly pegged to the US dollar, which essentially allows users to freely exchange foreign currency, thus achieving asset preservation.
The exchange rate offered by Yellow Card is generally slightly lower than the official rate, but much better than the black market. For example, the current official exchange rate in Nigeria is 1590 Naira for 1 US dollar, while Yellow Card offers 1620 Naira to buy 1 Tether. They make a profit from the difference, and users are not drastically overcharged, which is a win-win situation.
For those Africans without bank accounts or access to bank branches, the emergence of stablecoins has made financial management particularly simple. You just need to register for your own trading platform account and then find a local intermediary. You give them your cash in fiat currency, and they transfer the stablecoins to your account. This completes the exchange and deposit, making it convenient and fast, though you will need to pay the intermediary a small fee.
And stablecoins don't just solve the problem of inflation. Due to the backwardness and inefficiency of the financial system, the cost of cross-border remittances in "black Africa" countries is unusually high, with losses as high as 7.8%, much higher than the average cost of 4%-6.4% in the rest of the world. After stablecoins became popular, everyone abandoned the original remittance channels and switched to direct transactions with stablecoins, transferring stablecoins between overseas accounts and domestic accounts, and some platforms only charge 0.1% handling fees, rounding off is not money.
Companies have stablecoins in their accounts, and employees also want to buy stablecoins, so everyone starts to think, why go through the hassle? As a result, many companies begin to pay salaries directly in stablecoins.
Blockworks
Wages have become stablecoins, and deposits are also stablecoins. As a result, everyone has little fiat cash on hand, and exchanging it back and forth is cumbersome. Forget it, let's just scan to pay. Thus, stablecoins have further propelled the rapid growth of digital payments in Africa.
And unlike our popular digital payment in China, the major payment software in Africa is deeply bound to the stablecoin trading platform, you can scan the code to pay at the same time, seamlessly complete the exchange of stablecoin and fiat currency, some platforms even allow the direct use of stablecoin consumption, even the exchange is saved, many large chain supermarkets, also cooperate with the stablecoin trading platform, encourage the use of stablecoin payment, and even give 10% consumption cashback.
Pick n Pay South Africa
Africa has answered the inflation crisis with stablecoins, and many other countries in the world have also given the same answer.
Like Turkey, since 2021, a series of chaotic economic policies have led to persistently high inflation, forcing Turkey to become the fourth largest cryptocurrency market in the world, with an annual trading volume of $170 billion, surpassing the entire "Black Africa". Moreover, 2 out of 5 Turks hold cryptocurrencies. In 2022, the Turkish lira plummeted more than 30% for several months, prompting Turks to collectively shift to stablecoins for hedging. The trading volume of the Turkish lira for Tether at one point accounted for 30% of the total global fiat to Tether trading volume...
Another emerging market for stablecoins is South America, where many countries face issues with chaotic monetary policies, such as Argentina. Due to President Milei's frequent bold moves in monetary policy, the public is worried about the fiat currency. After Argentina officially abolished currency control measures in April this year, the trading volume on stablecoin exchanges immediately surged by nearly 100%.
The frenzy of stablecoins in these countries once again illustrates that the fastest places for the popularization of new things are not necessarily economically developed countries, but those facing survival crises; it is the pressure that drives change.
02 The Hidden Corner
If we only look at the stablecoin's property of being pegged to the US dollar and its ability to combat inflation, it is easy to overlook the fact that its essence is still that of a cryptocurrency.
Although blockchain technology is open and transparent, the true identity information of both parties in a transaction is often hidden behind wallet addresses. For stablecoin transactions, even if you know the wallet address, it is difficult to directly associate it with a real individual or entity. Moreover, stablecoin transactions do not require central banks to provide authoritative endorsement, which naturally exempts them from regulation by the traditional financial system. This characteristic allows stablecoins to enter a hidden corner, serving as a medium for transactions that cannot be exposed.
As we mentioned earlier, South America is also an emerging market for stablecoins, and it is not entirely about fighting inflation, and some countries value the hard-to-trace nature of their cryptocurrencies. For example, drug lords in Mexico, Brazil, and Colombia have used Tether on a large scale to launder money and transfer drug money. In May last year, the heiress of the famous jeweler Cartier, Maximilien Hupp Cartier, was arrested by the US police on charges of dealing with Colombian drug lords, trying to smuggle 100 kilograms of cocaine and launder hundreds of millions of dollars in drug money, all through Tether.
Similar cases are as numerous as the hairs on a cow, too many to count. The angry U.S. law enforcement agencies simply pointed their arrows at the source of the problem: the issuer of Tether, the stablecoin. Last October, the U.S. federal government suddenly announced a large-scale criminal investigation into Tether, focusing on whether this cryptocurrency was used by third parties to fund illegal activities such as drug trafficking, terrorism, and hacking, or to launder the proceeds of these illegal activities.
Similar situations have also appeared in Southeast Asia, which is well known as a hub for online gambling, fraud, and human trafficking. However, as countries intensify their crackdown efforts, bank cards showing any anomalies will be frozen, and the traditional channels for criminals to transfer funds have nearly become ineffective. As a result, local areas have begun to utilize stablecoins on a large scale for transactions.
How large is the scale? According to statistics from American scholars, criminal gangs transferred more than $75 billion to cryptocurrency exchanges from January 2020 to February 2024, with 84% of the trading volume using Tether.
Tether has expressed strong dissatisfaction with this statistical report, claiming that "every asset is seizable, and every criminal is apprehensible," but Tether has not denied the figure of 75 billion itself.
Lianhe Zaobao
There are also those who treat stablecoins as treasures, like Russia. The Russians are not very interested in online gambling scams, but they need stablecoins to replace the existing foreign trade settlement system.
Since the Russia-Ukraine conflict, Russia has faced various sanctions and has been directly kicked out of SWIFT. SWIFT is the core information transmission network of the global financial system, connecting over 11,000 banks and financial institutions in more than 200 countries and regions worldwide. It is mainly responsible for the secure and efficient transmission of cross-border transaction instructions. Being kicked out of SWIFT means that Russia can no longer conduct international trade settlements through its existing banks.
However, the world needs Russia's resources, and Russia also needs the world's goods, especially war-related supplies. To prevent these hidden trades from being tracked, stablecoins have become a substitute for the dollar, used for foreign trade settlements.
As early as 2021, Russia had zeroed out its dollar foreign exchange reserves, but there was an undisclosed amount of stablecoins flowing into Russia behind the scenes. In fact, in April last year, Western authorities caught a transfer of Tether worth $20 billion to Russia.
TechFlow
How profitable are stablecoins really?
Ordinary people are using it to evade inflation, criminals are using it, and sanctioned countries are using it as well... Driven by new demand, the scale of stablecoins has rapidly grown, increasing approximately 45 times over the past six years, currently reaching $246 billion, with an annual trading volume exceeding $28 trillion, surpassing traditional banks represented by Visa and Mastercard.
Many people may wonder, under this prosperity, what benefits do companies that issue stablecoins gain?
Their first income is the fee, users mint or redeem stablecoins, need to pay money to the issuer, for example, Tether is to charge 0.1% of the fee, although it seems that the proportion is low, but as long as you are large enough, it is a huge amount of money, the total size of Tether Tether has exceeded $120 billion. Moreover, Tether has set a starting price, if the actual handling fee you pay is less than $1,000 after pro-rata calculation, it will also be charged at $1,000. For first-time account sign-ups, Tether also charges a $150 verification fee.
Another major source of profits is the appreciation of the massive reserves held by stablecoin issuers. Taking Tether as an example, since Tether is pegged to the US dollar at a 1:1 ratio, when a user mints one Tether, it is equivalent to depositing one US dollar with Tether, right? Tether does not have to pay any interest on this wealth, but Tether itself deposits the pegged US dollars in banks, which will pay interest, thus earning the difference. Moreover, Tether will take a small portion of cash to provide attractive loans to itself, earning a higher interest rate than what banks offer.
At the same time, Tether does not fully use US dollar cash to complete its reserves. Among the assets used for anchoring, 66% are US Treasury bonds and 10.1% are overnight reverse repurchase agreements. These assets are also stable, but the returns are higher than the interest on cash deposits, exceeding 4%. With a holding of 120 billion dollars, this represents a substantial income.
Moreover, the company can also profit from the price difference by repurchasing stablecoins. Although Tether is designed to be 1:1 with the US dollar, in practice, it is still influenced by market supply and demand as well as sentiment, leading to small fluctuations of one or two percentage points. As the old saying goes, don't underestimate this small ratio; when corresponding to a total fund amount of 120 billion dollars, it can yield enormous wealth.
Whenever there is a tightening of regulations or any criminal allegations, public opinion will begin to question Tether, and some users will concentrate on selling off, causing a slight depreciation of Tether. At this time, Tether will use its reserves to conduct large-scale buybacks of Tether and destroy them.
For example, in 2018, when Tether’s stablecoin dropped to 98%, it quickly repurchased 500 million coins. They minted 500 million USD, but you only spent 490 million on the repurchase, netting a profit of 10 million USD, while also using this solid cash repurchase to stabilize market confidence and prevent further runs, which made them smile.
With these three major sources of profit, Tether, with only 150 employees, earned $13 billion in 2024, surpassing financial and tech giants like BlackRock and Alibaba, leaving some Fortune 500 companies embarrassed, and the achievement of an average earning of $93 million per employee is unparalleled globally.
04 Shadow Dollar, Reshaping Hegemony?
The impact of stablecoins on the world is not just about nurturing a few new internet giants; the most concerning aspect is that it is seamlessly transferring the dollar hegemony from the traditional financial system to the blockchain world.
Think about it, stablecoins need a universally recognized anchor, right? If we have to choose one from fiat currencies, then due to historical inertia, the issuing company will most likely choose the dollar or U.S. Treasury bonds, which have the highest reserve recognition. From the Pacific to the Arctic, everyone loves the dollar. Currently, the stablecoin with the highest market share is Tether (USDT), followed by USDC in second place and FDUSD in fifth place, all of which use the anchoring model of the dollar/U.S. Treasury bonds and their equivalents.
This means that the more stablecoins circulating in the market, the more dollars they have in hand, forming a closed loop of "users purchasing stablecoins → issuers increasing dollar holdings/purchasing U.S. Treasury bonds." This makes stablecoins effectively a shadow dollar, continuously strengthening the use and circulation of the dollar worldwide, and also providing a new sales avenue for U.S. Treasury bonds, significantly enhancing the financing capacity of the U.S. government. Currently, Tether has surpassed Germany to become the 19th largest buyer of U.S. Treasury bonds globally, and the money it uses to buy Treasury bonds comes from countless users, equivalent to the whole world increasing its holdings of U.S. Treasury bonds.
If this trend continues, the dollar's already precarious hegemony will once again be consolidated through stablecoins; While the rest of the countries are able to decide their own monetary policies, the massive use of the shadow dollar in people's daily lives and cross-border trade will greatly weaken the monetary sovereignty of these countries.
So you will find that the high level in the United States has already sensed this opportunity and is heavily betting on stablecoins. Not long ago, the U.S. passed the "GENIUS Act," and its main content includes a few points:
First, it is required that for every stablecoin issued, there must be an equivalent amount of cash or U.S. Treasury bonds backing it.
Second, stablecoin issuers must register with the U.S. federal government and publicly disclose their reserves on a monthly basis to ensure fund security, and they must also comply with anti-money laundering and anti-crime regulations.
Thirdly, in the event that the issuing company goes bankrupt, the redemption of stablecoin holders will have priority.
A few simple rules, but the power is amazing. The first is that the law stipulates that stablecoins must be anchored to USD/US bonds, and the second is to strengthen the supervision of issuing companies, which can give users stronger confidence and lead to more wealth being exchanged for stablecoins, that is, for USD/US bonds. According to industry insiders' predictions, after the implementation of the bill, the total supply of stablecoins will increase from the current $246 billion to $2 trillion by the end of 2028, which will generate a new demand for short-term U.S. bonds of $1.6 trillion, just enough to help the United States resist the wave of U.S. bond selling.
The promoter of the bill, Trump, has also entered the game. The stablecoin USD1, issued with the support of the Trump family, adopts a USD/Treasury bond peg, using his influence to endorse the stablecoin and conveniently take a slice of the pie. Currently, USD1's market share has risen to seventh place among stablecoins.
Other countries have been trying for years to undermine the dollar's hegemony and are naturally unwilling to see the dollar continue to dominate by being pegged. This requires defeating magic with magic. As a financial bastion of China, Hong Kong has already passed a bill on May 21, preparing to issue a stablecoin pegged to the Hong Kong dollar. Initially, it will be a small-scale trial, and later it may allow banks, large internet companies, fintech companies, and other institutions to apply for stablecoin issuance licenses. The familiar JD.com has already entered the fray, and the JD-HKD, pegged 1:1 to the Hong Kong dollar, is currently undergoing sandbox testing.
Other countries are also not to be outdone. Currently, Singapore, the European Union, and Russia are all considering launching stablecoins pegged to their own fiat currencies.
The financial war between nations is shifting from sovereign currencies to cryptocurrencies.
05 The next generation of financial nuclear bombs
There is a meme on the Internet that the Federal Reserve's vault is like Schrödinger's box, which hasn't been publicly inspected for decades. Who knows if the gold reserves inside are still there?
This meme also applies to stablecoins. Although they claim to have a 1:1 reserve with the US dollar/Treasury bonds, there is always an information asymmetry between the issuing company and the users. Audit reports are not necessarily always truthful and accurate. As the usage scale of stablecoins increases, trust crises are unavoidable. What if the reserves are quietly misappropriated? What if the bank holding the reserves is affected by systemic risk?
In 2023, Silicon Valley Bank in the United States will have an operating crisis, creating the second largest bank failure in the history of the United States, and USDC, which has the second largest share of stablecoins, has $3.3 billion in reserves deposited in the bank.
In other words, stablecoins are not absolutely stable. The risk of a traditional financial system collapse will still pass on to them. To use a metaphor from foreigners, "stablecoins cannot avoid car accidents; they are just slow-motion car accidents."
For those countries that still trade in the US dollar, the SWIFT system of the past was a financial nuclear bomb, kick you out and you're finished, and the use of cryptocurrencies to trade seems to circumvent the regulation of this system, but it has become a more powerful nuclear bomb in its own right. Stablecoins don't have a nationality or position, but there are several issuing companies behind them, and your opponent just needs to catch the company and beat it hard.
After the exposure of Russia using Tether to evade sanctions, many countries in the US and Europe threatened Tether, saying "if you don't handle this, I will investigate you." In order to show loyalty, Tether directly froze 27 million dollars worth of Tether at the Russian crypto exchange Garantex, leading to the suspension of all trading and withdrawal services on the platform, and the website entered maintenance mode, resulting in many Russian users' assets being completely wiped out.
In the past, we used to say that cryptocurrencies circulate globally, forming a trend of financial decentralization.
The emergence of stablecoins precisely indicates that things may not be so; it is merely replacing the old center with a new one.
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The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
The poorest Africa has become the trendiest player in the global crypto world.
Author: Cool Play Lab
If I give you 1 yuan, or give you virtual currency worth 1 yuan, which would you choose?
Most Chinese people are likely to choose their own legal currency, after all, fiat currency is easy to circulate and its value is stable. As for virtual currency, the price goes up to the sky one moment and plummets the next; it's too risky and not stable enough.
However, if this issue is placed in Africa, Southeast Asia, South America, or the Middle East, the answer might be just the opposite; people would rather have virtual currency than hold the equivalent value in fiat currency.
01 The poorest continent falls in love with virtual currency
The image of poverty and backwardness in Africa has long been deeply rooted in the hearts of the people, and when everyone thinks of Africans, the image that comes to mind is that of scrawny refugees, pitifully holding a few crumpled banknotes to buy things.
You might not believe it, but people are now using online payments. While we are still stuck in stereotypes, Africa has become the fastest-growing region for digital finance and the widest application of virtual currencies.
In 2023, the number of registered digital payment accounts in Africa reached 856 million, accounting for 50% of the global registered accounts and contributing to over 70% of the total growth of registered accounts worldwide. In Kenya, the proportion of adults using digital payments reached 75.8%, while in South Africa it was 70.5%, in Ghana 63%, and in Gabon 62.3%. What does this mean? These countries, located in impoverished "Black Africa," have a higher penetration of digital payments than many developed countries, for example, Germany, where the penetration rate is only 42%.
So, the reality is that you can see the familiar payment codes and QR code cash registers everywhere in Africa.
The more outrageous point is that even Africans who are struggling with basic necessities are actually "addicted to trading cryptocurrencies". From July 2023 to June 2024, "Black Africa", which refers to the region south of the Sahara Desert, traded a total of $125 billion in on-chain cryptocurrency. Just Nigeria alone accounted for $59 billion in transactions. If we look at the growth rate, it becomes even more frightening; since 2021, the number of cryptocurrency users in "Black Africa" has actually increased by 25 times, making it the fastest-growing region in the world, surpassing all internet-developed areas.
Many Chinese netizens' understanding of the concept of cryptocurrency mainly comes from Bitcoin, whose price often experiences wild fluctuations. Therefore, people easily attribute the trend of Africans engaging in virtual currencies to "being driven crazy by poverty, wanting to get rich overnight through gambling on coins." However, this is not the case; more than 50% of the cryptocurrencies traded by Africans are a specific type of coin, stablecoins.
Medium
Stablecoins, simply put, are a type of cryptocurrency that is pegged to fiat currencies or real-world assets. Their purpose is to provide price stability for market transactions in cryptocurrencies. One of the representatives of stablecoins, USTD, commonly known as Tether, is designed to be anchored 1:1 with the US dollar. For every Tether issued, the issuing company holds 1 dollar in asset reserves.
At the beginning of the birth of stablecoins, in order to lock in the income of speculation, users may face the problem of "inconvenient withdrawal" after making profits by buying and selling unstable currencies such as Bitcoin, and the best solution is to create a new currency with a stable price, exchange the income for it, and continue to store it in the virtual world. To use an inappropriate analogy, Bitcoin is like a stock in a virtual world, and stablecoins are cash in a virtual world.
This characteristic of stablecoins has caught the attention of Africans, as if a lifeline has appeared before them.
For them, high inflation is an inescapable psychological shadow. Since most "Black Africa" countries have poor economic and governance capabilities, they are easily impacted by international situations. When the government runs out of money, it resorts to printing money to cover the deficit, and then occasionally there are coups and civil wars. These chaotic phenomena lead to frequent hyperinflation. In 2024, the average inflation rate in Africa reached an astonishing 18.6%, far exceeding the recognized 3% red line, while Zimbabwe, a peculiar case, even pushed its inflation rate to 92%.
In other words, the money you earn with great effort could lose 1/5 or even 1/2 of its value in a year, and if inflation spirals out of control, it could even turn into worthless paper.
After years of tossing and turning, Africans naturally lose confidence in their country's fiat currency, and want to exchange their income for a more stable foreign currency, and in terms of recognition and liquidity, the first choice is, of course, the US dollar. However, African countries are not like us, they can rely on the status of the world's factories to create trade surpluses, they only sell some ores, fruits, do not earn much dollars, and have to import all kinds of scarce materials, in fact, there are not enough foreign exchange reserves in the bank. And the adults above are not stupid, they directly control foreign exchange, and even if they have dollars, they will not exchange them for you.
Moreover, Africans find it extremely difficult to find a bank to exchange money due to underdeveloped infrastructure and a lack of bank branches. Over 350 million adults in Africa cannot access financial services, and 55% of adults do not have a bank account at all.
If the common people really want to exchange for US dollars, they can only get ripped off in the black market. As we mentioned earlier about Zimbabwe, the black market exchange rate is nearly double the official rate, with the official rate being 27 Zimbabwean dollars to 1 US dollar, while the black market rate is 50:1. Two years ago, after Sudan was engulfed in war, the official exchange rate of the Sudanese pound to the US dollar remained at 560:1, while the black market rate was 2100:1.
No dollars, no banks, so what does Africa have? The answer is mobile phones. Thanks to a certain industrial Cthulhu from the East, Africa has gained access to a large number of cheap smartphones, with a penetration rate exceeding 70%. In this situation, Africa is bound to seek a way to survive through digital finance.
And the answer they found is stablecoins. Virtual currency trading platforms represented by Yellow Card allow users to purchase stablecoins with the legal tender of various African countries, while stablecoins led by Tether are directly pegged to the US dollar, which essentially allows users to freely exchange foreign currency, thus achieving asset preservation.
The exchange rate offered by Yellow Card is generally slightly lower than the official rate, but much better than the black market. For example, the current official exchange rate in Nigeria is 1590 Naira for 1 US dollar, while Yellow Card offers 1620 Naira to buy 1 Tether. They make a profit from the difference, and users are not drastically overcharged, which is a win-win situation.
For those Africans without bank accounts or access to bank branches, the emergence of stablecoins has made financial management particularly simple. You just need to register for your own trading platform account and then find a local intermediary. You give them your cash in fiat currency, and they transfer the stablecoins to your account. This completes the exchange and deposit, making it convenient and fast, though you will need to pay the intermediary a small fee.
And stablecoins don't just solve the problem of inflation. Due to the backwardness and inefficiency of the financial system, the cost of cross-border remittances in "black Africa" countries is unusually high, with losses as high as 7.8%, much higher than the average cost of 4%-6.4% in the rest of the world. After stablecoins became popular, everyone abandoned the original remittance channels and switched to direct transactions with stablecoins, transferring stablecoins between overseas accounts and domestic accounts, and some platforms only charge 0.1% handling fees, rounding off is not money.
Companies have stablecoins in their accounts, and employees also want to buy stablecoins, so everyone starts to think, why go through the hassle? As a result, many companies begin to pay salaries directly in stablecoins.
Blockworks
Wages have become stablecoins, and deposits are also stablecoins. As a result, everyone has little fiat cash on hand, and exchanging it back and forth is cumbersome. Forget it, let's just scan to pay. Thus, stablecoins have further propelled the rapid growth of digital payments in Africa.
And unlike our popular digital payment in China, the major payment software in Africa is deeply bound to the stablecoin trading platform, you can scan the code to pay at the same time, seamlessly complete the exchange of stablecoin and fiat currency, some platforms even allow the direct use of stablecoin consumption, even the exchange is saved, many large chain supermarkets, also cooperate with the stablecoin trading platform, encourage the use of stablecoin payment, and even give 10% consumption cashback.
Pick n Pay South Africa
Africa has answered the inflation crisis with stablecoins, and many other countries in the world have also given the same answer.
Like Turkey, since 2021, a series of chaotic economic policies have led to persistently high inflation, forcing Turkey to become the fourth largest cryptocurrency market in the world, with an annual trading volume of $170 billion, surpassing the entire "Black Africa". Moreover, 2 out of 5 Turks hold cryptocurrencies. In 2022, the Turkish lira plummeted more than 30% for several months, prompting Turks to collectively shift to stablecoins for hedging. The trading volume of the Turkish lira for Tether at one point accounted for 30% of the total global fiat to Tether trading volume...
Another emerging market for stablecoins is South America, where many countries face issues with chaotic monetary policies, such as Argentina. Due to President Milei's frequent bold moves in monetary policy, the public is worried about the fiat currency. After Argentina officially abolished currency control measures in April this year, the trading volume on stablecoin exchanges immediately surged by nearly 100%.
The frenzy of stablecoins in these countries once again illustrates that the fastest places for the popularization of new things are not necessarily economically developed countries, but those facing survival crises; it is the pressure that drives change.
02 The Hidden Corner
If we only look at the stablecoin's property of being pegged to the US dollar and its ability to combat inflation, it is easy to overlook the fact that its essence is still that of a cryptocurrency.
Although blockchain technology is open and transparent, the true identity information of both parties in a transaction is often hidden behind wallet addresses. For stablecoin transactions, even if you know the wallet address, it is difficult to directly associate it with a real individual or entity. Moreover, stablecoin transactions do not require central banks to provide authoritative endorsement, which naturally exempts them from regulation by the traditional financial system. This characteristic allows stablecoins to enter a hidden corner, serving as a medium for transactions that cannot be exposed.
As we mentioned earlier, South America is also an emerging market for stablecoins, and it is not entirely about fighting inflation, and some countries value the hard-to-trace nature of their cryptocurrencies. For example, drug lords in Mexico, Brazil, and Colombia have used Tether on a large scale to launder money and transfer drug money. In May last year, the heiress of the famous jeweler Cartier, Maximilien Hupp Cartier, was arrested by the US police on charges of dealing with Colombian drug lords, trying to smuggle 100 kilograms of cocaine and launder hundreds of millions of dollars in drug money, all through Tether.
Similar cases are as numerous as the hairs on a cow, too many to count. The angry U.S. law enforcement agencies simply pointed their arrows at the source of the problem: the issuer of Tether, the stablecoin. Last October, the U.S. federal government suddenly announced a large-scale criminal investigation into Tether, focusing on whether this cryptocurrency was used by third parties to fund illegal activities such as drug trafficking, terrorism, and hacking, or to launder the proceeds of these illegal activities.
Similar situations have also appeared in Southeast Asia, which is well known as a hub for online gambling, fraud, and human trafficking. However, as countries intensify their crackdown efforts, bank cards showing any anomalies will be frozen, and the traditional channels for criminals to transfer funds have nearly become ineffective. As a result, local areas have begun to utilize stablecoins on a large scale for transactions.
How large is the scale? According to statistics from American scholars, criminal gangs transferred more than $75 billion to cryptocurrency exchanges from January 2020 to February 2024, with 84% of the trading volume using Tether.
Tether has expressed strong dissatisfaction with this statistical report, claiming that "every asset is seizable, and every criminal is apprehensible," but Tether has not denied the figure of 75 billion itself.
Lianhe Zaobao
There are also those who treat stablecoins as treasures, like Russia. The Russians are not very interested in online gambling scams, but they need stablecoins to replace the existing foreign trade settlement system.
Since the Russia-Ukraine conflict, Russia has faced various sanctions and has been directly kicked out of SWIFT. SWIFT is the core information transmission network of the global financial system, connecting over 11,000 banks and financial institutions in more than 200 countries and regions worldwide. It is mainly responsible for the secure and efficient transmission of cross-border transaction instructions. Being kicked out of SWIFT means that Russia can no longer conduct international trade settlements through its existing banks.
However, the world needs Russia's resources, and Russia also needs the world's goods, especially war-related supplies. To prevent these hidden trades from being tracked, stablecoins have become a substitute for the dollar, used for foreign trade settlements.
As early as 2021, Russia had zeroed out its dollar foreign exchange reserves, but there was an undisclosed amount of stablecoins flowing into Russia behind the scenes. In fact, in April last year, Western authorities caught a transfer of Tether worth $20 billion to Russia.
TechFlow
How profitable are stablecoins really?
Ordinary people are using it to evade inflation, criminals are using it, and sanctioned countries are using it as well... Driven by new demand, the scale of stablecoins has rapidly grown, increasing approximately 45 times over the past six years, currently reaching $246 billion, with an annual trading volume exceeding $28 trillion, surpassing traditional banks represented by Visa and Mastercard.
Many people may wonder, under this prosperity, what benefits do companies that issue stablecoins gain?
Their first income is the fee, users mint or redeem stablecoins, need to pay money to the issuer, for example, Tether is to charge 0.1% of the fee, although it seems that the proportion is low, but as long as you are large enough, it is a huge amount of money, the total size of Tether Tether has exceeded $120 billion. Moreover, Tether has set a starting price, if the actual handling fee you pay is less than $1,000 after pro-rata calculation, it will also be charged at $1,000. For first-time account sign-ups, Tether also charges a $150 verification fee.
Another major source of profits is the appreciation of the massive reserves held by stablecoin issuers. Taking Tether as an example, since Tether is pegged to the US dollar at a 1:1 ratio, when a user mints one Tether, it is equivalent to depositing one US dollar with Tether, right? Tether does not have to pay any interest on this wealth, but Tether itself deposits the pegged US dollars in banks, which will pay interest, thus earning the difference. Moreover, Tether will take a small portion of cash to provide attractive loans to itself, earning a higher interest rate than what banks offer.
At the same time, Tether does not fully use US dollar cash to complete its reserves. Among the assets used for anchoring, 66% are US Treasury bonds and 10.1% are overnight reverse repurchase agreements. These assets are also stable, but the returns are higher than the interest on cash deposits, exceeding 4%. With a holding of 120 billion dollars, this represents a substantial income.
Moreover, the company can also profit from the price difference by repurchasing stablecoins. Although Tether is designed to be 1:1 with the US dollar, in practice, it is still influenced by market supply and demand as well as sentiment, leading to small fluctuations of one or two percentage points. As the old saying goes, don't underestimate this small ratio; when corresponding to a total fund amount of 120 billion dollars, it can yield enormous wealth.
Whenever there is a tightening of regulations or any criminal allegations, public opinion will begin to question Tether, and some users will concentrate on selling off, causing a slight depreciation of Tether. At this time, Tether will use its reserves to conduct large-scale buybacks of Tether and destroy them.
For example, in 2018, when Tether’s stablecoin dropped to 98%, it quickly repurchased 500 million coins. They minted 500 million USD, but you only spent 490 million on the repurchase, netting a profit of 10 million USD, while also using this solid cash repurchase to stabilize market confidence and prevent further runs, which made them smile.
With these three major sources of profit, Tether, with only 150 employees, earned $13 billion in 2024, surpassing financial and tech giants like BlackRock and Alibaba, leaving some Fortune 500 companies embarrassed, and the achievement of an average earning of $93 million per employee is unparalleled globally.
04 Shadow Dollar, Reshaping Hegemony?
The impact of stablecoins on the world is not just about nurturing a few new internet giants; the most concerning aspect is that it is seamlessly transferring the dollar hegemony from the traditional financial system to the blockchain world.
Think about it, stablecoins need a universally recognized anchor, right? If we have to choose one from fiat currencies, then due to historical inertia, the issuing company will most likely choose the dollar or U.S. Treasury bonds, which have the highest reserve recognition. From the Pacific to the Arctic, everyone loves the dollar. Currently, the stablecoin with the highest market share is Tether (USDT), followed by USDC in second place and FDUSD in fifth place, all of which use the anchoring model of the dollar/U.S. Treasury bonds and their equivalents.
This means that the more stablecoins circulating in the market, the more dollars they have in hand, forming a closed loop of "users purchasing stablecoins → issuers increasing dollar holdings/purchasing U.S. Treasury bonds." This makes stablecoins effectively a shadow dollar, continuously strengthening the use and circulation of the dollar worldwide, and also providing a new sales avenue for U.S. Treasury bonds, significantly enhancing the financing capacity of the U.S. government. Currently, Tether has surpassed Germany to become the 19th largest buyer of U.S. Treasury bonds globally, and the money it uses to buy Treasury bonds comes from countless users, equivalent to the whole world increasing its holdings of U.S. Treasury bonds.
If this trend continues, the dollar's already precarious hegemony will once again be consolidated through stablecoins; While the rest of the countries are able to decide their own monetary policies, the massive use of the shadow dollar in people's daily lives and cross-border trade will greatly weaken the monetary sovereignty of these countries.
So you will find that the high level in the United States has already sensed this opportunity and is heavily betting on stablecoins. Not long ago, the U.S. passed the "GENIUS Act," and its main content includes a few points:
First, it is required that for every stablecoin issued, there must be an equivalent amount of cash or U.S. Treasury bonds backing it.
Second, stablecoin issuers must register with the U.S. federal government and publicly disclose their reserves on a monthly basis to ensure fund security, and they must also comply with anti-money laundering and anti-crime regulations.
Thirdly, in the event that the issuing company goes bankrupt, the redemption of stablecoin holders will have priority.
A few simple rules, but the power is amazing. The first is that the law stipulates that stablecoins must be anchored to USD/US bonds, and the second is to strengthen the supervision of issuing companies, which can give users stronger confidence and lead to more wealth being exchanged for stablecoins, that is, for USD/US bonds. According to industry insiders' predictions, after the implementation of the bill, the total supply of stablecoins will increase from the current $246 billion to $2 trillion by the end of 2028, which will generate a new demand for short-term U.S. bonds of $1.6 trillion, just enough to help the United States resist the wave of U.S. bond selling.
The promoter of the bill, Trump, has also entered the game. The stablecoin USD1, issued with the support of the Trump family, adopts a USD/Treasury bond peg, using his influence to endorse the stablecoin and conveniently take a slice of the pie. Currently, USD1's market share has risen to seventh place among stablecoins.
Other countries have been trying for years to undermine the dollar's hegemony and are naturally unwilling to see the dollar continue to dominate by being pegged. This requires defeating magic with magic. As a financial bastion of China, Hong Kong has already passed a bill on May 21, preparing to issue a stablecoin pegged to the Hong Kong dollar. Initially, it will be a small-scale trial, and later it may allow banks, large internet companies, fintech companies, and other institutions to apply for stablecoin issuance licenses. The familiar JD.com has already entered the fray, and the JD-HKD, pegged 1:1 to the Hong Kong dollar, is currently undergoing sandbox testing.
Other countries are also not to be outdone. Currently, Singapore, the European Union, and Russia are all considering launching stablecoins pegged to their own fiat currencies.
The financial war between nations is shifting from sovereign currencies to cryptocurrencies.
05 The next generation of financial nuclear bombs
There is a meme on the Internet that the Federal Reserve's vault is like Schrödinger's box, which hasn't been publicly inspected for decades. Who knows if the gold reserves inside are still there?
This meme also applies to stablecoins. Although they claim to have a 1:1 reserve with the US dollar/Treasury bonds, there is always an information asymmetry between the issuing company and the users. Audit reports are not necessarily always truthful and accurate. As the usage scale of stablecoins increases, trust crises are unavoidable. What if the reserves are quietly misappropriated? What if the bank holding the reserves is affected by systemic risk?
In 2023, Silicon Valley Bank in the United States will have an operating crisis, creating the second largest bank failure in the history of the United States, and USDC, which has the second largest share of stablecoins, has $3.3 billion in reserves deposited in the bank.
In other words, stablecoins are not absolutely stable. The risk of a traditional financial system collapse will still pass on to them. To use a metaphor from foreigners, "stablecoins cannot avoid car accidents; they are just slow-motion car accidents."
For those countries that still trade in the US dollar, the SWIFT system of the past was a financial nuclear bomb, kick you out and you're finished, and the use of cryptocurrencies to trade seems to circumvent the regulation of this system, but it has become a more powerful nuclear bomb in its own right. Stablecoins don't have a nationality or position, but there are several issuing companies behind them, and your opponent just needs to catch the company and beat it hard.
After the exposure of Russia using Tether to evade sanctions, many countries in the US and Europe threatened Tether, saying "if you don't handle this, I will investigate you." In order to show loyalty, Tether directly froze 27 million dollars worth of Tether at the Russian crypto exchange Garantex, leading to the suspension of all trading and withdrawal services on the platform, and the website entered maintenance mode, resulting in many Russian users' assets being completely wiped out.
In the past, we used to say that cryptocurrencies circulate globally, forming a trend of financial decentralization.
The emergence of stablecoins precisely indicates that things may not be so; it is merely replacing the old center with a new one.