If I give you 1 RMB or give you Virtual Money worth 1 RMB, which one would you choose?
Most Chinese people would probably choose their own legal currency, after all, fiat money is easy to circulate and the value is stable. As for virtual money, its price can skyrocket one moment and plummet the next; it's too deep and not stable enough.
However, if this problem is placed in Africa, in Southeast Asia or South America or the Middle East, The answer may be the other way around, people would rather have a virtual currency than a fiat currency of equal value.
01 The Poorest Continent, Falling in Love with Virtual Money
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 Money.
2023, The number of registered accounts for digital payments in Africa reached 856 million, accounting for half of the world's registered accounts and contributing more than 70% of the total global registered account growth. In Kenya, 75.8 per cent of the adult population uses digital payments, compared to 70.5 per cent in South Africa, 63 per cent in Ghana and 62.3 per cent in Gabon. In these poor "black Africa" countries, the popularity of digital payments is even higher than that of many developed countries, such as Germany, which has a penetration rate of only 42%.
So, the reality is that you can see the familiar payment codes everywhere in Africa, as well as the scanning cash registers.
What's even more outrageous is that Africans, who even have a headache with food and clothing, are actually "addicted to currency speculation". From July 2023 to June 2024, "Black Africa", that is, sub-Saharan Africa, traded a total of $125 billion worth of crypto cryptocurrencies on the chain, with Nigeria alone trading $59 billion. If you look at the growth rate, it is even more terrifying, since 2021, the number of cryptocurrency users in "black Africa" has actually increased by 25 times, ranking first in the world, surpassing all developed Internet regions.
Many Chinese netizens' understanding of the concept of cryptocurrency mainly comes from Bitcoin, whose price often experiences wild fluctuations. Therefore, it is easy for people to attribute the trend of Africans engaging in virtual currency to "being driven mad 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 special type of coin, stablecoin.
Medium
Stablecoins, simply put, are a type of cryptocurrency that is pegged to fiat currencies or real-world assets, and their purpose is to provide price stability for cryptocurrency market transactions. One of the representatives of stablecoins, USDT, commonly known as Tether, is designed to be anchored to the US dollar at a 1:1 ratio. For every Tether issued, the issuing company holds 1 dollar in asset reserves.
At the beginning of the birth of stablecoins, it was to lock in the income of speculation. The best solution is to create a new coin with a stable price, exchange the proceeds 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.
And this quality of stablecoins makes Africans' eyes shine, as if there is a lifesaver in front of them.
For them, high inflation is a lingering psychological shadow, because most of the "black African" countries have poor economic and governance capabilities, and are highly vulnerable to the impact of the international situation, as soon as the government is short of money, it will indiscriminately issue currency to make up for the deficit, and then from time to time there will be a coup d'état, civil war, these chaos has led to frequent hyperinflation, in 2024, the average inflation rate in Africa will reach an astonishing 18.6%, far exceeding the recognized red line of 3%, Zimbabwe, this kind of strange world, and even made the inflation rate to 92%.
In other words, the money you work hard to earn could lose 1/5 or even 1/2 of its value in a year, and if inflation gets out of control, it could even become worthless.
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, it is extremely difficult for Africans to find a bank to exchange money due to underdeveloped infrastructure and a scarcity of bank branches. Over 350 million adults in Africa are unable to access financial services, and 55% of adults do not have a bank account at all.
If the common people are really against the dollar, they can only go to the black market and be slaughtered. In Zimbabwe, which we talked about earlier, the black market exchange rate is almost twice the official exchange rate, the official 27 Zimbabwean currency to 1 US dollar, the black market is 50:1, after the Sudan fell into war the year before last, the official Sudanese pound exchange rate against the US dollar stayed at 560:1, while the black market exchange rate is 2100:1.
Without dollars and banks, what does Africa have? The answer is mobile phones. Thanks to a certain industrial Cthulhu from the East, Africa has gained a large number of cheap smartphones, with a penetration rate exceeding 70%. In this situation, Africa will inevitably seek a way to survive through digital finance.
And the answer they found was, stablecoins. The virtual currency trading platform represented by Yellow Card allows users to buy stablecoins with the fiat currencies of African countries, and the stablecoins led by Tether are directly pegged to the US dollar, which is equivalent to allowing users to freely exchange foreign exchange, so as to achieve asset preservation.
The exchange rate given by the Yellow Card is generally slightly lower than the official exchange rate, but far more cost-effective than the black market For example, the current official exchange rate in Nigeria is 1590 naira to 1 US dollar, and the Yellow Card is 1620 naira to buy 1 Tether.
For Africans who don't have bank accounts or can't find outlets, the emergence of stablecoins, It also makes financial management extraordinarily simple, you only need to register a trading platform account of your own, and then find a local intermediary dealer, you give him the fiat currency cash in your hand, and he transfers the stablecoin to your account, which is considered to complete the exchange + deposit, which is convenient and fast, but you need to give the dealer a handling 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.
There are stablecoins in the corporate account, and employees also want to buy stablecoins, so everyone starts to wonder why go through the hassle, and many companies have begun to pay salaries directly in stablecoins.
Salaries have become stablecoins, and deposits are also stablecoins. As a result, everyone has little fiat cash on hand, and exchanging back and forth is troublesome. Forget it, let's just pay by scanning the code. Thus, stablecoins have further promoted the vigorous growth of digital payments in Africa.
Moreover, unlike the popular digital payment methods in China, major payment software in Africa is deeply integrated with stablecoin trading platforms. You can seamlessly exchange stablecoins for fiat currency while making a payment via QR code. Some platforms even allow direct consumption using stablecoins, saving you the exchange step. Many large chain supermarkets also collaborate with stablecoin trading platforms, encouraging the use of stablecoin payments, and can even offer a 10% cashback on purchases.
South Africa Pick n Pay
Africa has responded to the inflation crisis with stablecoins, and many other countries in the world have given the same answer.
For example, Turkey, since 2021, due to a series of chaotic economic policies, which has led to high inflation, has forced Turkey to become the world's fourth largest cryptocurrency market, with an annual trading volume of 170 billion US dollars, surpassing the entire "black Africa" in one fell swoop, and 2 out of every 5 Turks hold cryptocurrency. In 2022, the Turkish lira plummeted by more than 30% in a few months, and Turks collectively switched to stablecoins for safe-haven, and the trading volume of the Turkish lira buying Tether once accounted for 30% of the total amount of global fiat currency against Tether......
Another major emerging market for stablecoins is South America, and there are also many countries facing the problem of monetary policy chaos, For example, in Argentina, because of President Milley's frequent monetary policy moves, the people are worried about fiat currencies, and after Argentina officially abolished currency restrictions in April this year, the trading volume of stablecoin exchanges soared by nearly 100%.
The stablecoin frenzy in these countries once again illustrates that the places where new things spread the fastest are not necessarily economically developed countries, but rather those facing survival crises. It is the pressure that motivates change.
02 The Hidden Corner
If we only look at the properties of stablecoins pegged to the US dollar and their ability to combat inflation, it is easy to overlook that their essence is still Virtual Money.
Although blockchain technology is open and transparent, the real identity information of both parties in a transaction is often hidden behind wallet addresses. For stablecoin transactions, even if the wallet address is known, it is difficult to directly associate it with a real person or entity. Moreover, stablecoin transactions do not require central banks to provide authoritative endorsements, making them naturally unregulated by traditional financial systems. This characteristic allows stablecoins to enter hidden corners, providing 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.
There are too many similar cases to count. Annoyed by U.S. law enforcement, they simply pointed the finger at the source of the problem, Tether, the company that issued Tether. In October last year, the U.S. federal government abruptly announced a large-scale criminal investigation into whether the 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 also appear in Southeast Asia, where online gambling, wire fraud, and human trafficking are known to be a gathering place. However, as countries intensify their crackdowns, bank cards will be frozen at the slightest anomaly, and criminals' traditional channels for transferring funds are almost incapacitated, so local stablecoins have begun to be used on a large scale for transactions.
How large is the scale? According to statistics from American scholars, crime gangs transferred over $75 billion to cryptocurrency exchanges from January 2020 to February 2024, with 84% of the trading volume using Tether.
Tether expressed strong dissatisfaction with this statistical report, claiming that "every asset is seizable, and every criminal is apprehendable," but Tether did not deny the figure of 75 billion itself.
联合早报
There is also Russia, which treats stablecoins as treasures. The Russians are not very interested in online gambling scams, but they need stablecoins to replace the existing foreign trade settlement system.
Since the conflict between Russia and Ukraine, Russia has suffered fancy sanctions and has been kicked out of SWIFT, which is the core information transmission network of the global financial system, which connects more than 11,000 banks and financial institutions in more than 200 countries and regions around the world, and is mainly responsible for the safe and efficient transmission of cross-border transaction instructions.
However, the world needs Russian resources, and Russia still needs the world's goods, Especially war-related materials. In order to prevent these hidden trades from being tracked, stablecoins have become a substitute for the US dollar for foreign trade settlements.
As early as 2021, Russia had zeroed out its dollar foreign exchange reserves, yet secretly, an unspecified amount of stablecoins flowed into Russia. In fact, during an incident last April, $20 billion worth of Tether was transferred to Russia.
How Profitable Are Stablecoins?
It is used by ordinary people who are hiding from inflation, by criminals, and by sanctioned countries...... In the past six years, the total holdings have increased by about 45 times, reaching $246 billion, and the annual trading volume has exceeded $28 trillion, surpassing Visa and Mastercard, which represent traditional banks.
Many people might be curious, under such prosperity, what benefits have the companies issuing stablecoins gained?
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 big profit is that the huge amount of anchors held by stablecoin issuers has increased in value. Or take Tether as an example, since Tether is pegged 1:1 to the US dollar, every time a user mints a Tether, it is equivalent to depositing one US dollar in Tether, right? Tether doesn't have to pay any interest on this wealth, but Tether itself keeps the anchor in the bank, and the bank will pay interest, making the difference, and Tether will take out a small amount of cash to give itself a good-looking business loan, so as to earn a higher interest than the bank.
At the same time, Tether does not use U.S. dollar cash to complete its reserves, 66% of its assets are U.S. Treasuries and 10.1% are overnight reverse repo agreements, which are also stable, but the yield is higher than the interest on cash deposits, which can exceed 4%, which is a huge income at 120 billion US dollars.
Not only that, 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 affected 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; with a total capital of 120 billion dollars, it can yield tremendous wealth.
Whenever there is a tightening of regulations or any criminal accusations, public opinion will start to question Tether, and some users will concentrate on selling off, leading to a slight devaluation of Tether. At this time, Tether will use its reserves to repurchase Tether on a large scale and destroy it.
For example, in 2018, Tether swiftly repurchased 500 million coins when the Tether coin dropped to 98%. They issued 500 million USD in coins, and you only spent 490 million to repurchase, netting a profit of 10 million USD. Moreover, this approach of using real cash to repurchase helped stabilize market confidence and prevent further runs, making them smile directly.
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, making some Fortune 500 companies blush, and the average earning of $93 million per person is the best in the world.
04 Shadow Dollar, Reshaping Hegemony?
The impact of stablecoins on the world is not just about nurturing a few new internet giants; what is most concerning is that it is seamlessly transferring the dollar hegemony from the traditional financial system to the blockchain world.
Come to think of it, stablecoins need anchors that are recognized all over the world, right? If you have to choose one from the fiat currency, then out of historical inertia, the issuing company is likely to choose the US dollar or US bond with the highest recognition of reserves, from the Pacific Ocean to the Arctic Ocean, everyone likes the US dollar. At present, Tether, which has the highest share among stablecoins, as well as USDC with the second share and FDUSD with the fifth share, all adopt the USD/US bond and its equivalents.
This means that the more stablecoins in circulation in the market, the more dollars they have in their hands. Users buy stablecoins →issuers increase their holdings of U.S. dollars/buy U.S. bonds" in a closed loop. This makes the stablecoin actually a kind of shadow dollar, constantly strengthening the use and circulation of the dollar in the world, but also let the U.S. bonds have a new market, greatly strengthening the U.S. government's financing ability, Tether has surpassed Germany, become the world's 19th largest buyer of U.S. Treasury bonds, and its money to buy U.S. bonds, from countless users, equivalent to the world is increasing holdings of U.S. bonds.
If this trend continues, the already precarious hegemonic position of the dollar will be reinforced again through stablecoins; while other countries are able to decide their own monetary policies, the widespread use of shadow dollars in daily life and international trade will greatly weaken these countries' monetary sovereignty.
So you will find that the high-level officials in the United States have already sensed this opportunity and are heavily betting on stablecoins. Not long ago, the United States passed the "GENIUS Act", which mainly includes several points:
First, 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 reserve status monthly to ensure fund safety, and they must comply with anti-money laundering and anti-crime regulations;
Thirdly, if the issuing company goes bankrupt, stablecoin holders have priority for redemption.
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.
Trump, the promoter of the bill, entered the game with the support of the Trump family, and the stablecoin USD1 issued with the support of the Trump family is also anchored in this way USD/US bonds, using his influence to endorse the stablecoin, and by the way, he also gets a piece of the cake from it, and the share of USD1 has rushed to the seventh place in the stablecoin.
Other countries have been trying to break the hegemony of the dollar for years, Naturally, we don't want to see the dollar continue to dominate through the anchor, which requires magic to defeat magic. As China's financial bridgehead, Hong Kong has passed a bill on May 21 to prepare to issue a stablecoin anchored to the Hong Kong dollar, testing the waters on a small scale in advance, and then may allow banks, large Internet companies, financial technology companies and other institutions to apply for a stablecoin issuance license.
Other countries are not to be outdone, and at present, Singapore, the European Union, and Russia are all considering, Launched a stablecoin pegged to its own fiat currency.
The financial war between countries is shifting from sovereign currency to cryptocurrency.
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/Treasuries, there is always an information asymmetry between the issuing company and users. Audit reports may not always be truthful or accurate. As the usage scale of stablecoins increases, it is inevitable to encounter a trust crisis. What happens if the reserves are quietly diverted? What happens if the banks holding the reserves are affected by systemic risks?
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, and the risk of thunderstorms in the traditional financial system will still be passed on to it To use a foreigner's metaphor, "stablecoins can't avoid car accidents, it's 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.
Previously, after Russia's use of Tether to circumvent sanctions was exposed, many countries in the United States and Europe issued threats to Tether, if you don't deal with it, I will check you. In order to show its loyalty, Tether directly froze the Tether worth $27 million on the Russian crypto exchange Garantex, causing the platform to suspend all trading and withdrawal services, the website entered a state of maintenance, and many Russian users' assets were directly wiped out.
In the past, we all said that cryptocurrencies circulated around the world, 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 poorest Africa has become the trendiest player in the global crypto world.
If I give you 1 RMB or give you Virtual Money worth 1 RMB, which one would you choose?
Most Chinese people would probably choose their own legal currency, after all, fiat money is easy to circulate and the value is stable. As for virtual money, its price can skyrocket one moment and plummet the next; it's too deep and not stable enough.
01 The Poorest Continent, Falling in Love with Virtual Money
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.
Many Chinese netizens' understanding of the concept of cryptocurrency mainly comes from Bitcoin, whose price often experiences wild fluctuations. Therefore, it is easy for people to attribute the trend of Africans engaging in virtual currency to "being driven mad 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 special type of coin, stablecoin.
Stablecoins, simply put, are a type of cryptocurrency that is pegged to fiat currencies or real-world assets, and their purpose is to provide price stability for cryptocurrency market transactions. One of the representatives of stablecoins, USDT, commonly known as Tether, is designed to be anchored to the US dollar at a 1:1 ratio. For every Tether issued, the issuing company holds 1 dollar in asset reserves.
For them, high inflation is a lingering psychological shadow, because most of the "black African" countries have poor economic and governance capabilities, and are highly vulnerable to the impact of the international situation, as soon as the government is short of money, it will indiscriminately issue currency to make up for the deficit, and then from time to time there will be a coup d'état, civil war, these chaos has led to frequent hyperinflation, in 2024, the average inflation rate in Africa will reach an astonishing 18.6%, far exceeding the recognized red line of 3%, Zimbabwe, this kind of strange world, and even made the inflation rate to 92%.
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.
If the common people are really against the dollar, they can only go to the black market and be slaughtered. In Zimbabwe, which we talked about earlier, the black market exchange rate is almost twice the official exchange rate, the official 27 Zimbabwean currency to 1 US dollar, the black market is 50:1, after the Sudan fell into war the year before last, the official Sudanese pound exchange rate against the US dollar stayed at 560:1, while the black market exchange rate is 2100:1.
Without dollars and banks, what does Africa have? The answer is mobile phones. Thanks to a certain industrial Cthulhu from the East, Africa has gained a large number of cheap smartphones, with a penetration rate exceeding 70%. In this situation, Africa will inevitably seek a way to survive through digital finance.
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.
There are stablecoins in the corporate account, and employees also want to buy stablecoins, so everyone starts to wonder why go through the hassle, and many companies have begun to pay salaries directly in stablecoins.
Moreover, unlike the popular digital payment methods in China, major payment software in Africa is deeply integrated with stablecoin trading platforms. You can seamlessly exchange stablecoins for fiat currency while making a payment via QR code. Some platforms even allow direct consumption using stablecoins, saving you the exchange step. Many large chain supermarkets also collaborate with stablecoin trading platforms, encouraging the use of stablecoin payments, and can even offer a 10% cashback on purchases.
Africa has responded to the inflation crisis with stablecoins, and many other countries in the world have given the same answer.
For example, Turkey, since 2021, due to a series of chaotic economic policies, which has led to high inflation, has forced Turkey to become the world's fourth largest cryptocurrency market, with an annual trading volume of 170 billion US dollars, surpassing the entire "black Africa" in one fell swoop, and 2 out of every 5 Turks hold cryptocurrency. In 2022, the Turkish lira plummeted by more than 30% in a few months, and Turks collectively switched to stablecoins for safe-haven, and the trading volume of the Turkish lira buying Tether once accounted for 30% of the total amount of global fiat currency against Tether......
The stablecoin frenzy in these countries once again illustrates that the places where new things spread the fastest are not necessarily economically developed countries, but rather those facing survival crises. It is the pressure that motivates change.
02 The Hidden Corner
If we only look at the properties of stablecoins pegged to the US dollar and their ability to combat inflation, it is easy to overlook that their essence is still Virtual Money.
Although blockchain technology is open and transparent, the real identity information of both parties in a transaction is often hidden behind wallet addresses. For stablecoin transactions, even if the wallet address is known, it is difficult to directly associate it with a real person or entity. Moreover, stablecoin transactions do not require central banks to provide authoritative endorsements, making them naturally unregulated by traditional financial systems. This characteristic allows stablecoins to enter hidden corners, providing 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.
How large is the scale? According to statistics from American scholars, crime gangs transferred over $75 billion to cryptocurrency exchanges from January 2020 to February 2024, with 84% of the trading volume using Tether.
Tether expressed strong dissatisfaction with this statistical report, claiming that "every asset is seizable, and every criminal is apprehendable," but Tether did not deny the figure of 75 billion itself.
There is also Russia, which treats stablecoins as treasures. The Russians are not very interested in online gambling scams, but they need stablecoins to replace the existing foreign trade settlement system.
Since the conflict between Russia and Ukraine, Russia has suffered fancy sanctions and has been kicked out of SWIFT, which is the core information transmission network of the global financial system, which connects more than 11,000 banks and financial institutions in more than 200 countries and regions around the world, and is mainly responsible for the safe and efficient transmission of cross-border transaction instructions.
As early as 2021, Russia had zeroed out its dollar foreign exchange reserves, yet secretly, an unspecified amount of stablecoins flowed into Russia. In fact, during an incident last April, $20 billion worth of Tether was transferred to Russia.
How Profitable Are Stablecoins?
It is used by ordinary people who are hiding from inflation, by criminals, and by sanctioned countries...... In the past six years, the total holdings have increased by about 45 times, reaching $246 billion, and the annual trading volume has exceeded $28 trillion, surpassing Visa and Mastercard, which represent traditional banks.
Many people might be curious, under such prosperity, what benefits have the companies issuing stablecoins gained?
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.
At the same time, Tether does not use U.S. dollar cash to complete its reserves, 66% of its assets are U.S. Treasuries and 10.1% are overnight reverse repo agreements, which are also stable, but the yield is higher than the interest on cash deposits, which can exceed 4%, which is a huge income at 120 billion US dollars.
Whenever there is a tightening of regulations or any criminal accusations, public opinion will start to question Tether, and some users will concentrate on selling off, leading to a slight devaluation of Tether. At this time, Tether will use its reserves to repurchase Tether on a large scale and destroy it.
For example, in 2018, Tether swiftly repurchased 500 million coins when the Tether coin dropped to 98%. They issued 500 million USD in coins, and you only spent 490 million to repurchase, netting a profit of 10 million USD. Moreover, this approach of using real cash to repurchase helped stabilize market confidence and prevent further runs, making them smile directly.
04 Shadow Dollar, Reshaping Hegemony?
The impact of stablecoins on the world is not just about nurturing a few new internet giants; what is most concerning is that it is seamlessly transferring the dollar hegemony from the traditional financial system to the blockchain world.
Come to think of it, stablecoins need anchors that are recognized all over the world, right? If you have to choose one from the fiat currency, then out of historical inertia, the issuing company is likely to choose the US dollar or US bond with the highest recognition of reserves, from the Pacific Ocean to the Arctic Ocean, everyone likes the US dollar. At present, Tether, which has the highest share among stablecoins, as well as USDC with the second share and FDUSD with the fifth share, all adopt the USD/US bond and its equivalents.
If this trend continues, the already precarious hegemonic position of the dollar will be reinforced again through stablecoins; while other countries are able to decide their own monetary policies, the widespread use of shadow dollars in daily life and international trade will greatly weaken these countries' monetary sovereignty.
Trump, the promoter of the bill, entered the game with the support of the Trump family, and the stablecoin USD1 issued with the support of the Trump family is also anchored in this way USD/US bonds, using his influence to endorse the stablecoin, and by the way, he also gets a piece of the cake from it, and the share of USD1 has rushed to the seventh place in the stablecoin.
The financial war between countries is shifting from sovereign currency to cryptocurrency.
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/Treasuries, there is always an information asymmetry between the issuing company and users. Audit reports may not always be truthful or accurate. As the usage scale of stablecoins increases, it is inevitable to encounter a trust crisis. What happens if the reserves are quietly diverted? What happens if the banks holding the reserves are affected by systemic risks?
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.
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.
Previously, after Russia's use of Tether to circumvent sanctions was exposed, many countries in the United States and Europe issued threats to Tether, if you don't deal with it, I will check you. In order to show its loyalty, Tether directly froze the Tether worth $27 million on the Russian crypto exchange Garantex, causing the platform to suspend all trading and withdrawal services, the website entered a state of maintenance, and many Russian users' assets were directly wiped out.
The emergence of stablecoins precisely indicates that things may not be so; it is merely replacing the old center with a new one.