A recent report out by Castle Island Ventures and Brevan Howard Digital (sponsored by Visa) shows why the world has fallen in love with stablecoins.

   

The chart below shows stablecoin use (the green line) is surging, particularly since 2021, and is not particularly correlated to spot crypto trading.

The original use case for stablecoins was to switch out of volatile cryptos into something more stable, without having to exit back into fiat. Emerging markets have found a far more urgent use case – the ability to protect against weakening local currencies.

       

The implications of this are staggering: it’s a way for Africans to dollarize their wealth and make payments and remittances without having to deal with the banks.

       

Moneyweb covered the story here: https://www.moneyweb.co.za/moneyweb-crypto/why-africans-are-falling-in-love-with-us-dollar-stablecoins/

       

Consider the following:

   

Currency depreciation in African currencies over the last 12 months

   

       
• Nigerian naira -70%
       
• Zimbabwean ZiG -50% (since April 2024)
       
• Malawian kwacha -40%
       
• Zambian kwacha -21%
       
• Kenyan shilling +23% (having lost 24% the previous year)
       
• ZAR/USD +6% (having lost 21% in 2023)
   

       

There are pockets of strength in African currencies such as the ZAR and Kenyan shilling, but the longer term trend is abysmal.

       

Remember what happened to Zimbabwean savings

   

We hardly need reminding what has happened to savings of people in Zimbabwe over the last 20 years. They’ve been wiped out. One way out of this trap is switch into US dollar-backed stablecoins such as Tether (USDT) and USDC.

       

Stablecoins are used in numerous ways, including cross-border payments, payroll, trade settlement, and remittances. They also offer yield, often earning rates as high as 6% a year.

       

They are also used for treasury management: companies convert local cash into USD stablecoins without violating exchange control regulations and convert back to local currency when they need to spend.

       

The Visa stablecoin report estimates that $2.6 trillion worth of value was settled in the first half of 2024.

       

“Stablecoins offer considerable advantages relative to existing payment systems, including native programmability, strong auditability properties, fast settlement, the ability to self-custody, and native interoperability,” says the report.

       

Tether remains by far the largest issuer of US dollar stablecoins despite its controversial past over claims that its issuance was not fully collateralised. It currently accounts for about 70% of the global stablecoin supply.

       

Stokvels ripe for stablecoin adoption

   

Shiven Moodley, macro strategist at crypto company 80Eight, says stablecoin and crypto adoption will generally start to pick up momentum as the number of use cases is better understood. It may take a rewards-based approach to get wider adoption or creative staking (yield-earning) mechanisms.

       

One market ripe for stablecoin adoption is stokvels, where huge amounts of cash are held, earning little or no yield. The ability to offer an attractive yield and lower the costs of transacting on the blockchain is deserving of more attention from the stokvel sector and others, adds Moodley.

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