Tether (USDT) stablecoin logo.
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Amid the US military intervention in Venezuela, local residents rushed to secure their savings by exchanging Bolivales for a dollar-pegged digital token called USDT. While the timing of the attack may have surprised some, the subsequent acceptance of stablecoins by Venezuelans did not.
From the Middle East to Latin America, ordinary people are turning to USDT to hide and protect their wealth from authoritarian regimes and protect themselves from hyperinflation. And now, with US President Donald Trump threatening to intervene in regional affairs between Colombia and Iran, that survival strategy may gain further momentum.
“Stablecoins are a better dollar, but the reason people get into stablecoins is out of necessity, for self-preservation,” Mauricio Di Bartolomeo, co-founder of digital asset lender Redon, told CNBC. “Where there are restrictions on the free circulation of dollars, stablecoins will crash through the door.”
Di Bartolomeo said that since 2014, digital currencies issued by stablecoin giant Tether have become increasingly popular in Russia, Iran and other emerging economies, especially during times of heightened political instability. USDT allows people to send and receive money, protect their money from local currency collapse, and pay for goods and services.
Isn’t it very stable?
While USDT may sound like the perfect solution to the use of “virtually worthless” fiat currencies such as the Iranian rial or Venezuelan bolivar, di Bartolomeo pointed out that like most things, tokens are not perfect.
Stablecoins like USDT are designed to always be equal to $1, but the price is not always stable, especially when demand increases.
Earlier this month, demand for USDT surged following the US attack on Venezuela, with the token trading as high as around $1.40 on some peer-to-peer exchanges.
This fluctuation in costs highlights the ongoing liquidity issues in the cryptocurrency market that are hindering mass adoption of digital assets. But it speaks to how cryptocurrencies are being looked at as an “escape valve” among individuals living in extreme political and economic circumstances, Haonan Li, co-founder and CEO of stablecoin infrastructure company Codex, told CNBC.
“This was a fear-driven and violent retaliation,” Lee said. “As confidence in the bolivar collapsed, demand for dollars via Tether exploded, causing peer-to-peer USDT prices in Venezuela to rise by around 40% almost overnight.”
He added that the incident was not caused by speculative activity among retail traders. Rather, “they were trying to get out of fiat as quickly as possible” in the emergency situation, Lee said.
He added: “The surge in demand has created arbitrage opportunities, but more importantly, it has highlighted how stablecoins can act as real-time safety rails in emerging markets when traditional systems collapse.”
The situation temporarily hurt some Venezuelans seeking to secure their savings through digital dollarization solutions, forcing them to pay a premium to exchange bolivars into USDT. And that is one of the few potential risks that stablecoins can pose.
Austin Campbell, CEO of Zero Knowledge Consulting, told CNBC that exchanging large amounts of fiat currency for dollar-pegged stablecoins could lead to large capital outflows and weaken local currencies.
“Frankly, if you have a regime that is non-repressive to all of its people, and you give everyone the means to get money out of the regime and allow them to do whatever they want, you could cause a collapse of the local currency,” said Campbell, who is also an adjunct professor at New York University.
However, stablecoin experts pointed out that such a situation is not necessarily a bad thing. A depreciation of the local currency could also serve the purpose of “putting pressure on the regime and causing problems.” So it may be a feature rather than a bug, Campbell said.
And certainly, he noted, the risks associated with using stablecoins in authoritative regimes are definitely worth the reward.
“If the only other option is for the government to steal all your money, (USDT) is still the better option,” Campbell said.
