According to Google Trends, MakerDAO is more searched in Argentina than in the United States. The reason may be because there is a real demand for stablecoins in Latin America, especially in countries such as Argentina and Venezuela.
Crypto, blockchain or DeFi–whatever you’d like to call it–can change millions of people’s lives. In Latin American countries, the currency can become devalued at a rate of 4-5% per month or, in Venezuela, per day. In such countries, people are not allowed to buy US dollars or foreign currency. The only way to protect their world against volatility and inflation is using something more stable like the dollar. In other words, the US Dollar is a safe-haven currency for Latin Americans.
In order to understand why access to stablecoins is so important in Latin America, we can look towards the region’s history. Inflation followed on the heels of a debt crisis in the 1980s. In recent years, Argentina has faced risk of sovereign default and Venezuela suffers 6,500% inflation.
The Secretary General of the United Nations (UN), Antonio Guterres, warned recently that Latin America could endure a sovereign debt crisis in 2021. “A possible major sovereign debt crisis is looming next year,” Guterres warned in a speech during a virtual summit with Central American heads of state and governments.
Guterres said the coronavirus pandemic–really, the response– “will significantly widen the financing gap” in Latin America which could lead to “a major liquidity crisis.”
Argentina, which is Latin America’s third-biggest economy, is suffering an inflation rate of around 40%. Meanwhile, its central bank is perilously short of dollars, and talk of a currency devaluation persists. Meanwhile, the government is working to restructure the $44 billion debts it owes to the International Monetary Fund after 2019’s collapse of a loan program.
Moreover, traders and producers in the country are not selling produce, because they are anticipating an official exchange rate that would make the dollar value of their exports worth more in pesos.
“If you are an importer, you import at the official exchange rate but you don’t know the rate you will get to replace the merchandise”, said Guido Lorenzo, an economist at consultancy LCG, adding this could stoke inflation or hit availability.
Argentina’s trade flows have stagnated, and tough capital controls have only kept the pesos artificially strong. Demand for black market dollars, meanwhile, has spiked.
Cryptocurrency is a lifesaver in such economic conditions. Stablecoins benefit not only crypto enthusiasts, but also mom and pop stores and consumers across Latin America. Many newcomers to the crypto industry will feel most comfortable first accepting a stablecoin than the wildly volatile Bitcoin. Throughout Latin America, save for Uruguay and Chile, it is illegal for people to get a significant number of US Dollars due to government restrictions. That’s no matter, however, for they now have a choice between a centralized stablecoin or a decentralized stablecoin.