The Tether (USDT) stablecoin logo.
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Amid the U.S. military intervention in Venezuela, locals rushed to secure their savings by converting their bolívares to dollar-pegged digital tokens called USDT. The timing of the attack may have been surprising to some, but Venezuelans subsequent embrace of stablecoins wasn’t.
From the Middle East to Latin America, ordinary people are turning to USDT to hide and preserve their wealth from authoritative regimes and shield themselves against hyperinflation. And now, with U.S. President Donald Trump threatening to intervene in local affairs in Colombia and Iran, that survival strategy could gain even greater traction.
“Stablecoins are better dollars, but the reason people get them is out of necessity and out of self-preservation,” Mauricio Di Bartolomeo, co-founder of digital asset lender Ledn, told CNBC. “Wherever they have limitations around dollars flowing freely, stablecoins are going to bust through the door.”
Since 2014, the digital currency issued by stablecoin giant Tether has become increasingly common in Russia, Iran and other emerging economies, particularly in times of heightened political instability, according to Di Bartolomeo. Using USDT, people can send and receive remittances, protect their money from local currency debasement and pay for goods and services.
Not so stable?
Although USDT may sound like a perfect solution to using “virtually worthless” fiat such as the Iranian rial and the Venezuelan bolívar, the token — like most things — isn’t perfect, Di Bartolomeo noted.
While stablecoins like USDT are designed to always be equal to $1, their prices don’t always remain stable, particularly when demand rises.
Earlier this month, demand for USDT surged due to the U.S. attack on Venezuela, causing the token to trade as high as roughly $1.40 on some peer-to-peer exchanges.
That fluctuation in cost underscores ongoing liquidity issues in the cryptocurrency market that have hindered mass digital assets adoption. However, it also speaks to the extent to which virtual currencies are looked to as an “escape valve” among individuals living under extreme political and economic conditions, Haonan Li, co-founder and CEO of stablecoin infrastructure firm Codex, told CNBC.
“This was a violent repricing driven by fear,” Li said. “As confidence in the bolívar collapsed, demand for dollars via Tether exploded, pushing the peer-to-peer USDT price in Venezuela up roughly 40% almost overnight.”
He added that the event wasn’t caused by speculative activity among retail traders. Rather, “they were trying to get out of fiat as fast as possible,” in an emergency situation, Li said.
“That surge in demand created arbitrage opportunities, but more importantly it highlighted how stablecoins function as a real-time safety rail in emerging markets when traditional systems crack,” he added.
The situation temporarily hurt some Venezuelans attempting to secure their savings via a digital, dollarized solution, forcing them to pay a premium to convert their bolívares to USDT. And, that’s one of just a few potential risks stablecoins could pose.
Converting high volumes of fiat to dollar-pegged stablecoins leads to high capital outflows, which could contribute to local currency depreciation, Zero Knowledge Consulting CEO Austin Campbell told CNBC.
“If you have a very repressive regime that’s been, to put it bluntly, being s— to all of its citizens, giving everybody a way to get their money out from under the regime so they can do whatever the hell they want could cause the local currency to collapse,” said Campbell, who is also an adjunct professor at NYU.
However, that kind of situation isn’t always a bad thing, the stablecoin expert noted. Local currency depreciation can also serve the purpose of “put[ting] pressure on the regime and caus[ing] them problems. So, that may be a feature, not a bug,” Campbell said.
And, to be sure, any risk incurred by using stablecoins under authoritative regimes is surely worth the reward, he noted.
“When the only other option is the government steals all your money, [USDT] is still the better option,” Campbell said.