The stablecoin that became popular among Africa's poor: how big is the cake?

Author: Cool Play Laboratory

If I give you 1 yuan, or give you a virtual currency worth 1 yuan, how would you choose?

Most Chinese people would probably choose their own legal currency, after all, fiat money is easy to circulate and its value is stable. As for virtual currency, its price can soar one moment and plummet the next; it's too risky and not stable enough.

However, if this question is posed in Africa, Southeast Asia, South America, or the Middle East, the answer might be the opposite: people would rather have virtual currency than hold the equivalent value in legal currency.

01 The Poorest Continent Falls in Love with Virtual Currency

The image of poverty and backwardness in Africa is deeply ingrained. When people think of Africans, the image that comes to mind is often of emaciated refugees, pitifully holding a few crumpled banknotes to buy things.

You might not believe it, but they are now using online payments. While we are still stuck in stereotypes, Africa has become the fastest-growing region for digital finance and the most widely used area for virtual currency.

In 2023, the number of registered digital payment accounts in Africa reached 856 million, accounting for 50% of global registered accounts and contributing to over 70% of the total global growth in registered accounts. In Kenya, the proportion of adults using digital payments reached 75.8%, in South Africa it was 70.5%, in Ghana it was 63%, and in Gabon it was 62.3%. What does this mean? The prevalence of digital payments in these impoverished "Black Africa" countries even surpasses that of many developed countries, such as Germany, which has a penetration rate of only 42%.

So, the reality is that you can see familiar payment codes and QR code cash registers everywhere in Africa.

Even more astonishing is that Africans, who are struggling with basic needs, are actually "obsessed with trading cryptocurrencies." From July 2023 to June 2024, "Black Africa," which refers to the region south of the Sahara Desert, traded a total of $125 billion worth of on-chain cryptocurrencies, with Nigeria alone accounting for $59 billion. If we look at the growth rate, it’s even more terrifying: since 2021, the number of cryptocurrency users in "Black Africa" has increased 25 times, the fastest growth rate in the world, surpassing all developed internet regions.

Many Chinese netizens' understanding of cryptocurrencies mainly comes from Bitcoin, which often experiences rollercoaster price fluctuations. Therefore, it’s easy to attribute the trend of Africans engaging in virtual currency to "desperation due to poverty, hoping to get rich overnight through gambling." However, this is not the case; over 50% of the cryptocurrencies traded by Africans are a special type of currency: stablecoins.

Medium

Stablecoins, simply put, are cryptocurrencies that are pegged to legal currencies or real assets. Their purpose is to provide price stability for cryptocurrency market transactions. One of the representatives of stablecoins, USTD, commonly known as Tether, is designed to be pegged to the US dollar at a 1:1 ratio. For every Tether issued, the issuing company holds $1 in asset reserves.

Stablecoins were initially created to lock in trading profits. After users profit from trading volatile currencies like Bitcoin, they may face the issue of "inconvenient withdrawals." The best solution is to create a new currency with stable prices, allowing them to convert their profits into it and continue storing it in the virtual world. To use an imperfect analogy, Bitcoin is like stocks in the virtual world, while stablecoins are like cash.

This characteristic of stablecoins has caught the attention of Africans, as if a lifeline has appeared before them.

For them, high inflation is an ever-present psychological shadow. Since most "Black Africa" countries have poor economic and governance capabilities, they are easily affected by international situations. When the government runs out of money, it resorts to printing more currency to cover the deficit, and then occasionally faces coups and civil wars. These chaotic situations lead to rampant hyperinflation. In 2024, the average inflation rate in Africa reached an astonishing 18.6%, far exceeding the recognized 3% red line. Zimbabwe, a peculiar case, even saw its inflation rate soar to 92%.

In other words, the hard-earned money you make could lose 1/5 or even 1/2 of its value in just one year. If inflation spirals out of control, it could even turn into worthless paper.

After years of such turmoil, Africans naturally lose confidence in their national legal currency and want to exchange their income for more stable foreign currencies. In terms of recognition and circulation, the first choice is undoubtedly the US dollar. However, African countries cannot rely on their status as the world's factory to create trade surpluses. They mainly sell minerals and fruits, earning little in dollars, which they need to use to import various scarce goods. In fact, there are not enough foreign exchange reserves in the banks. Moreover, the authorities are not foolish; they impose foreign exchange controls, so even if there are dollars, they won't exchange them for you.

Additionally, for Africans trying to exchange money at a bank, it can be extremely difficult due to underdeveloped infrastructure and a lack of bank branches. Over 350 million adults in Africa cannot access financial services, and 55% of adults do not even have a bank account.

If ordinary people really want to exchange for dollars, they can only go to the black market and get ripped off. As mentioned earlier, in Zimbabwe, the black market exchange rate is almost double the official rate: the official rate is 27 Zimbabwean dollars to 1 dollar, while the black market rate is 50:1. After Sudan fell into war two years ago, the official Sudanese pound to dollar exchange rate remained at 560:1, while the black market rate was 2100:1.

No dollars, no banks—so what does Africa have? The answer is mobile phones. Thanks to a certain industrial Cthulhu from the East, Africa has gained access to a large number of cheap smartphones, with a penetration rate exceeding 70%. In this context, Africa is bound to seek survival through digital finance.

The answer they found is stablecoins. Virtual currency trading platforms like Yellow Card allow users to purchase stablecoins using the legal currencies of various African countries. Tether and other stablecoins are directly pegged to the US dollar, which effectively allows users to freely exchange foreign currency, thus preserving their assets.

The exchange rates provided by Yellow Card are generally slightly lower than the official rates but are much more favorable than the black market. For example, Nigeria's current official rate is 1590 naira to 1 dollar, while Yellow Card offers 1620 naira for 1 Tether. They profit from the price difference, and users are not excessively ripped off, making it a win-win situation.

For those Africans without bank accounts or who cannot find a branch, the emergence of stablecoins has made financial management particularly simple. You only need to register an account on a trading platform and then find a local intermediary. You give them your cash in legal currency, and they transfer stablecoins to your account, completing the exchange and deposit conveniently and quickly, though you will need to pay a small fee to the intermediary.

Moreover, stablecoins address not only the inflation issue. Due to the backwardness and inefficiency of the financial system, the cost of cross-border remittances in "Black Africa" is exceptionally high, with losses reaching 7.8%, far exceeding the global average cost of 4%-6.4%. Overseas workers sending money back home and multinational companies investing and transferring profits all get gouged by the banking system. After stablecoins gained popularity, everyone began to abandon the original remittance channels in favor of direct transactions using stablecoins, transferring stablecoins between overseas and domestic accounts, with some platforms charging only a 0.1% fee, which is practically negligible.

With stablecoins in their corporate accounts, employees also want to buy stablecoins. Thus, many companies started paying salaries directly in stablecoins.

Blockworks

Salaries became stablecoins, and deposits were also in stablecoins. As a result, people had little legal currency cash on hand, and exchanging back and forth became cumbersome. They decided to just use QR code payments, further promoting the growth of digital payments in Africa.

Unlike the digital payment systems popular in China, major payment apps in Africa are deeply integrated with stablecoin trading platforms. You can seamlessly complete the exchange between stablecoins and legal currency while making a QR code payment. Some platforms even allow direct consumption using stablecoins, saving the need for conversion. Many large chain supermarkets also collaborate with stablecoin trading platforms, encouraging payments in stablecoins and even offering 10% cashback on purchases.

South Africa's Pick n Pay

Africa has answered the inflation crisis with stablecoins, and many other countries around the world are providing the same answer.

Like Turkey, which has been forced into the world's fourth-largest cryptocurrency market due to a series of chaotic economic policies since 2021, resulting in persistently high inflation, with an annual trading volume of $170 billion, surpassing all of "Black Africa." Two out of every five Turks hold cryptocurrencies. In 2022, the Turkish lira plummeted by over 30% in just a few months, leading Turks to collectively turn to stablecoins for hedging. The trading volume of Tether purchased with the Turkish lira once accounted for 30% of the global total of fiat currency to Tether…

Another emerging market for stablecoins is South America, where many countries also face issues of chaotic monetary policy. In Argentina, for example, due to President Milei's frequent bold moves in monetary policy, the public has grown wary of the legal currency. After Argentina officially abolished currency control measures in April this year, the trading volume on stablecoin exchanges immediately surged by nearly 100%.

The frenzy over stablecoins 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. Pressure drives the motivation for change.

02 Hidden Corners

If we only look at the properties of stablecoins pegged to the dollar and their ability to combat inflation, it is easy to overlook that their essence is still cryptocurrency.

While blockchain technology is open and transparent, the real identity information of the trading parties is often hidden behind wallet addresses. In the case of stablecoin transactions, even if you know the wallet address, it is difficult to directly associate it with a real person or entity. Moreover, stablecoin transactions do not require the authoritative endorsement of a central bank, 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 mentioned earlier, South America is also an emerging market for stablecoins, not solely for combating inflation; some countries place greater emphasis on the untraceable nature of cryptocurrencies. For instance, drug lords in Mexico, Brazil, and Colombia extensively use Tether for money laundering and transferring drug funds. In May last year, Maximilian Hope Cartier, the heir to the famous jewelry brand Cartier, was arrested by U.S. police. He was accused of trading with Colombian drug lords, attempting to smuggle 100 kilograms of cocaine and launder hundreds of millions of dollars in drug money, all of which was conducted through Tether.

Similar cases are numerous, too many to count. Enraged U.S. law enforcement has pointed the finger directly at the source of the problem: Tether, the issuing company of Tether. In October last year, the U.S. federal government suddenly announced a large-scale criminal investigation into Tether, examining whether the cryptocurrency was used by third parties to fund illegal activities such as drug trafficking, terrorism, and hacking, or to launder the proceeds from these illegal activities.

Similar situations have also appeared in Southeast Asia, which is well-known as a hub for online gambling, fraud, and human trafficking. However, as countries have intensified their crackdown efforts, bank cards showing any anomalies are frozen, rendering traditional channels for transferring funds nearly ineffective. Consequently, locals have begun to use stablecoins extensively for transactions.

How large is this scale? According to statistics from American scholars, from January 2020 to February 2024, criminal gangs transferred over $75 billion to cryptocurrency exchanges, with 84% of the transaction 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 $75 billion figure itself.

Another country that treasures stablecoins is Russia. Russians are not particularly interested in online gambling scams, but they need stablecoins to replace the existing foreign trade settlement system.

Since the Russia-Ukraine conflict, Russia has faced various sanctions and was directly kicked out of SWIFT. SWIFT is the core information transmission network of the global financial system, connecting over 11,000 banks and financial institutions in more than 200 countries and regions worldwide, primarily responsible for securely and efficiently transmitting cross-border transaction instructions. Being expelled from SWIFT means that Russia can no longer conduct cross-border trade settlements through its original banks.

However, the world needs Russia's resources, and Russia still needs goods from the world, especially war-related materials. To prevent these hidden trades from being tracked, stablecoins have become a substitute for the dollar, used for foreign trade settlements.

As early as 2021, Russia had zeroed out its dollar foreign exchange reserves, yet an unspecified amount of stablecoins has been flowing into Russia. For instance, in April last year, Western authorities seized Tether worth $20 billion that had been transferred to Russia.

TechFlow

03 How Profitable Are Stablecoins?

Ordinary people use them to avoid inflation, criminals use them, and sanctioned countries use them… With the boost from new demands, the scale of stablecoins has rapidly grown. In just six years, the total holdings have increased approximately 45 times, reaching $246 billion, with annual trading volume exceeding $28 trillion, surpassing traditional banks represented by Visa and Mastercard.

You might be curious about what benefits the companies issuing stablecoins gain from this prosperity.

Their first source of income is transaction fees. Users who mint or redeem stablecoins must pay fees to the issuer. For example, Tether charges a 0.1% fee. Although this seems low, if the scale is large enough, it amounts to a significant sum. The total scale of Tether's issued Tether has now exceeded $120 billion. Moreover, Tether has set a minimum fee; if your actual paid fee, calculated proportionally, is less than $1,000, you will still be charged $1,000. For first-time account registrants, Tether also charges a verification fee of $150.

Another major source of profit is the appreciation of the massive anchor assets held by stablecoin issuing companies. Taking Tether as an example, since Tether is pegged to the dollar at a 1:1 ratio, every time a user mints a Tether, it is equivalent to depositing one dollar with Tether, right? Tether does not have to pay any interest on this wealth, but Tether itself deposits the anchored dollars in banks, which will pay interest, thus earning the difference. Additionally, Tether takes a small portion of cash to secure attractive corporate loans, earning interest rates higher than those offered by banks.

At the same time, Tether does not rely solely on cash dollars to complete its reserves. Among the assets used for anchoring, 66% are U.S. Treasury bonds, and 10.1% are overnight reverse repurchase agreements. These assets are also stable but yield higher returns than cash deposits, exceeding 4%. With a holding amount of $120 billion, this represents another substantial income.

Moreover, the company can also profit from repurchasing stablecoins to earn price differences. Although Tether is designed to be 1:1 with the dollar, in practice, it is still influenced by market supply and demand and sentiment, leading to small fluctuations of one or two percentage points. As the saying goes, don't underestimate this small percentage; when applied to a total fund amount of $120 billion, it can yield enormous wealth.

Whenever there is regulatory tightening or criminal allegations, public opinion begins to question Tether, and some users may sell off their holdings en masse, causing Tether to depreciate slightly. At this point, Tether will use its reserves to repurchase Tether on a large scale and destroy it.

For example, in 2018, when Tether fell to 98%, it quickly repurchased 500 million Tether. They minted $500 million worth of Tether, but only spent $490 million to repurchase, netting a profit of $10 million, while also using this cash-based repurchase to stabilize market confidence and prevent further runs, resulting in a win-win situation.

With these three major sources of profit, Tether, which has only 150 employees, earned $13 billion in 2024, surpassing financial and tech giants like BlackRock and Alibaba, and leaving some Fortune 500 companies in the dust, with an average profit of $93 million per employee, a record high globally.

04 Shadow Dollar, Reshaping Hegemony?

The impact of stablecoins on the world is not merely about nurturing a few new internet giants; the most concerning aspect is that they are seamlessly transferring the dollar's hegemony from the traditional financial system to the blockchain world.

Consider this: stablecoins require an anchor asset that is recognized worldwide, right? If one must choose from fiat currencies, the issuing companies are likely to opt for the most recognized reserve currency, the U.S. dollar or U.S. Treasury bonds, due to historical inertia. From the Pacific to the Arctic, everyone loves the dollar. Currently, the highest share of stablecoins is held by Tether, followed by USDC and FDUSD, all of which adopt a pegging model based on the dollar/U.S. Treasury bonds and their equivalents.

This means that the more stablecoins circulate in the market, the more dollars they hold, forming a closed loop of "users purchasing stablecoins → issuers increasing their dollar holdings/purchasing U.S. Treasury bonds." This effectively makes stablecoins a form of shadow dollar, continuously strengthening the use and circulation of the dollar worldwide, while also providing a new outlet for U.S. Treasury bonds, significantly enhancing the U.S. government's financing capacity. Currently, Tether has surpassed Germany to become the 19th largest buyer of U.S. Treasury bonds globally, and the money it uses to buy Treasury bonds comes from countless users, effectively meaning that the whole world is increasing its holdings of U.S. Treasury bonds.

If this trend continues, the already precarious hegemonic position of the dollar will be reinforced through stablecoins; while other countries can decide their monetary policies independently, the widespread use of shadow dollars in daily life and international trade will greatly undermine 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. Recently, the U.S. passed the "GENIUS Act," which includes several key 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 reserves monthly to ensure fund security, while also complying with anti-money laundering and anti-crime regulations;

Third, if the issuing company goes bankrupt, the redemption of stablecoin holders will take priority.

These simple regulations have an astonishing impact. First, they legally mandate that stablecoins must be pegged to the dollar or U.S. Treasury bonds. Secondly, they strengthen the regulation of issuing companies, which can provide users with greater confidence, leading to more wealth being converted into stablecoins, essentially exchanging it for dollars or U.S. Treasury bonds. According to industry insiders' predictions, after the implementation of the act, the total supply of stablecoins will grow from the current $246 billion to $2 trillion by the end of 2028, generating $1.6 trillion in new short-term U.S. Treasury bond demand, which will help the U.S. withstand a wave of Treasury bond sell-offs.

Moreover, the promoter of the act, Trump, has personally entered the game. The stablecoin USD1, issued with the support of the Trump family, also adopts this dollar/Treasury bond peg, using his influence to endorse the stablecoin while also taking a slice of the pie. Currently, USD1's market share has risen to seventh place among stablecoins.

Other countries have been trying for years to dismantle the dollar's hegemony and are naturally unwilling to see the dollar continue to dominate through pegging. This requires using magic to defeat magic. As a financial stronghold of China, Hong Kong passed a bill on May 21 to prepare for the issuance of a stablecoin pegged to the Hong Kong dollar, initially testing it on a small scale. Later, it may allow banks, large internet companies, and fintech firms to apply for stablecoin issuance licenses. Familiar names like JD.com have already entered the fray, with JD-HKD pegged 1:1 to the Hong Kong dollar currently undergoing sandbox testing.

Other countries are also not to be outdone. Currently, Singapore, the European Union, and Russia are all considering launching stablecoins pegged to their own fiat currencies.

The financial war between countries is shifting from sovereign currencies to cryptocurrencies.

05 Next-Generation Financial Nuclear Bomb

There’s a meme on the internet that the Federal Reserve's vault is like Schrödinger's box, which hasn't been publicly audited 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 dollar or U.S. Treasury bonds, there is always an information gap between the issuing companies and users, and audit reports may not always be truthful or accurate. As the scale of stablecoin usage grows, it inevitably encounters trust crises. What happens if reserves are quietly misappropriated? What if the bank holding the reserves is affected by systemic risks?

In 2023, Silicon Valley Bank in the U.S. faced a management crisis, resulting in the second-largest bank failure in U.S. history. Meanwhile, USDC, the second-largest stablecoin, had $3.3 billion of its reserves stored in that bank. After this news broke, USDC, which is pegged 1:1 to the dollar, plummeted to $0.87 within just a few hours. The more it fell, the more users rushed to redeem, pushing USDC into a dire situation. Ultimately, it was the Federal Reserve's intervention with $25 billion to back Silicon Valley Bank that stabilized USDC.

This means that stablecoins are not absolutely stable; the risks of traditional financial systems can still transmit to them. As the saying goes, "stablecoins cannot avoid car accidents; they are just slow-motion car accidents."

For countries that still rely on dollar transactions, the previous SWIFT system was a financial nuclear bomb—if you were kicked out, you were done for. Using cryptocurrencies for transactions seems to evade the oversight of this system, but it has become an even more powerful nuclear bomb in itself. Stablecoins have no nationality or stance, but the few issuing companies behind them do. Your opponent just needs to target the company to strike effectively.

After the exposure of Russia using Tether to evade sanctions, multiple countries in the U.S. and Europe threatened Tether, stating that if they did not take action, they would investigate. To show loyalty, Tether directly froze $27 million worth of Tether from the Russian crypto exchange Garantex, leading to the suspension of all trading and withdrawal services on that platform, putting many Russian users' assets to zero, resulting in total loss.

In the past, we said that cryptocurrencies circulate globally, forming a trend of financial decentralization.

The emergence of stablecoins precisely indicates that this may not be the case; they are merely replacing the old center with a new one.

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