Since 2014, Tether's digital currency, known as USDT, has increasingly found favor in Russia, Iran, and other emerging markets, particularly during times of political and economic instability, according to Mauricio Di Bartolomeo of digital asset lender Ledn. Tether empowers people to send and receive remittances, safeguard their savings against currency depreciation, and facilitate transactions in goods and services.
"Stablecoins are essentially improved versions of dollars," Di Bartolomeo explained to CNBC. "However, individuals resort to them out of necessity and for self-preservation purposes. In regions where free movement of dollars is restricted, stablecoins tend to break through those barriers."
From the Middle East to Latin America, many are turning to USDT as a means to shield their assets from authoritarian governments and protect against hyperinflation. With escalating tensions and U.S. President Donald Trump threatening involvement in Colombia and Iran, this trend might become more pronounced.
During the U.S. military's actions in Venezuela, there was a rush among locals to convert their bolĂvares into USDT to protect their savings. While the timing of the intervention surprised some, Venezuelans' reliance on stablecoins was expected.
Despite its potential, USDT is not without flaws. Di Bartolomeo pointed out that while stablecoins like USDT are pegged to the US dollar, their prices can fluctuate, especially when demand spikes. This was evident earlier this month when an increased demand due to U.S. actions in Venezuela led USDT to trade as high as $1.40 on some exchanges, highlighting liquidity challenges in the cryptocurrency market.
Haonan Li, co-founder of Codex, remarked that this price fluctuation was a fear-driven repricing. "With confidence in the bolĂvar plummeting, demand for dollar-backed Tether skyrocketed, causing an overnight price increase of roughly 40% in Venezuela," Li noted.
This situation, Li added, wasn't driven by speculative trading but by individuals seeking to rapidly escape fiat currencies in a crisis. Although it presented arbitrage opportunities, more importantly, it underlined stablecoins' role as emergency financial solutions in unstable regions.
Unfortunately, the demand surge also temporarily forced some Venezuelans to pay premiums when converting bolĂvares into USDT, illustrating one of the potential risks of stablecoins.
Austin Campbell, CEO of Zero Knowledge Consulting, explained that such high capital outflows from fiat to stablecoins could accelerate local currency depreciation, especially under oppressive regimes. He noted, however, that devaluation could pressure these governments, potentially serving as a catalyst for change.
Ultimately, Campbell argues that despite potential risks, the benefits of using stablecoins in repressive environments might outweigh the issues posed, providing individuals in these regions with a critical financial lifeline.