Why stablecoins are starting to take off in Argentina

Around the world, transactions involving U.S. dollar-pegged stablecoins have soared this year. In many places, the factors behind this trend are tough to tease out. That’s not the case in Argentina, however.

Argentina has always been a ripe market for cryptocurrencies, at least in theory. The nation has a history of high inflation and economic crises, and many people who live there harbor distrust of its banks and volatile national currency. But in the past year, government-imposed controls on foreign currency purchases and the COVID-19 pandemic have combined to help illustrate why the theory has legs.

Put simply, stablecoins may offer a more attractive and easier-to-acquire store of value than traditional workarounds.

Crypto-alternatives

Argentines have long preferred saving in U.S. dollars instead of the unstable peso. Those who can afford it use dollarized bank accounts and make a habit of buying dollars at the end of each month to make their savings go further. But in recent months, getting one’s hands on dollars in Argentina has become much harder due to the central bank’s latest efforts to curb inflation, which reached nearly 54% in 2019.

In October 2019, the bank limited Argentines to buying a maximum of $200 per month. A few months later, after assuming office, Argentina’s new president, Alberto Fernández, slapped a 30% tax on foreign currency purchases. Since then, some have been turning to the black market, which has returned to the streets, to buy dollars. The black market had been popular before, but it had become less useful in 2015 when former president Mauricio Macri eliminated currency controls.

Meanwhile, an ever-changing patchwork of other restrictions is further complicating Argentines’ efforts to acquire more stable forms of money. These include a new rule from the central bank to impose a five-day waiting period on securities transactions, and requiring certain bank account holders to justify the reason for incoming transfers in foreign currencies that exceed one per month. Freelancers earning in dollars are now supposed to turn that money into pesos, too — at the official exchange rate.

“If you’re a freelancer and you charge $100 for your work, you don’t receive $100. You receive pesos at the exchange rate they give you,” Mariano Di Pietrantonio, MakerDAO’s community lead for Latin America based in Buenos Aires, told The Block.

People are looking for alternative stores of value, and crypto exchanges say they are here to help. Local exchanges like Buenbit and Ripio have lately been tapping into the country’s dollar obsession to market the benefits of using dollar-pegged stablecoins like MakerDAO’s Dai as a store of value. Plus, they think decentralized cryptocurrency systems — particularly those designed to maintain a stable value — could gain fans in a country where many don't trust banks.

The government’s financial controls — and the pandemic, which has made people wary of in-person transactions — have contributed to what was already an underlying interest in stablecoins due to Argentina’s inflation, according to Ripio’s chief brand officer Juan Mendez.

In fact, Ripio says it has seen stablecoin transactions and volume increase 8 times between the first and second trimesters of 2020 — and nearly all of that activity was in Argentina. The number of total stablecoin users on the platform also grew seven times during this period. Ripio started offering Dai in Nov. 2018, and began supporting Centre Consortium’s USD Coin (USDC) early this year.

“I think this year had been very interesting already, and the pandemic ended up being a catalyst for all of this to generate greater urgency,” Mendez said, noting that interest in stablecoins was already up during last year’s presidential election. Argentina’s central bank issued the $200 limit — which was previously $10,000 — after Fernandez won the Oct. 27 election. Argentines had rushed to buy dollars ahead of the vote because they feared more controls were coming, as Bloomberg reported.

Uncertainty rules

But like with many things in Argentina, the future of stablecoins there is highly uncertain. At the moment, the government doesn’t seem to be concerned with this kind of crypto adoption, but that could change.

“The government wants to control perceptions of how much the dollar is worth,” according to Daniel Rybnik, co-founder of the non-profit ONG Bitcoin Argentina and coordinator of its legal affairs committee. If it comes to see stablecoins or other cryptocurrencies as a threat to its currency controls, it could begin to more closely scrutinize them, Rybnik said.

But so far, the government has not said much — if anything — about stablecoins publicly, and Rybnik says he hasn’t seen the government draw much of a distinction between stablecoins and other types of cryptocurrencies thus far. The regulatory environment around cryptocurrencies is still murky, though citizens do have to pay tax on their net gains from trading them.

It is worth noting that authorities have already started keeping closer tabs on the use of other kinds of financial technology platforms to skirt the currency controls. Local news outlets have reported that the central bank has begun rooting out the practice of using digital banking to buy dollars for third parties, for a commission. Meanwhile, just this week, the government published the ID numbers connected with 15,000 accounts whose holders are now banned from buying dollars at all— up from a previous count of 5,000.

Crackdowns on dollar purchasing may help explain why Buenbit announced on July 13 — around the same time that these other reports were emerging — that it would temporarily suspend the buying and selling of Dai with dollars. The exchange explained the move by cryptically stating that some Argentina-based users “have speculated with the regulations.”

Buenbit reinstated these services just a few weeks later, but did acknowledge that it made changes to its platform to comply with new regulations. According to Cointelegraph, Buenbit told users it had put limits on deposits. It also instructed them to limit dollar transfers, and to notify their banks of transactions that involve dollars. In a statement to The Block, Buenbit said that if users don’t comply with these rules, they could encounter delayed transactions.

Given Argentina’s general instability, it’s likely that the current restrictions on buying dollars are not permanent. That’s why crypto players in Argentina are still working to establish a long-term alternative to the financial system that will weather frequently-changing regulations as well as crises like the COVID-19 pandemic, Ripio’s Mendez said.

Whatever role that stablecoins play in Argentina, one thing is clear, said MakerDAO’s Di Pietrantonio: “No citizen trusts the Argentine peso anymore.”