What to know:
- Stablecoins are becoming the cheapest option for moving US dollars in countries like Argentina and Nigeria, cutting fees from 8% to near zero.
- Bank account access and interbank rails create delays, with most friction occurring outside the blockchain due to scheduled processing times.
- The total stablecoin supply has increased by 2.5% over the past month, driven by demand in emerging markets for cheaper dollar liquidity and cross-border transfers.
Stablecoins are becoming a popular means of payment in high-cost cross-border environments in emerging markets, where they can help to mitigate some of the inefficiencies of the traditional foreign exchange (FX) system.
In fact, a report by Delphi Digital reveals that in emerging countries, stablecoins are rapidly becoming the cheapest option for moving US dollars due to the high costs of traditional FX corridors, which could be as high as 8% in total fees when sending money to places like Argentina or Nigeria.
Stablecoins Reduce Costs
Delphi Digital’s research shows that 81% of the expense in these corridors is for the operation of the underlying banking system, and consequently, stablecoin rails have a significant structural advantage.
The firm explained that “stablecoin rails get rid of most of the elements that make these corridors expensive to run.” In addition, since settlement is immediate, there is no need for pre-funded liquidity in local currencies that is just sitting idle.
Also, with stablecoins, volume thresholds and intermediary chains become a thing of the past as they are settled directly against the US dollar. This is a very important testimonial of how stablecoins are having a tangible positive impact in emerging markets, allowing users to reduce remittance costs or even make instant transactions without going through legacy banking systems.
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Off-Ramps Remain a Chokepoint
Off-ramps, bank account access and interbank rails, continue to be a major chokepoint when it comes to value transferring between onchain and legacy environments, according to Delphi Digital.
Most of the “friction” is outside the blockchain, stablecoin changes only take a few seconds while bank wires add delays due to scheduled processing times. “Closing the gap is as much a regulatory problem as a technical one, ” the company said.
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Stablecoin Supply on Rise
Even though the market prices of cryptocurrencies have dropped, the supply of stablecoins has grown by 2.5% over the last month, increasing from $308 billion on Feb. 17 to $316 billion, according to DeFiLlama, One of the main sources of stablecoin demand is emerging markets, especially situations where users require cheaper access to dollar liquidity and cross-border transfers.
For example, Singapore-based digital payment company Dtcpay recently secured $10 million in a Series A funding round to support the expansion of its compliant stablecoin-based payment network.
This article contains market analysis and price predictions. These are not guarantees. Crypto markets are volatile. Always DYOR. Not financial advice.
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