Emerging Markets: Stablecoins as a Catalyst for Growth, Connectivity and Opportunity
October 21 2024
by Victoria Calmon
Highlights from the panel at Stablecoin Summit during Token2049 Singapore featuring: Markus Franke, CEO of Mento Labs; Ashok Venkateswaran, Blockchain and Digital Assets Lead - APAC at Mastercard; Isha Varshney, Head of Ecosystem at Celo Foundation; Charles Jansen, Head of DeFi Transformation at S&P Global and moderated by Rahul Bhargava, Founder/Director at Avivate
Rahul
I’m Rahul, with 21 years of experience in emerging markets, working across payments, banking, and tech. I spent eight years at SWIFT in global payment strategy, focusing on how legacy systems and new technology can integrate, including stablecoins, should they get regulated. I’m excited to speak about emerging markets and stablecoins.
Charles Jensen
I’m Charles Jensen. I work for S&P, where I’m the Managing Director focusing on digital assets. We’re building several products related to stablecoins, particularly focusing on risk assessment. We’ve also launched crypto indices.
Markus
Hi, I’m Markus, and I work at Mento Labs, the development team behind Mento. Mento is a stablecoin platform on the Celo blockchain. We have a strong focus on local currency stablecoins, so not just U.S. dollar stables but other currencies as well. There are currently six decentralized stablecoins on the Mento platform and the Mento community recently launched a West African Franc (eXOF), a Kenya Shilling (cKES), and a Philippine Peso (PUSO) stablecoine. We’re super excited about local currency stablecoin use cases.
Isha
Hi, I’m Isha, Head of Ecosystem at Celo. Celo is a Layer-1 blockchain, and we’ve been focusing on emerging markets from the start, with a strong presence in Africa, Latin America, and Southeast Asia. Personally, this is exciting because I’m a product of emerging markets, having grown up in Asia and Africa. Celo has been focused on stablecoins, identifying early on that stablecoins and payments are an excellent use case for Web3.
Aoke
Hi, I’m Aoke, and I lead the blockchain practice for Mastercard in the APAC region.
Rahul
Thanks, everyone. Let’s dive into the topic. Emerging markets have unique challenges, especially with access to U.S. dollars. For instance, Indonesia has seen a 200% year-to-year growth in crypto usage, which reflects the demand for better financial tools. Let’s talk about how stablecoins are being used, the opportunities they bring, and the challenges. Isha, what’s your take on the state of stablecoin adoption in emerging markets?
Isha
The top five countries for crypto adoption are all emerging markets, with Nigeria leading. This happens because these economies have local currencies that depreciate quickly, leaving people without access to hedging solutions. For example, if your currency loses 20% of its value overnight, you don’t have many options. Stablecoins offer an easy-to-use alternative, allowing people to store value in a more stable currency. In some cases, people even use stablecoins for simple things like paying for Netflix or Spotify, which they can’t easily do with their local currencies.
Aoke
I agree, but when there’s a strong domestic payment network, like in some countries, stablecoins may not have as much utility. However, stablecoins can offer functionalities that traditional fiat systems don’t provide.
Markus
Exactly, payments, saving, lending and remittances are key use cases. The cost of sending remittances is high, especially in emerging markets. Stablecoins can reduce these costs significantly, especially for cross-border payments. At Mento Labs, we’re excited about local currency stablecoins, which can for all of these usecases. Borrowing in local currency helps users avoid the FX risk that comes with borrowing in U.S. dollars.
Rahul
That’s an interesting point about remittances and borrowing. Charles, can you share your thoughts on the scale of opportunity for stablecoins in promoting financial inclusion in emerging markets?
Charles
Absolutely. I’ve spent a lot of time in Latin America, and the demand for U.S. dollars is immense. In Argentina, for instance, people use dollars for big transactions like buying homes or cars. However, it’s difficult to access dollars through official channels, so people rely on black markets. Stablecoins have started replacing physical dollars for these transactions. Before DeFi summer, 1-2% of black market transactions involved stablecoins. Now, it's up to 50%.
Rahul
Markus, what are your thoughts on stablecoins supporting small and medium-sized enterprises (SMEs) in emerging markets?
Markus
Making credit for SMEs more accessible, particularly small businesses in young economies is a huge opportunity. We recently visited Kenya, where local community lending circles, known as “Chamas”, are a key part of the credit system. With cKES, a decentralized Kenya Shilling Stablecoin on Mento, we’re now seeing Chamas using local currency stablecoins for loans and microcredit. This reduces reliance on local moneylenders, who charge high interest rates, and supports small and medium businesses.
Rahul
That’s fascinating. Moving to the issue of interoperability, Isha, what are the challenges and opportunities when integrating stablecoins with existing payment systems?
Isha
I just came back from Kenya, where I paid for everything with stablecoins. In Kenya, mobile money (M-Pesa) is the dominant payment method. There is a project called Pretium in the Celo ecosystem that allows users to convert stablecoins directly into M-Pesa payments. That’s the kind of integration we need globally. Unfortunately, in places like New York, you can’t do that. Emerging markets have fewer legacy systems to overcome, making them a great testing ground for stablecoin use.
Rahul
That’s a great example of innovation in emerging markets. Now, let’s talk about regulation. Is regulation necessary for stablecoins to succeed, and if so, what should it look like?
Markus
Regulation is important, especially when working with large institutions like e.g. Mastercard (here on the panel) or global mobile carriers. We’ve seen Markets in Crypto-assets Regulation (MiCAR) in Europe set a strong precedent for stablecoins. Being compliant with MiCAR allows us to work with institutional partners globally, including in emerging markets.
Charles
I’m a crypto native, so I initially didn’t think regulation was necessary, but now I see its importance. Big institutions need clear rules to participate in this space. However, some regulations can be too restrictive. The goal should be to allow innovation while creating rules that enable participation.
Isha
I think regulators in some emerging markets are doing a great job of working with the industry to create optimal regulations. Many have set up sandboxes and are actively seeking feedback from stablecoin providers to figure out how to regulate this space.
Rahul
Thank you all for your insights. Finally, I’d like each of you to give a quick call to action for stablecoins in emerging markets.
Markus
Build infrastructure for local currency stablecoins, especially for use cases like lending. Make stablecoins accessible and cheaper for everyone.
Aoke
Consolidation is key. There are too many stablecoins out there doing the same thing. We need more stablecoins in local currencies to move domestic money and facilitate cross-border transactions.
Isha
My call to action is to go on the ground and research what stablecoin use cases are needed in each region. Build products that address those specific needs, like the Opera MiniPay wallet, which has a great user experience and is designed for Africa.
Charles
I think stablecoins will lead to the mass adoption of the U.S. dollar in countries with a history of currency devaluation. Some countries might resist this, but others, like Argentina, may embrace dollarization. Stablecoins will have a tremendous impact on these economies.
Rahul
Thank you all. I think we’ve had a great discussion on the opportunities and challenges for stablecoins in emerging markets. I’m optimistic about the future, and I hope we continue to see growth and innovation in this space.
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