Why Argentines Are Turning From Dollars to Stablecoins Like DAI
A cocktail of high inflation, devaluation and lack of access to U.S. dollars has led Argentines to find in the decentralized stablecoin a way to protect their battered incomes.
In Argentina, the U.S. dollar has long been the most wanted foreign currency. But these days people can’t stop talking about DAI, a stablecoin issued by MakerDAO. DAI’s volume has already grown at least six-fold this year, according to information provided by local crypto exchanges SatoshiTango, Decrypto and Ripio.
Argentines, faced with a devaluation of the peso from $0.02 to $0.006 in just 18 months and an annual inflation rate higher than 30%, are looking for ways to safeguard their value. But as they are only permitted to buy up to $200 a month in dollars through official channels – with an additional tax of 65% over the official quote – some Argentines are turning to stablecoins like DAI.
"The adoption of DAI became popular because, being a stablecoin and having a quotation linked to the U.S. dollar, many Argentines have decided to acquire it as an indirect form of dollarization," crypto exchange Buenbit stated in an email sent to Coindesk.
This is all taking place amid an overall crypto boom in Argentina, with crypto exchanges enjoying record growth this year. Sebastian Serrano, CEO of Argentinian crypto exchange Ripio, told CoinDesk the exchange’s stablecoin trading volume grew 20 times in 2020. "This is increasing month by month due to a local need for dollarization and a bullish crypto market promoting a higher adoption. It is a perfect storm," he stated.
Argentines' obsession with U.S. dollars has grown stronger in recent decades, mainly driven by high inflationary processes that pulverized the peso value. "We have a relationship with the dollar that is typical of 70 years without a strong local currency. DAI is an alternative to the dollar," said Matias Bari, CEO of SatoshiTango, an exchange firm that started offering that stablecoin in 2020 and increased by seven its business in Argentina during this year.
DAI, a decentralized cryptocurrency built on Ethereum that is stabilized to the value of U.S. dollar (USD), is pegged 1:1 to this currency via what is known as the Maker (MKR) Dai Stablecoin System. The cryptocurrency collateral, viewed publicly on the Ethereum blockchain, keeps DAI’s value stable, unlike other popular stablecoins whose value is backed directly by USD.
Although many stablecoins have grown in Argentina, DAI has been a star in the local market. And that success, according to important crypto players such as Serrano, from Ripio, and Bari, from SatoshiTango, is partially explained by the early relationship that MakerDAO built with the Latin American crypto ecosystem in 2018.
Buenbit started offering DAI in November 2018, when Ripio also included that stablecoin, while it added USDC in August of this year. SatoshiTango, for its part, first made DAI available in March and then incorporated USDC in August.
Mariano Di Pietrantonio, senior marketing manager and community lead for the Maker Foundation, the foundation behind DAI, says, “This world was always closer to trading and short-term speculation. But we positioned DAI as a saving tool, a more down-to-earth proposal.”
In Argentina, crypto exchange Bitso recorded a trading volume of 2.3 million DAI during November, while its Mexican business, where the company holds 10 times more clients, counted 883,215 DAI during the same month, according to information published by the company.
"It is a phenomenon," said Bitso Alpha Director Eduardo Arenas, who added that Argentina has a much higher sophistication in crypto than any other Latin American country, which helps local people to digest more easily what DAI is about.
A green obsession
According to Iván Tello, co-founder of the crypto exchange Decrypto, Argentines started buying DAI with pesos and then immediately exchanged them into dollars to save the money in their houses. That type of saving is known in Argentina as colchón – the Spanish word for mattress – by referring to a common place where they keep bills. However, over this year, users began to leave their DAI in exchanges, said Tello. "The economic crisis in Argentina led Argentines to trust the crypto system and to mistrust the traditional system,” he added.
Argentines have reasons to distrust the traditional system – in 2001, through a process known as “corralito”, dollar accounts were frozen and part of the money was returned, in local pesos, after a strong devaluation. Not surprisingly, according to the National Institute of Statistics and Consensus of the Argentine Republic (INDEC), of the $228 billion that locals keep in foreign currency, only 8% is banked.
Purchases of DAI and other cryptocurrencies occur most strongly during the first 10 days of each month, when Argentines collect their salaries in pesos and seek to dollarize their incomes as soon as possible, Tello said. DAI transactions in Decrypto, whether purchases or sales, usually fluctuate between $200 and $400, according to private information provided by the company.
Individuals are not the only ones interested in DAI. Manuel Calderon, partner at financial and crypto consulting firm Beex, said in an interview he is receiving a higher quantity of inquiries from companies seeking to enter the DAI ecosystem, given the constant obstacles to acquiring dollars in the official market. Many questions come particularly from small and medium-sized firms looking for a reserve of value for their surpluses and needing to execute payments abroad.
However, it is more common for companies and funds to use other stablecoins instead of DAI. Ripio tends to operate USDC among institutional clients and investment funds. "For a company, the profile of this coin is more pleasant from an institutional point of view, and is easier to explain," Serrano said. At Decrypto, companies usually use USDT for transactions between $5,000 and $10,000, Tello said.
In Argentina, the price of DAI is close to different dollar quotations – some belonging to the black market – that emerged after the financial restrictions imposed in 2019. These informal quotations are currently higher than the government’s official rate. One of them, of a legal nature, is known as a “stock exchange dollar” – dolar bolsa, in Spanish – which allows certain bonds to be purchased in Argentine pesos and sold for U.S. dollars abroad. However, the most famous quotation is called the “blue dollar,” commonly traded in illegal exchange offices known as “caves” and usually hidden behind traditional businesses such as jewelry stores.
According to Di Pietrantonio, although DAI’s quote is close to these unofficial rates, its price does not depend on them. "A good mass of DAI at a local level makes the price competitive," he said.
Mariano Conti, former head of smart contracts at MakerDAO, explained in a 2019 talk how he received payments of DAI for his work.
Conti said he started getting paid in bitcoin to escape Argentinian capital controls in 2014. He discovered the Ethereum network in 2015. When he joined MakerDAO in 2016, he started receiving DAI. “I have never bought crypto with fiat in my entire life. I have only earned it,” he stated in that talk.
The programmer said that once a month he used to exchange the minimum amount of DAI for Argentine pesos to pay his expenses, but the rest was left in DAI. Although he acknowledged the risks of platforms and smart contracts, he preferred to trust those ecosystems before giving his money to the local government.
“DAI has implications and good properties that our local currencies at least now do not have and may never have,” Conti said.
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