Working remotely in the Web3 space, I absolutely appreciate the convenience and perks of receiving payments in USDT and other stablecoins. Interestingly, it turns out that many fellow Africans share this sentiment and are utilizing stablecoins for various purposes. Whether it's companies sending payments to merchants or family members using stablecoins for remittances, it seems like we're witnessing the early stages of cryptocurrency gaining ground in Africa.

However, a question needs to be answered: Why do Africans choose stablecoins over most cryptocurrencies?

In the article, we would discuss some points on why many Africans embrace stablecoins and explore their diverse applications across the continent.

Understanding Stablecoins

Stablecoins are a type of cryptocurrency that is pegged to assets like the US dollar or gold. This means their value stays steady, mirroring the asset they're pegged to. They're attractive because they aim to offer both stability, like traditional currencies, and the security and privacy associated with cryptocurrencies. In other words, you have the best of both worlds.

One popular example of stablecoins is USDC (USD Coin), which is pegged to the US dollar. For every USDC in circulation, there's a corresponding US dollar held in reserve, maintaining a 1:1 ratio. Another well-known stablecoin is Tether (USDT), also tied to the US dollar. These examples showcase how stablecoins operate by providing a secure and steady digital representation of traditional assets, combining the stability of fiat currencies with the advantages of cryptocurrencies.

Currency Devaluation and FX Shortage in Africa

In many developing economies in Africa, there's a problem with not having enough foreign currency, particularly US dollars (USD). This shortage causes restrictions on how much Africans can access foreign currency.

For instance, in Nigeria, banks have set limits on how much money people can spend internationally using Nigerian bank cards. This limitation has led to the popularity of neobanks, which offer virtual USD cards, allowing users to overcome these spending restrictions. As the debt in foreign currencies increases for many African countries, the shortage of foreign currency is expected to become more common.

4 Usecases Of Stablecoins In Africa

Cryptocurrencies are known for their high volatility, and let's face it, Africans generally prefer things to be steady, especially when it comes to long-term financial commitments. This has made it challenging for widespread adoption of regular cryptocurrencies. However, stablecoins have come to the rescue, providing a more stable option for those who want reliability in the crypto space.

Last year, Chainanalysis, a blockchain data platform, reported that Africa received $105.6 billion worth of cryptocurrency—a 1,200% increase from the $8.8 billion of the previous year as crypto exploded across the continent. Stablecoins, a relatively new invention in the world of crypto, make up a significant proportion of these crypto transactions.

Let's dive right into how stablecoins have helped Africans solve most of these challenges, as highlighted above.

1. Hedging and Saving: Africa, although rich in resources and entrepreneurial spirit, is often plagued by economic instability, currency devaluation, and inflation. People and businesses find it hard to preserve their hard-earned money.

With stablecoins acting as a store of value, it becomes easier for people to save and be shielded from the negative impacts of currency devaluation.

2. Reduced Remittance Costs: Stablecoins have made remittances quick and easy for people living abroad who need to send money to family and friends.

According to a report highlighted by the rest of the world, stablecoins offer a significantly more cost-effective option in Sub-Saharan African countries such as Nigeria and South Africa. Fees for transferring stablecoins such as USDT and USDC are frequently as low as 0% to 1%, making them up to 20 times cheaper than traditional money transfer methods.

3. Stablecoins in Payroll: Flexibility in payroll isn't just about where companies hire but also how they pay their international team. Nowadays, companies choose to pay their global employees in stablecoins for efficiency and to save costs. Using stablecoins, which are less volatile, helps cut down on transaction and currency fees compared to traditional methods.

4. Cross-border Payments and Transactions:

For many Africans, one challenge of sending or receiving money across borders is tackling the intricate and often frustrating process of getting dollars or euros necessary for purchasing goods like manufacturing inputs, agricultural produce, or finished products in neighboring countries.

Due to the volatility of African currencies, cross-border trade within the continent is frequently settled in more stable currencies like dollars. However, dollars are often scarce in Africa, typically controlled centrally and more accessible to large corporations or those with political connections, leaving small and medium enterprises (SMEs) struggling to access the currencies they need for trade. This limitation significantly hampers the ability of SMEs to engage in cross-border transactions, creating a barrier to their growth and economic participation.

This has led most importers and traders to turn to stablecoins as a primary mode of payment.

Finally, as demonstrated by the various use cases, stablecoins offer a stable and reliable alternative in the face of currency depreciation, foreign exchange shortages, and the challenges of cross-border transactions in Africa.

From serving as a store of value that shields against economic instability to reducing remittance costs and facilitating seamless payroll processes, stablecoins have emerged as versatile tools for financial empowerment. The future holds promising prospects for continued growth and integration of stablecoins, and we have seen that stablecoins are more than just a trend, but a strategic response to the unique needs of the African market.