Stablecoins in Emerging Markets: Finding Product-Market Fit

Starlink's Payment Solution and the Rise of Stablecoins

Five years have passed since SpaceX initiated the Starlink project. It has since become the company’s primary source of income, with availability extending to over 100 nations.

However, as Starlink’s user base expanded, a significant obstacle emerged: the difficulties of receiving payments in developing economies.

Traditional banking systems in these regions are often characterized by unreliability, slow processing times, and a tendency to reject transactions.

Challenges with Traditional Banking

Numerous local banks throughout Africa, Latin America, and Asia encounter difficulties processing international payments.

This situation compelled SpaceX to explore alternative payment methods.

SpaceX's Adoption of Stablecoins

To circumvent these limitations, SpaceX adopted stablecoins, a rapidly expanding method for facilitating cross-border payments.

Stablecoins are already experiencing widespread adoption within emerging markets.

The company established a partnership with Bridge, a stablecoin payments platform, to accept payments in a variety of currencies.

These payments are then immediately converted into stablecoins for SpaceX’s global financial holdings.

Bridge's Emergence and Acquisition

This strategic move established Bridge as a practical alternative to traditional correspondent banking.

This is particularly true in markets where conventional financial infrastructure is inadequate.

Subsequently, Stripe recognized Bridge’s potential and acquired the startup for a sum exceeding $1 billion.

This acquisition further validated Bridge’s position and increased its valuation as a key infrastructure provider.

It also highlighted the company’s success in addressing inefficiencies within the global financial system.

The Growth of the Stablecoin Market

The increasing popularity of stablecoins – currently a $205 billion market – is fueled by practical applications, rather than speculative investment.

The most compelling use cases are unfolding in emerging markets.

Benefits of Stablecoins for Cross-Border Payments

Cross-border payments in these regions are typically slow and costly, involving numerous intermediaries.

For instance, a Brazilian textile manufacturer settling an invoice with a Nigerian supplier might be required to navigate several banks and currency exchanges.

Each intermediary adds additional fees and introduces delays.

Stablecoins eliminate this friction, enabling transactions that are both cheaper and nearly instantaneous.

This streamlined process offers significant advantages for businesses operating in these markets.

Growing Acceptance and Investment in Stablecoins

A significant increase in demand is fueling substantial growth in transaction volumes for startups focused on providing stablecoin-based cross-border solutions for businesses operating in Africa and other emerging economies.

Yellow Card, a platform facilitating the conversion between fiat currencies and cryptocurrencies, experienced a doubling of its yearly transaction volume, reaching $3 billion in 2024, up from $1.5 billion in the previous year. Similarly, Conduit, which streamlines stablecoin payments for import and export businesses across Africa and Latin America, observed its annualized Total Payment Volume (TPV) escalate to $10 billion, a rise from $5 billion.

Juicyway, a Lagos-based company specializing in cross-border payments utilizing stablecoins, has successfully processed a cumulative payment volume of $1.3 billion to date.

Increased Investor Confidence

Alongside user adoption, investor interest has also seen a marked increase, with prominent venture capital firms actively investing in fintech companies powered by stablecoins and targeting these specific markets.

Peak XV and HongShan, formerly part of Sequoia, jointly spearheaded a $10 million seed funding round for KAST, a neobank enabling users to hold and spend stablecoins. Sequoia Capital itself was a key investor in Bridge. Yellow Card secured $33 million in funding, led by Blockchain Capital.

QED Investors led a $9.9 million investment in Cedar Money, a fintech company discreetly leveraging stablecoins for cross-border transactions. Initialized Capital guided an $8.5 million funding round for Caliza, which is introducing real-time transfers to Latin America using USDC.

Tether has also made a significant investment in an African stablecoin infrastructure and liquidity provider, as reported by TechCrunch. Furthermore, Conduit, having raised a $6 million seed round last year, is currently finalizing another funding round with participation from several well-known investors.

Stablecoins as a Core Financial Component

The prevailing trend is evident: Stablecoins are transitioning from a purely crypto-centric experiment to becoming an integral component of the financial infrastructure in emerging markets, facilitating global money movement. The central question now revolves around the speed at which stablecoins will transform payment systems, potentially complementing or even supplanting existing, outdated financial structures.

Data underscores this evolving landscape. According to a16z, the cost of sending $200 from the U.S. to Colombia via stablecoins is less than $0.01, in stark contrast to the $12.13 charged by traditional methods.

Payment platforms are adapting to this shift, incorporating stablecoins while adjusting their fee structures. Stripe, for example, now levies a 1.5% fee for stablecoin transactions, representing a 30% reduction compared to its standard card processing fees.

Both businesses and individuals are increasingly utilizing stablecoins as a safeguard against inflation and as a more reliable store of value, with USDT and USDC proving to be essential tools.

Expanding Uses Beyond Cross-Border Payments and Remittances

Initial adoption of stablecoins was largely driven by cross-border payments and remittance services. However, these digital assets are now demonstrating increasing utility within consumer finance, payroll systems, and to a growing extent, everyday retail transactions.

In January, Nubank, a prominent Brazilian fintech company, launched a feature offering a 4% annual return to holders of USDC. This followed a substantial tenfold increase in the amount of USDC held by Nubank customers throughout the previous year. Currently, 30% of Nubank’s user base incorporates USDC into their investment portfolios.

Nubank is among a cohort of major fintech companies – including Venmo, Apple Pay, PayPal, Cash App, and Revolut – that already facilitate stablecoin transactions directly within their applications.

The influence of stablecoins extends beyond individual savings accounts to encompass the realm of international payroll solutions. With the rise of remote work, companies are leveraging platforms like Rise to disburse payments to contractors using stablecoins.

Rise enables businesses to remit funds in traditional fiat currencies while contractors receive payment in stablecoins such as USDC or USDT, effectively mitigating exposure to currency fluctuations. The company secured $6.3 million in Series A funding last November, supporting its continued development of stablecoin-based payroll services.

Hugo Finkelstein, CEO of Rise, stated to TechCrunch, “The market trajectory aligns with our development efforts, and it’s only a matter of time before larger industry players enter this space, either through partnerships, acquisitions, or the construction of dedicated crypto payment infrastructure.”

Although the adoption of stablecoins in retail settings has been comparatively gradual, innovative startups like Cashnote.io are actively exploring potential solutions. Developed collaboratively by Korean fintech Korea Credit Data and web3 venture capital firm Hashed, this platform empowers merchants to accept both credit card and digital asset payments through a point-of-sale system.

This system allows merchants to process payments utilizing stablecoins, bypassing traditional credit card limitations, and enables consumers to utilize digital assets for routine purchases.

Currently, Cashnote is undergoing testing within the Abu Dhabi Global Market (ADGM), with plans to launch with merchants in the region in the coming months. UAE-based digital asset infrastructure provider Fuze is serving as the settlement partner, having raised a $14 million seed round in 2023.

Despite the potential of stablecoins to optimize global payment systems, certain concerns persist. A primary criticism centers on the possibility of disruption to established monetary policies.

As stablecoins gain wider acceptance in global finance, some analysts express apprehension that they could replicate historical issues associated with dollarization, where economies become overly reliant on the U.S. dollar instead of fostering independent financial frameworks.

Furthermore, their efficiency is accompanied by inherent trade-offs. Unlike currencies backed by governments, stablecoins depend on private entities, such as Circle and Tether, to uphold their value. These companies employ reserves of cash, short-term securities, and other financial instruments to maintain the peg to the U.S. dollar.

However, the 2022 collapse of TerraUSD serves as a stark reminder of the vulnerabilities inherent in stablecoin design.

The Future of Stablecoins Hinges on Evolving Regulations

Global governmental bodies and regulatory agencies are closely monitoring the development of stablecoins, and their subsequent decisions will significantly impact the rate of their widespread acceptance. Certain jurisdictions, such as the Abu Dhabi Global Market (ADGM), have proactively established themselves as welcoming environments for cryptocurrency innovation.

This supportive stance allows fintech companies to explore and implement stablecoin payment systems. Simon Kim, CEO of Hashed, highlighted that the success of Cashnote.io was directly attributable to the region’s well-defined and encouraging legal structure.

“The level of governmental support for new, international innovators seen in Abu Dhabi is exceptional,” Kim stated in an interview with TechCrunch. “The numerous regulatory sandboxes and government initiatives facilitate the testing of cutting-edge crypto infrastructure.”

The United Arab Emirates (UAE) also garnered attention last year with a court decision authorizing salary payments in cryptocurrency, further solidifying its position as a leading global center for digital asset innovation.

Africa presents a contrasting scenario. Often, technological advancements outpace the development of appropriate regulations, compelling policymakers to respond after the value of fintech solutions has been demonstrated – a pattern previously observed with mobile money, as noted by Zekarias Amsalu, co-founder of a prominent African fintech event.

Amsalu suggests that regulators should proactively embrace stablecoins, recognizing their potential to substantially reduce the costs associated with cross-border transfers and remittances, potentially by as much as 75%.

“Given the willingness to accommodate informal currency exchange practices during periods of dollar scarcity, despite inherent risks, it is logical to consider formalizing stablecoins issued by licensed exchanges that operate with full transparency and adhere to compliance standards,” Amsalu argues.

The regulatory landscape in the United States, which is currently evaluating new legislation with global implications for stablecoins, will likely play a crucial role in shaping future adoption. A stringent regulatory framework – while considered improbable – could hinder growth and impose stricter controls on stablecoin issuers.

Conversely, a favorable regulatory environment could incentivize other nations to establish clear licensing protocols for digital assets. As Finkelstein explained, “These developments send powerful signals to investors.”