# Stablecoins as Catalysts for Economic Change in Africa

To preface, understanding stablecoins begins with establishing a common definition - or understanding anything for that matter that is worth discussing. A stablecoin is a type of digital currency designed to maintain a stable value, as its name suggests.

If we create a token, say **Token X**, and declare its value to be **23**, this value should remain stable if the coin functions as intended. But the interesting aspect of money valuation involves comparisons, often through exchange rates, to a more universally recognized store of value. For instance, when we say **Token X** is worth **23**, most people would immediately think in terms of US dollars, equating **Token X** to **$23**. This comparison could also extend to other cryptocurrencies like Bitcoin or Ether, which many now see as central mediums of exchange. And there’s a number of interesting crypto projects that aim to build the entire concept behind value exchange as well as determination by setting factors in an environment to produce new [schelling points.]([https://en.wikipedia.org/wiki/Focal_point_(game_theory)](https://en.wikipedia.org/wiki/Focal_point_(game_theory)))

Historically, the value of money has been tied to commodities or currencies that economies at large consider valuable, often benchmarked against established currencies like the US dollar, British pounds, or euros. These currencies benefit from their economies’ scale and the regulatory frameworks provided by their governments, which is a common understanding among people.

It’s worth noting that most money today is digital and, despite common beliefs, all forms of currency exhibit some volatility. A significant volume of transactions now occur through banking systems, mobile money services, and other digital payment platforms. Essentially, anything that doesn’t involve handling physical cold hard cash falls into this digital category.

Focusing back on stablecoins, some of the most notable among them have their value pegged directly to tangible assets or real-world currencies. We could call this a method of **value assignment**, or could call it, the “***X equals Y***” model, ensures that **X** (the stablecoin) is always equivalent to **Y** (something already deemed *valuable*). This approach isn’t new; it harks back to the days when the US dollar was backed by gold under the [gold standard](https://en.wikipedia.org/wiki/Gold_standard). Though the inherent worth and applications of gold are minimal beyond its aesthetic appeal, its historical role in backing currency was significant until the standard was abolished. Now, the dollar is backed more by the economic strength and political stability of the United States than by physical gold, introducing new layers of complexity due to the shifting dynamics of [supply and demand](https://www.britannica.com/money/supply-and-demand) and their effect on the probability of the inflation or deflation of a currency’s value— scenarios where the simplistic urge to ***cough*** ‘just print more money’ often echoes as a misguided whisper in policy corridors.

Digital currencies like [USDT (Tether) and USDC (Circle)](https://www.coingecko.com/learn/fiat-backed-stablecoins-usdc-vs-usdt) are contemporary examples of stablecoins. They are pegged **1:1** to the US dollar, which means their value mirrors the dollar’s current worth. These stablecoins exist on blockchains, providing transparency since their transactions and components are open for inspection. interestingly enough there’s more of a preference for USD tether than there is USDC in Africa and this is due to a number of reasons which I’m not certain enough to speak on any one them so let’s chalk it up to reliability/decentralized access, I think that’s fine.

Transparency is crucial as it aligns with the broader trend towards digital currencies, which, despite their virtual nature, can be converted into real fiat currencies and used just like traditional money.

My initial fascination with stablecoins was their promise of a stable value, unaffected by the usual fluctuations seen in other cryptocurrencies—oh cool there’s no ‘number go up, number go down’ unpredictability—or fiat currencies. However, that was the end of my early interest, largely due to naivety from my younger years. However, as I grew older and began to understand the complexities of foreign currency access and the regulations surrounding it, along with the rapid devaluation of currencies which is a shared experience across many African nations, I realized the profound (*potential*) impact *(at scale)* stablecoins could have. They offer a permissionless and borderless means to maintain and access value reliably. This is especially transformative in regions where traditional currencies are unstable and unreliable due to economic instability or poor fiscal management. fitting the profile of the majority of African countries.

The reason I add the modifiers “potential” and “at scale” is mainly due to the fact that the current utility of stablecoins is inherently limited a more correct phrase to use would be not fully realised. Yes, even now, the utility they bring is significant, but there are still gaps that need to be filled to increase the *mobility* of stablecoins. Imagine a scenario where instant access to these tokens exists, with a minimal and region-covering working KYC system that effectively proves identity without giving too much to identity verification providers—after all, a physical address for KYC in this day and age of globalization and modern nomadism makes that requirement needless and it should be reusable within a specific region. This is also crucial from a privacy point of view. And access to on and off ramps at a broader regional scale, so Southern Africa, Eastern Africa, Western Africa with their respective regional KYC provider system as well as on and off ramps that work dynamically within the same region. But of course, standardization of technical components as well as any legislation is important because then we could build interoperability between our regional systems and be able to transact and create value as well as its transmission at a wider scale without having to worry about a myriad of things.

The potential benefits of stablecoins could be revolutionary, particularly in Africa. They could serve as a robust store of value, protecting against currency devaluation—a common scenario where, over time, what was once 150 units of a local currency might devalue to 35 units when exchanged internationally. This is where stablecoins shine, providing a stable intermediary that could facilitate cross-border transactions and savings without the usual risks associated with local currency instability.

Dreaming bigger, the creation of regional stablecoins, backed by a collective pool of valuable exports from several countries, could redefine economic stability. Such a system could leverage the collective economic strengths of these countries, though the long-term sustainability of relying on finite resources which have environmentally damaging extractive methods is iffy, very iffy. But this is just but one possible path of execution towards creating actual value as well as working financial systems that leverage stability and build upon the weaknesses of the current frame of the economic challenges faced by African economies. As the complexities of legislation as well as simple coordination should be highlighted as factors to take account of for anyone planning on doing something of scale with these systems within the continent.

The adoption of stablecoins represents a significant step forward for financial systems, particularly in Africa. They offer a way to protect wealth from inflation and devaluation, simplify cross-border transactions, enhance privacy, and foster a more interconnected global economy. As we continue to explore these digital assets, their potential to empower individuals and transform economies becomes increasingly apparent.

The global on-chain economy looks more promising every day, and the only thing I’m sort of curious about is will this new economy reach a point for wide-scale adoption because account abstraction is becoming increasingly better, which means better ways to onboard people from scratch will continue to come out but will the space still have the credibility to go about that wide-scale push?

I see the easiest way to onboard someone into web3, even with the most common external perspective being how abstract the technology is, is **use cases** - use cases that leverage something they find interesting, do something not possible with the current technology(facilitate this or that) and or make something convenient and have a minimal learning curve or rather difference in experience to what they’re used to but whether these use cases should be built on the user experiences of existing systems is another question because new technologies mostly always direct their user experience or bring in a newer narrative and newer user experience and story.

But because the cryptocurrency side essentially is dealing with the existence of this concept of value that people have known and transacted with, the wheel can’t be broken too much after all it’s another component of value and not an entirely new fundamental that is being brought in like the internet. For the most part the financial aspect of the technology borders more on the side of evolutionary rather than a completely new revolutionary introduction.