The proliferation of Distributed Ledger Technologies (DLT) has led to the introduction of revolutionary changes to the global financial landscape, offering a platform for a more democratic financial system by eliminating traditional barriers to entry, and lowering transaction costs, while providing transparent, secure, permissionless and accessible financial services.

However, the high volatility associated with most digital assets and cryptocurrencies has limited their appeal as reliable means of exchange, trade settlements, remittances or other forms of payments (Schaubhut, 2023). In response to this issue, Stablecoins are devised as a distinct type of cryptocurrency designed to maintain a stable value similar to fiat currencies like the US dollar, or a commodity, like gold (Afeef, 2024). This stability is achieved through various mechanisms, including collateralisation, seigniorage, or algorithmic measures to minimize volatility (Au, et al., 2024).

Stablecoins essentially provide a bridge between the volatility of cryptocurrencies and the stability of traditional fiat currencies typically conveyed through permissionless blockchains. Unlike most cryptocurrencies, which can be highly volatile, stablecoins are pegged to stable assets like the US dollar, gold, or other commodities, which minimizes fluctuations. This stability makes them ideal for daily transactions, micropayments and remittances. Similarly, stablecoins facilitate near-instantaneous cross-border transactions, often at a fraction of the cost associated with traditional banking or remittance services. This is particularly beneficial for international transactions, or wire transfers which can take several days and incur high fees through banks.

Aside from the evident benefits of faster settlements and cheaper fees (as illustrated in the diagram above), Stablecoins offer other considerable advantages relative to existing payment systems, including strong (public) auditability properties, native programmability, seamless interoperability and most importantly self-custody options. These reasons account for the exponential growth of stablecoins which has witnessed a prolific increase in market capitalization from barely a few billion ($) to over $170billion as of October 2024 (Coinmarketcap, 2024).

The Coinbase Institutional Trading Insights reveals that stablecoins settled over $10.8 trillion worth of transactions in 2023, and this figure is expected to exponentially increase in 2024. However, a deeper look into the main implications of the increased adoption of Stablecoins paints a different picture specifically across Emerging Market and Developing Economies (EMDEs).

Bridging the Gap between the Unbanked and the Global Finance System

Most crypto-related products are fondly regarded as “Solutions in Search of a Problem”, or contrarian technologies created to satisfy the innate speculative desires of Nerds. Stablecoins has however broken this Jinx based on its demonstrated success as the Crypto-first killer application with an undeniable Product Market Fit. Although stablecoins initially emerged as a crypto-native settlement mechanism for crypto traders and exchanges, they have crossed the chasm and have found mainstream adoption globally in the ordinary economy. Today, it is clear that users globally value the ability to hold or transact tokenized representations of fiat currencies (mainly USD) using permissionless blockchains, rather than relying on banks, or other financial intermediaries which may be unreliable or inaccessible, especially within Emerging Markets and Developing Economies (EMDEs).

Burchardi (2023) describes stablecoins as a wellspring of digital finance and bedrock of financial inclusion in Emerging Markets and Developed Economies (EMDEs), as it enables individuals without access to traditional banking systems, especially in regions that have limited banking infrastructure to indiscriminately participate in the financial ecosystem. As long as there is an internet connection, users can access stablecoins on blockchain platforms, making it possible to send, receive, or hold stable value assets without needing a bank account. This has ushered in a new era of monetary sovereignty built on permissionless blockchains, which are widely described as transformative “chains,” replacing the literal and metaphorical chains of financial exclusion with freedom and access. As a result, Visa (2024) emerging market study indicates that the rate of Awareness, Interest and Adoption of stablecoins within Emerging Markets and Developing Economies (EMDEs) significantly exceeds other developed regions globally.

Further insights into the increased adoption of stablecoins within Emerging Markets and Developing Economies (EMDEs) reveal that stablecoins serve as a hedge for individuals in countries with high inflation or currency devaluation, providing a means to preserve purchasing power by holding a digital asset pegged to a more stable currency, like the US dollar. Typically, Individuals and even businesses in countries such as Nigeria, Argentina, Brazil, Venezuela, and Turkey amongst other regions with volatile national currencies often convert their local currency into stablecoins to maintain the value of their assets, and foster wealth preservation (OECD, 2023).

Moreover, many of the global payment gateways such as PayPal and Stripe did not offer their services to developing regions, particularly Sub-Saharan African countries which consequently has adverse implications in terms of financial inclusion, entrepreneurship, and economic empowerment in the region. Limited access to these widely adopted payment platforms restricts individuals, freelancers, remote workers and local businesses from participating fully in the global digital economy, making it challenging to receive remittances, engage in international e-commerce, and process online payments (Guan, 2023). This exclusion stifles business growth, limits job creation, and restricts economic opportunities, particularly for Small and Medium Enterprises (SMEs) that might otherwise expand their reach to international markets.

However, the emergence of stablecoins offers a viable solution to bridge this gap, fostering greater financial inclusion. Unlike traditional payment gateways, stablecoins are democratized and accessible to anyone with a digital wallet and internet connection, enabling individuals and businesses in Sub-Saharan Africa to bypass the limitations imposed by the absence of PayPal or Stripe. Therefore, stablecoins facilitate cross-border transactions, allowing businesses in EMDEs to engage with global customers, vendors, and clients without relying on conventional payment infrastructure. This expands their market reach and enhances their competitiveness in a globalized economy.

The Technology Adoption Model (TAM) posits that the acceptance and utilization of new innovations are primarily propelled by two core factors which are: (i) Perceived Usefulness and (ii) Perceived Ease of Use. In this case, the increased adoption of stablecoins in EMDEs, as viewed through the Technology Adoption Model, reflects a convergence of these factors: the perceived usefulness in providing stable, low-cost, indiscriminate and accessible financial solutions and the ease of use enabled by mobile and digital wallet technology without requiring extensive paperwork, identification, and physical verifications. As these factors gradually align with external variables like supportive regulatory environments, enlightenment and community influence, stablecoins become a natural choice for those seeking financial inclusion, economic empowerment and global connectivity in emerging markets (Brothwell, 2024).

Finally, since stablecoins are often built on programmable blockchain platforms, they can be easily integrated into Decentralized finance (DeFi) applications, enabling a variety of automated financial services. This allows users to take out loans, earn interest on savings, and participate in viable investment opportunities typically unavailable within their traditional banking system. Thereby, emphasising the potential of Blockchain-based stablecoins in creating an Unchained Economy, especially within EMDEs since the fluid, borderless nature of stablecoins, facilitates inclusion in a financially interconnected world. This further indicates the main reasons why the percentage of Active Holders of stablecoins and curious participants of this technology continues to increase in Emerging Markets and Developing Economies (EMDEs) compared to Developed markets.

Risks and Path Forward

Just as with any nascent technology or disruptive innovation, there tend to be some associated risks and imminent factors hindering widespread adoption, and usability. The realisation of the full benefits of stablecoins particularly across EMDEs is contingent on several multi-faceted factors that span across politics, regulation, and compliance all of which present significant hurdles that any medium of exchange or store of value must cross. Out of these factors, the primary barrier to stablecoin adoption in EMDE is regulatory uncertainty, as governments grapple with establishing clear frameworks, which can particularly limit institutional adoption. Presently, in some developed regions, efforts have been made to establish concise regulatory frameworks and standards for the adoption and utilisation of Stablecoins. A prime example of this is the Market In Crypto Asset (MICA) regulation proposed as part of the European Union (EU) digital finance strategy which covers a wide range of rules for stable-coin issuers, cryptocurrency exchanges and service providers.

However, most countries within Emerging Markets and Developed Economies (EMDEs) are lagging behind in terms of developing a clear and concise regulatory framework for the utilisation of stablecoins. In certain cases, the Governments and Central Banks in emerging markets have often taken hostile or restrictive policies toward crypto and stablecoin adoption to mitigate its perceived risks towards local monetary stability and control. These policies include implementing outright bans, limiting access to crypto exchanges, sanctions or restrictions on the use of digital assets for payments, as seen in countries like Nigeria and India. Such measures stem from concerns about financial sovereignty, capital outflows, and the potential for crypto to facilitate illicit activities. The Financial Stability Board FSB (2024) study however indicates that the major stablecoin issuers presently applies a myriad of standardised regulatory requirements such as Anti Money Laundering (AML), fraud proofs, consumer protection, governance, audits and disclosures so as to enhance compliance of consistent financial and legal practices.

Based on the significant strides of stablecoin issuers to apply various regulatory standards and requirements to stablecoin as indicated in the above diagram, Brothwell (2024) opines that it is evident that many countries across EMDEs are simply hesitant towards providing regulatory clarity for stablecoins to avoid competition with their Central Bank Digital Currencies (CBDCs).

Stablecoins vs Central Bank Digital Currencies (CBDCs) Adoption in EMDEs

The rapid proliferation of stablecoins has accelerated the development of CBDCs, as governments aim to capture the utility of digital currencies within a secure, structured and regulated basis, while addressing concerns about financial stability and systemic risks. According to PWC (2024) digital asset report, over 90% of central banks worldwide are actively researching or experimenting with CBDCs with many emerging market economies at the forefront of this exploration and development of CBDC initiatives so as to enhance financial inclusion, improve payment efficiency, and enhance economic growth.

The key differences between stablecoins and CBDCs lie in issuance, purpose, accessibility, regulation and redemption all of which have significant implications for users (Kosse, et al., 2024). Stablecoins are issued by private companies and are pegged to assets like the US dollar, but they carry risks related to regulatory oversight and transparency around reserves, thereby impacting user trust. In contrast, CBDCs are issued by central banks, offering government-backed stability but with less privacy for users, as transactions are often monitored more closely to comply with financial regulations.

For users, stablecoins offer greater accessibility and flexibility in cross-border transactions and decentralized finance (DeFi) applications, while CBDCs was initially intended to provide more security and stability but may limit the same level of privacy and decentralized control, giving governments influence over digital transactions. In the light of the regulatory uncertainty, and other issues limiting the mass adoption of stablecoins and other digital assets especially amongst institutions within emerging markets, it remains an open question whether Central Bank Digital Currencies (CBDCs) could infact serve as proficient alternatives to fulfil the functions that stablecoins are meant to address.

However, empirical data so far within EMDEs indicates that CBDCs are by no means effective substitutes for stablecoins. Presently, CBDCs are not as widely adopted as stablecoins in Emerging Markets and Developing Economies (EMDEs) largely due to utility, flexibility, and market familiarity issues. As explained earlier, Stablecoins, often pegged to the US dollar, are attractive in EMDEs as a hedge against inflation and currency devaluation, providing a stable store of value, unlike CBDCs which are typically pegged to (weaker) local currencies.

Also, the distributed nature of stablecoins makes them easier to access globally, while CBDCs are often limited for domestic purposes and sometimes restricted in cross-border use. Furthermore, the slow rollout and limited integration of CBDCs globally have left a gap that stablecoins fill for remittances and savings across EMDEs, while offering lower costs and faster transaction speed. This is because stablecoins are widely integrated into global crypto exchanges, or DEFI protocols making them versatile for cross-border payments, while CBDCs remain largely limited to specific domestic or experimental use cases. In countries such as Nigeria, for instance, the eNaira CBDC has so far witnessed limited adoption with only around 0.5% of Nigeria’s population actively using it two years after launch, despite significant government incentives. In certain corners, it is widely mocked as a comical technology with minimal utility and interest, especially among the younger demography.

Many young Nigerians, and other citizens within Emerging Market and Developing Economies (EMDEs) have minimal trust in government-centered technologies whilst others especially entrepreneurs, freelancers and remote workers, rely on stablecoins for seamless cross-border payments. Stablecoins are widely accepted and facilitate global transactions, while CBDCs like the eNaira in Nigeria have limited international utility. This further explains the reason for the surge in Stablecoin adoption in countries like Nigeria whilst local CBDC have had limited adoption within the same timeframe.

New Trends and the Path Forward in Stablecoin Development

The growth and profitability of stablecoins like Tether have sparked enormous interest among financial service companies. Major stablecoin issuers earn substantial revenue by investing reserve assets in interest-bearing instruments. In 2023 for example, Tether reportedly generated over $1 billion in quarterly profit from US Treasury bills alone. This low-risk, high-return model appeals to financial firms, as they see an opportunity to generate significant passive income by holding customer deposits as collateral (PWC, 2023).

The earlier analysis of the main reasons for the adoption of stablecoins across EMDEs reveals that many global payment gateways like PayPal and Stripe typically do not offer their native services to developing regions, particularly within Sub-Saharan African countries which consequently has had adverse implications for financial inclusion. Thereby, increasing reliance on Stablecoins. However, in recent times, both PayPal, Stripe and other financial services providers have made significant strides in the aspects of stablecoin development and distribution. The recent development of PayPal’s PYUSD stablecoin has the potential to boost financial inclusion in emerging markets by providing a stable, dollar-pegged digital currency accessible on PayPal’s extensive platform and other permissionless blockchain networks such as Ethereum and Solana. PYUSD enables cost-effective cross-border payments, allowing businesses to save on fees and transact easily with international clients.

Similarly, Stripe’s recent acquisition of Bridge signals a significant step towards the mainstream adoption of stablecoins. Stripe, a leading global payment processor, will leverage Bridge’s stablecoin infrastructure to provide seamless and efficient payment solutions for businesses worldwide. This integration will expose a vast number of businesses and consumers to stablecoins, potentially driving adoption and accelerating the transition towards a digital economy. Additionally, Stripe’s strong regulatory relationships, institutional partnerships and global reach can help legitimize stablecoins and pave the way for more favourable regulatory frameworks, further boosting their acceptance.

Other renowned players in the financial sectors have made substantial progress in terms of stablecoins integration. For example, Visa presently powers 50+ wallet partners, enabling fast, and seamless issuance of Visa credentials, thereby empowering stablecoin users to quickly and securely pay with Visa at over 130 million merchants worldwide. Visa is also piloting the use of stablecoins like USDC to expand settlement capabilities for issuers and acquirers globally providing increased flexibility for modern treasuries. The firm has partnered with Allium Labs to create the Visa Onchain Analytics Dashboard, an easily digestible tool, that provides clear insights into stablecoin activity.

Most recently, the crypto project World Liberty Financial linked to the former United States (US) President and Republican Party Candidate Donald Trump is reportedly planning to launch its stablecoin so as to further strengthen the Dollar Dominance as the Global reserve currency while increasing financial inclusion in emerging markets by offering easy access to dollar-denominated assets through blockchains.

Presently, the United States Dollar (USA) significantly dominates the total share of stablecoin currency adoption relative to other global currencies. Although, major Stablecoin issuer recently launched the EURC stablecoin which is pegged to the Euro, whereas Tether announced the launch of a Dirham-pegged stablecoin on TON Blockchain, thereby providing broader access to a variety of global currencies via decentralised blockchain networks.

Conclusion

It is evident that the ongoing blockchain revolution would lead to the transition of all asset classes, information and artefacts from just being “Online” to being “Onchain”. Although in past years, there have been major efforts to move a variety of assets such as Arts, and Real Estate onchain either as Non-Fungible Tokens (NFTs) or Real-World Assets (RWAs) respectively. However, both NFTs and RWAs have only gained limited internal adoption mostly embraced by minuscule crypto degens and nerds. However, having a digital representation of fiat currencies tokenised on the blockchain through Stablecoins has proven to be the most beneficial for the masses and has crossed the chasm of adoption beyond the crypto sphere. As a result, Stablecoins has presently become a beckon for global financial inclusion.

Retrospectively, it is important to understand that the fundamental ethos of the blockchain sector is built on core foundational values such as Decentralisation, and Censorship Resistance. However, the irony lies in the discrepancies between the decentralised ethos of successful blockchains such as Bitcoin and the centralized nature of successful stablecoins such as Tether. While Distributed Ledger Technologies (DLTs) was initially conceived to be a decentralized network system with no single (central) points of failure, the most widely adopted stablecoins are issued by centralized entities such as Tether and Circle, often subject to regulatory oversight, systematic attacks and potential censorship. This centralisation contradicts the core ethos of permissionless blockchains, which aim to eliminate intermediaries and empower individuals. Furthermore, attempts to create decentralized or algorithmic stablecoins, like Terra or Basis Cash, have faced significant challenges and failures. These projects often rely on complex algorithms and market mechanisms to maintain price stability, but they are vulnerable to market volatility, manipulation, and systemic risks.

This paradox highlights the inherent difficulty of balancing decentralization with stability. Nevertheless, Stablecoins still remain the most promising segment of the digital ledger technology sector, as they offer a unique opportunity to bridge the gap between the traditional financial system and the digital age, empowering individuals and businesses in emerging markets to participate in the global economy.

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