The fall in oil prices due to lack of demand caused by the COVID-19 crisis has hit all oil producing nations hard. Nigeria, Africa's biggest economy is no exception, in March of this year the Central Bank of Nigeria (CBN) forced a top of interbank dollars and euros sales. The move was made to preserve the reserves of the CBN but it has practically halted all retail sales of foreign currency in the Nigerian market for the regular citizens and local businesses.
The problem originates in the fact that Nigeria relies on oil exports as its main source of foreign reserves. It is estimated that the country needs a price per barrel of seventy US dollars, and daily exports of at least two million barrels. At the time of this writing, the price of crude oil sits around forty dollars, with total exports at one and a half million barrels. The result has been a contraction in the national reserves of foreign currency which has impacted the economy.
The lack of foreign currency is hitting the country as inflation accelerates to a rate 12.8% during the month of July. There are long lines in exchange houses and many have limited the amount a customer can purchase to one hundred dollars per person. There are also reports of banks failing to complete credit card transactions denominated in money from outside Nigeria.
The situation has compounded the crisis already started due to the pandemic. Many small and medium businesses are in danger of closing without the ability to import vital supplies for their operation and unemployment could rise as a result.
What can blockchain do?
One, if not the most, innovative implementations of Blockchain during 2019 and 2020 have been stable coins. These are assets that track the value of a FIAT currency at a fixed ratio. For example 1 to 1 exchange. This means one unit of a stable coin is equal to exactly one unit of the corresponding FIAT currency. The combination of price stability, the global reach of blockchain, and lower transaction fees have made stablecoins the most used type of token in the world of Decentralized Finance (DeFi).
How is this possible? In general, there are two ways of creating a stablecoin. FIAT-backed or crypto-collateralized stablecoin. The first case is when the token is issued against real money reserves held in a financial institution. Basically, a user wanting to mint a new token would deposit real US dollars to a specific account. Then, will receive in exchange the equivalent amount of stablecoins directly into his crypto wallet.
The second example is achieved by creating a token which maintains its value by being made of a basket of different crypto currencies and tokens. Here no FIAT money is involved, instead a complex system of price oracles and smart contracts maintain a 1 to 1 ratio between the token and the FIAT currency. In either case the result is a token that maintains the same value, but it is issued and transferred through the blockchain.
The perfect solution for Nigeria
Nigerians right now need easy access to foreign currency. This can be to save a portion of their income and protect themselves against inflation. Or, to have a means to purchase goods and services from outside the country. Both can be solved by using stable coins.
These assets, unlike traditional cryptocurrencies, are price stable. They are also outside the traditional banking which are right now controlling how many dollars a person can buy. In the case of FIAT backed stable coins, the dollar reserves are held in financial institutions outside Africa. And out of the reach of local regulators. In the case of crypto backed stable coins, these are created on-chain using other crypto coins and tokens. So there is no government on the planet that can stop their circulation.
Stablecoins
A popular example of a FIAT stablecoin is Tether (USDT). Right now it is the most popular stablecoin on the planet with a 1:1 ped to the US dollar. According to the Tether website, the total amount of USDT in circulation is $12,766,320,562.77 at the time of this writing. The acceptance have made this assets one of the most popular tokens and an easy-to-use and buy aside dollars. Any Nigerian looking to get his hands on some dollars, but cannot buy enough from the local exchange houses, can easily purchase some Tether,
A good example of the second case is DAI stablecoin. This is a crypto-stable coin made by using a basket of other crypto assets. The particulars of how it is done are complicated and would require a lengthy explanation. There are around 419,037,931.63 DAI in the market. The supply keeps expanding each day, and it has become one of the preferred tokens in crypto exchanges around the world. It could easily be used to replace the dollar for saving or international commerce.
Where to buy stable coins?
This is all well and good, but it does not mean much if there is no easy way to buy it. Remitano is a peer-to-peer exchange that works in over 50 countries. It has developed a crypto web wallet fully integrated with Naira for instant transactions. It also offers low transaction fees that make it a cheaper choice than using traditional services.
Finally, Tether is available to purchase and withdraw from the remitano web wallet. Any Nigerian looking to buy stablecoins right now, is just a few clicks away from buying as many as needed. From the platform it is also easy to send USDT to any person with a crypto wallet in the world.
The oil prices will take time to recover, for all those Nigerians needing dollars, stablecoins are a solution. Blockchain is bridging new solutions to old problems.
