Expanding the Ecosystem for Non-USD Stablecoins
October 2 2024
by Markus Franke
Highlights from the "Expanding the Ecosystem for Non-USD Stablecoins" panel at the Stable Summit event held during EthCC Brussels.
What is Mento?
Mento is a multi-currency EVM stablecoin platform on the Celo blockchain that provides local currency stablecoins for every country in the world. Mento currently supports six stablecoins: cUSD (Celo Dollar), cEUR (Celo Euro), eXOF (West African Franc), cREAL (Celo Brazilian Real) and the recently added cKES (Celo Kenya Shilling) and PUSO (Philippine Peso Stablecoin). We believe that multi-currency stablecoins complement US Dollar stablecoins significantly. In countries with high inflation, local currencies often lose value against the US Dollar, making US Dollar-stablecoins excellent for saving. However, for local entrepreneurs seeking small loans, local currency stablecoins are more practical. If revenues are in local currency and only US Dollar-stablecoins are accessible, repaying US Dollar loans becomes costly as the local currency depreciates against the US Dollar.
Non-USD stablecoins add substantial value by providing access to credit within local markets. Besides saving and payments, they also support remittances and the on-chain foreign exchange (FX) space, which is expected to mature as more participants bring their FX trading on-chain.
Stablecoin Diversity and Accessibility
Backed stablecoins are primarily a wholesale product. To bring Web3 to the masses, we need accessible tools or products, and that's where innovations like Mento's come into play. We emphasize stablecoin diversity and aim to see more stablecoins emerge. Although the industry is still young, the potential use cases are promising. The launch of the Kenya Shilling stablecoin for Africa showcases this progress. Microlending organizations are beginning to offer loans in local currency stablecoins to small entrepreneurs, making financial services more accessible, especially in regions where traditional banking systems fall short.
Demand for Non-USD Stablecoins
The demand for non-USD backed stablecoins is primarily driven by remittance use cases. The credit space is also critical, with a global $5 trillion credit gap affecting countries with less effective banking systems. Resolving this gap can profoundly impact these nations. A decentralized stablecoin platform that allows access to both US Dollar and local currency stablecoins for saving and borrowing, all on the same platform and accessible via mobile, represents an amazing use case for web3 technology.
Liquidity for Stablecoins
Providing liquidity for stablecoin loans is challenging. Building stablecoins requires constant efforts to ensure liquidity for each one. Infrastructure is crucial to simplify liquidity provision, allowing easy transitions between different currencies. Micro-lending organizations are increasingly open to using stablecoins, making their operations more efficient. In the future, having everything on-chain will provide valuable data for lenders, enabling the development of new forms of credit history linked to wallet addresses via phone numbers and other activities.
The Future of the Web3 Ecosystem
Over the past two years, the Web3 ecosystem has evolved significantly with more scalable chains, affordable on and off ramps, and user-friendly wallets. Making financial primitives accessible is vital. In Kenya, for instance, mobile money has unlocked financial access, but in a fragmented way. An open-source, permissionless system can overcome these barriers, enabling seamless cross-border and inter-carrier transactions, thus driving economic growth.
The future of stablecoins lies in expanding the development of local currency stablecoins for every country. As traditional finance begins to recognize the efficiency of cross-border and cross-system transactions on the blockchain, the adoption of these technologies will grow. Advancements in the space will provide more choices, including using central bank digital currencies (CBDCs) as collateral, offering diversified and user-centric financial solutions.
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