Next Wave of Mass Adoption via Local Stables
May 29 2024
by Markus Franke
Insights from"Next Wave of Mass Adoption via Local Stables" by Markus Franke, CEO of Mento Labs during Token2049 Dubai.
In recent years, we've witnessed a significant growth in the adoption of stablecoins, particularly those pegged to the US dollar. These stablecoins have become increasingly popular for a wide range of transactions, including payments, remittances, and savings. This growth is driven by demand, more regulatory certainty and evolving infrastructure supporting it. We're seeing the emergence of more affordable on and off ramps, as well as the development of scalable blockchain networks, like the Celo blockchain, that are capable of handling rising transaction volume. On Celo, you can now send stable transactions for a fraction of the cost compared to traditional methods. Users can pay transaction fees using stablecoins enabling easy to use products.
It is crucial to recognize the importance of different local currency stablecoins and diverse markets to drive the next wave of global Web3 adoption. That's where platforms like Mento come into play. Mento is an open-source EVM platform that allows anyone to launch and operate decentralized, transparent stablecoins. The Mento Platform includes a highly efficient Automated Market Making (AMM) infrastructure, which enables users to easily swap between different digital currencies. Essentially, Mento facilitates two crucial functionalities: first, it allows users to trade different digital currencies, e.g. converting their local currency stablecoin into a stablecoin pegged to the US Dollar, or vice versa. Second, it enables users to create their own local currency stablecoin in every country of the world, to use it for payments, remittances, lending, borrowing, and saving
Currently, Mento supports a variety of currencies, including the Brazilian Real (cREAL), West African Franc (eXOF), US Dollar (cUSD), Euro (cEUR), Kenyan Shilling (cKES) and many more to come soon. The Mento Platform is aiming to support the launch of stablecoins for currencies including the Nigerian Naira, South African Rand, Japanese Yen, Korean Won, and Philippine Peso. Why does this matter? Because it opens up a whole new world of possibilities for end-user transactions.
Let's take a closer look at Africa, where inflation rates are soaring. Countries like Ethiopia, Angola, and Zimbabwe are experiencing inflation levels that make traditional banking systems unreliable. This is where stablecoins emerge as an alternative solution. By offering access to dollar-pegged stablecoins, users have access to a means to protect their savings from inflation.
And also local stablecoins have economic value. Consider a small business owner in one of these inflation-affected countries. They may need a loan to get their business off the ground, but traditional banks are out of reach. In such circumstances, securing a loan through blockchain or decentralized finance (DeFi) becomes essential, so far often limited to stablecoins pegged to the US Dollar. Imagine obtaining a loan denominated in US Dollar-pegged stablecoins, while your business generates revenue in local currency. As the local currency depreciates against the US Dollar, repaying the loan becomes increasingly burdensome for small-scale entrepreneurs. Therefore, facilitating loans in local digital currencies can substantially alleviate the entrepreneurial journey for small businesses. Mento addresses this need by enabling seamless transitions between various currencies, e.g. converting Kenyan Shilling stablecoins to US Dollar equivalents, or exchanging cUSD for local currency stablecoins.
The benefits of local currency stablecoins extend beyond savings and lending. They also open up opportunities for FX trading, settlement for large companies, and micro-credit initiatives. Take, for example, the micro-lending projects in Africa. These projects are providing entrepreneurs with the capital they need to succeed powered by stablecoins. A few projects worth mentioning here - Mercy Corps Ventures, Grameen Foundation, and World Food Program allow users to get microloans to build their business in digital currencies and therefore, microloans, given the huge credit gap - especially across Africa, will thrive with a large wave of adoption going forward.
At Mento Labs, we are developing what we call the Stablecoin Factory—an open-source infrastructure toolkit accessible to anyone interested in launching a local currency stablecoin. This infrastructure provides essential components for creating stablecoins: smart contracts for minting and redeeming, oracles to bring local fiat currency prices onto the blockchain, a method for storing collateral, and transparency for users to verify collateral. Mento Labs’ goal is to democratize access to this infrastructure within the EVM world, enabling developers worldwide to easily deploy local currency stablecoins. Regardless of location or project, users can access this infrastructure to facilitate lending, saving, borrowing, and transactions in local currency stablecoins.
One more significant area is remittances. For users in African countries where traditional banking access is limited, stablecoins offer a lifeline. By leveraging platforms like Celo and wallets like Opera's MiniPay, Valora or Hurupay, users can send money across borders quickly and affordably. By looking at the price of remittances, it is hard to tell that we are there yet. If you want to, for example, send money from Germany to Ghana, currently the price of remittances is around 20 to 23% using traditional means to send money. We have all this technology and yet prices are still this high.
Looking ahead, more easy-to-use wallets, more accessible on and off ramps, local currency stablecoins, the ability to pay for transactions in stablecoins, and cheaper transactions can actually change these statistics that we see here.
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