Africa’s Stablecoin Remittance Potential: A Reality Check
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The Reality of Stablecoin Remittances in Africa
Despite the promising potential of stablecoins to lower remittance costs in Africa, the reality is proving to be more complex. According to the latest data from Borderless.xyz, January’s median spread for converting stablecoins to fiat currency in Africa was almost 300 basis points, equating to about 3%. This is significantly higher than Latin America’s median spread of roughly 1.3% and Asia’s minimal 0.07%. This disparity directly impacts those sending money back home, affecting their financial bottom line.
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Market Variations in Conversion Costs
Reports highlight significant differences within the continent when it comes to conversion costs. For instance, South Africa enjoys some of the lowest conversion costs at approximately 1.5%, thanks to multiple competing providers and a market with greater liquidity. In stark contrast, Botswana’s median spread surged to nearly 19.4% in January, though it did ease later in the month. Similarly, the Congo experienced conversion costs exceeding 13%. The analysis encompassed 66 currency corridors and nearly 94,000 rate observations, indicating these are not isolated incidents.
The Impact of Competition and Liquidity on Rates
The data suggests a straightforward conclusion: the entities facilitating the conversion from stablecoins to local currency play a crucial role. In markets where several payment providers are active, conversion costs typically range between 1.5% and 4%. Conversely, in markets dominated by a single provider, spreads can exceed 13%. The “spread” refers to the difference between the buying and selling price of a stablecoin, akin to the bid-ask gap in traditional financial markets. This spread represents the execution cost that the sender ultimately bears. These frictions are more often a result of local market structures and liquidity issues rather than the blockchain technology itself.
Stablecoin vs. Traditional FX Rates
Borderless.xyz also assessed how stablecoin mid-rates compare with traditional interbank FX mid-market rates, a comparison termed the TradFi premium. Globally, across 33 currencies, the median difference was approximately five basis points or 0.05%, indicating a close alignment between stablecoin and traditional mid-market rates in many regions. In Africa, however, this gap expanded to nearly 120 basis points or about 1.2%. This larger premium illustrates why stablecoins do not universally result in significant savings across all corridors.
Implications for Senders and Markets
Economists emphasize that stablecoins are indeed reducing remittance costs in Africa, noting that traditional services often charge around $6 for every $100 sent. However, the latest data provides a nuanced perspective: while faster settlements and lower fees are achievable, they depend heavily on the efficiency of local on-ramps and off-ramps. For consumers, this means potential savings in some corridors but persistently high costs in others.
For regulators and new market entrants, the message is straightforward — enhancing local competition and liquidity is just as crucial as improving cross-border payment infrastructure. While stablecoins offer a potentially cheaper and faster route, the last mile — converting crypto into local currency — still relies on local entities, pricing strategies, and market depth.
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