Discover the impact of decades of fiat mismanagement and how cryptocurrencies offer stability against hyperinflation in Argentina.
Understanding Argentina’s background
For some context, between the late nineteenth and early twentieth century Argentina was called the “Breadbasket of the world”, being one of the wealthiest countries of the world -compared to the United States in terms of wealth and promising development- Historically, the whole country’s economic structure has been based on commodities, therefore, it has depended on external commodity prices and has been low labor intensive. During the century, political mismanagement led to a steady decay of the Argentine economy, being the icing on the cake the hyperinflation process suffered in 1989. At that time, the country had no dollar reserves as a result of the payments made in connection to the external debt with the IMF. As a result, the government -in an effort to restrain the result of the crisis- enforced certain measures that obliged ordinary people to receive bonds in exchange of their fixed-term deposited australes, currency that later would be exchanged for the current currency: Argentine Peso.
During the 90’s, the peso was pegged to the dollar at a 1:1 ratio, which was mainly sustained by the product of the privatizations of state firms. By the end of the decade the peg was unsustainable with a negative trade balance, and consequently the crisis exploded in 2001.
This dark phase in Argentina is remembered by the social decay of the middle class -rise of “cartoneros” (paperboard collectors)-, violent manifestations and the (in)famous “corralito” (the spanish diminutive of corral). We, Argentineans, don’t trust the government nor the banking system mostly because of the so-called “corralito”, which was based on the following:
- No more than 250 dollars per week could be withdrawn from your bank account.
- Dollar deposits were “pesificados”, that is, dollar deposits were exchanged to pesos at 1,4 pesos per dollar (the previous day the rate was still 1:1). The exchange rate increased even more after that.
After the crisis, and the biggest debt restructuring in Argentina’s history, the price of soybean was the main driver for a steady recovery.
In the last six to eight years debt has skyrocketed again, inflation has risen as far as 50% annually, salaries have halved in dollars, restrictions and taxes for buying dollars have applied not only to the currency exchange, but also to credit card payments for abroad services. Also, the dollar has a black market called “dólar blue” which you can buy in this so-called “cuevas” (caves) and, as restrictions and suffocating taxes keep on rising, tax evasion and the black economy rises as well -as the Laffer Curve indicates – In a completely dollarized economy flooded with 100 USD bills, not even holding dollars “abajo del colchón” (under the mattress) is safe with rising insecurity and poverty over 50%. Argentina’s economy is dollarized, as a country it has 10% of the dollar bills around the world and 20% of the dollar bills outside the United States.
There is some light
Even though the situation got worse, we started seeing that there was light at the end of the tunnel, at least an alternative to avoid the reigning chaos. We saw crypto flourishing as a reaction to the restrictions and the economical crisis: a revolution that started fighting against the history of a country. The last couple of years people began to buy stablecoins instead of dollars because of the restrictions. If you walked around Buenos Aires during 2021 you could see a city full of crypto advertisements: Bianance and other local exchanges that encourage people to buy DAI, BTC and ETH.
Traditional finance -the stock market- keeps on suffering from the country’s economic instability with an ever-growing bond market. Lots of investors in the Argentinean debt market put up with many defaults in the last twenty years. Because of this, young people prefer to invest in crypto exchanges even before buying a bond or a stock. They can make a bank transfer and have their pesos exchanged for some stablecoin, or maybe do P2P with dollar bills in some “cripto cueva” and receive USDT in Binance or a wallet. Of course, it is impossible to use a credit card in an exchange to buy cryptocurrency. The government does not really understand the nature of cryptocurrencies, and, therefore, created blurry -sometimes even unenforceable- regulations to tax them.
Despite the restrictive regulations and heavy taxation, money is flowing into Latin America, especially into Argentina. Last year, Argentina ranked tenth in the Chainalysis’s Global Crypto Adoption Index, an index that includes data from more than 150 countries and takes into account the following metrics: on-chain value received, on-chain retail value received and P2P exchange trade volume. Other Latin American countries ranked among the highest ranks: Colombia was eleventh and Venezuela seventh.
Crypto developments everywhere
The local exchanges Lemon Cash, Buenbit, and Ripio received a total combined funding of 77 million dollars during 2021. This will certainly accelerate crypto adoption as they start offering saving rates on stablecoins around 15% annually and implement an aggressive marketing and referral program. SeSocio, another local fintech company that worked with crypto investments, was acquired by the firm Blockchain.com at the sum of 100 million dollars last November despite the fact the CNV -Argentinean SEC- tagged them with irregular public offering.
Some of the biggest innovations in the DeFi space are coming from fellow Argentineans. It is not a coincidence that Mariano Conti, former head of the MakerDAO smart contracts, and Mariano Di Pietrantonio, head of MakerDAO Latam Growth, are from my home country. Mariano Conti had one of the first real use cases of a DAI loan, being able to buy a car using his ether as collateral.
Other interesting projects in the DeFi space are Exactly Finance and Mean Finance. The first one received 3 million dollars in funding during 2021 to develop fixed income solutions in a decentralized manner and, in the longer term, connect with the traditional finance fixed income market. Mean Finance is a project focused on providing tools to execute dollar cost average on-chain via smart contracts. Considering its composability, it has characteristics of a money Lego and has its first version live on Ethereum mainnet and Optimism and v2 in beta phase.
If we take a look at one of the most important smart contract auditing firms, we can find Open Zeppelin. Founded by Manuel Araoz and Damian Brener, this firm provides the blockchain development space with security focused libraries that are used in many DeFi and NFTs projects.
NFTs in Argentina
NFTs reached massive users in Argentina thanks to Axie Infinity. Even though the SLP price has been dropping, this game has become increasingly popular. The scholarships provide great support in countries with low wages such as the Philippines and Venezuela, and Argentina also became part of the trend. A user that plays with a standard axie team can earn up to 100 USD monthly, with current prices. Taking into account the Argentinian minimum wage is 160 USD, that additional income can mean a lot to some families, workers or students, helping them with their monthly expenses.
Vitalik visits Buenos Aires
Last December Vitalik was in Buenos Aires and he was treated like a true rockstar. The Graph organized an event where local crypto personalities got to interact with him. After this meeting, social networks went crazy and, to satisfy the hunger of Vitalik`s fans, a public event was organized: tickets sold out in a matter of hours and the ethereum community loved listening to Vitalik. In an interview conducted by Santiago Siri, Vitalik showed himself interested in local projects such as Kleros -a decentralized court-, POAP -just received $10M in funding- and Proof of Humanity -Santiago’s project-. The interview was also full of technical and social ideas around Ethereum and blockchain, and in twitter the hashtag #AskVitalikBA was a trending topic in Argentina.
To sum up, I leave you some closing quotes from Vitalik that summarize the reason why the adoption of crypto in Argentina is booming:
“The impression that I have gotten of Argentina so far, [is that] it’s a country that has a very low state capacity but a very high people capacity. That’s something that I think in some ways might even be the perfect environment for blockchains to make a big impact”
“The peso is inflating very quickly and people understand they can’t hold it for long periods of time, they have to constantly work with money and figure [out] how to avoid getting hit by the inflation and how to juggle between different assets. It is in this environment where people can see very clearly what money is, how money works.”
As Vitalik says, in places like Argentina blockchain technology thrives. Blockchain characteristics such as censorship resistant and permissionless are crucial in environments where fiat currency is another lever for the government to play their wicked games.
Let’s hope for the best
As you may see, Argentina has not only fertile soil for growing veggies and cattle farming, but also to develop mainstream crypto projects. We have the motives (or necessity), the capacity and the passion to become a crypto capital. Let’s see what the future of crypto can bring us (and let’s hope the incumbent government doesn’t ruin it).
By Federico Rava
More about Federico Rava
“I am an industrial engineer who has worked many years in traditional finance and, since 2017, has been researching and investing in crypto. It has been almost half a year since I left Argentina to start my adventure in Europe, hoping to find a multicultural landscape to dive into, full of work opportunities and a welcoming crypto space. Luckily, I found CryptoCanal, and after attending a Crypto 101 and some ongoing chats with Ellie, who proposed that I share with the community the state of crypto adoption in Argentina.
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