Stablecoins in high inflation — how to reduce dependence on your local currency
Why people keep savings in dollars when inflation is high
Inflation is a rise in prices that makes the same amount of money buy less over time. At the start of the year your salary fills a whole shopping cart, and a year later the same money buys noticeably less, even though it sat untouched the whole time. The faster prices rise, the faster savings in local currency melt away.
So people move part of their money into a steadier currency, usually the US dollar. Households and businesses switch to dollars to protect themselves from inflation and from the falling value of the local currency, and stablecoins make this shift stronger1. The dollar has inflation too, though usually far lower. In 2023, prices in the US rose by 3.4%2. In Argentina they rose by 211.4% over the same year3.
Buying cash dollars or opening a foreign-currency account is not possible everywhere, and not at every moment. Where dollars are hard to get, a dollar stablecoin often takes their place. Many people in Nigeria and Argentina protect their savings this way.
You buy a stablecoin with local currency and keep it in a crypto wallet, that is, an app that keeps your secret key and shows how much crypto you have. How a stablecoin keeps its price close to a dollar and what backs it is explained in what is a stablecoin.
Savings in a stablecoin do not grow. However many dollars you put in, roughly that many will remain, minus fees, so this is a way to hold money in dollars with no promise of earnings. How much of your savings to move depends on your expenses, your country's rules and how well you understand the risks described below. No single answer fits everyone.
How to move part of your savings into a stablecoin, step by step
- Find out whether buying and selling crypto is allowed in your country and which intermediaries people use for it ⚖️. Country rules are covered on the pages cryptocurrency in Argentina, cryptocurrency in Brazil and cryptocurrency in Kazakhstan.
- Decide in advance where you will sell the stablecoin for local currency: on an exchange or through P2P, that is, directly to another person on a platform that holds the crypto until the payment arrives. The guide how to sell and cash out crypto walks through selling and withdrawing money to your card, and choosing an exchange or a swap service helps you pick a platform.
- Choose the stablecoin and the network, that is, the shared system where transfers are recorded. The same stablecoin travels on different networks; USDT, for example, exists on Tron and on Ethereum. Pick a network that the platform from step 2 accepts, because a transfer sent to the wrong network can be hard to recover (how to send USDT). Who issues USDT and USDC and what backs them is covered in their profiles.
- Buy a small amount first. The guide how to buy crypto explains buying with a card or through P2P. Your costs are the platform's fee, the gap between the buying and selling price, and the network fee. where to check: the fee page of the platform you choose and the transfer confirmation screen in your wallet
- Move the stablecoin you are setting aside to your own wallet (how to store crypto). Leave on the exchange only what you will soon sell or swap.
- Get the wallet ready for transfers. Access to it rests on a seed phrase, a set of 12 or 24 words that you never show to anyone (what is a seed phrase). A transfer usually needs a little of the network coin, meaning the network's own crypto used for the fee, such as TRX on the Tron network. Some methods and apps lower the fee or let you pay it in the stablecoin itself (about the network fee).
- Test the way back. Sell a small part for local currency and withdraw the money to your own account or card, so you learn the real rate and the timing before you actually need the savings.
How a stablecoin differs from cash dollars and a bank deposit
| Cash | Deposit | Stablecoin | |
|---|---|---|---|
| Needs a bank account? | no | yes | no |
| Pays interest? | no | yes | no1 |
| Insured by the state? | no | varies2 | no3 |
| Can be sent abroad in minutes? | no | varies | yes |
| Can someone block the money? | no | yes | yes4 |
- Interest is paid by services you hand your stablecoin to, and they carry their own risks. ↩
- Depends on the country and the size of the deposit ⚖️. ↩
- Government deposit insurance does not cover stablecoins ⚖️. If the issuer (the company that issues the token) or an exchange goes bankrupt, the state will not pay this money back. ↩
- The issuer has the right to freeze tokens. ↩
Risks of keeping savings in a stablecoin
Any stablecoin can lose its peg to the dollar, which means its price moves noticeably away from one dollar (this is called a depeg). Whether the price comes back depends on what stands behind the token. How a depeg happens and what a holder can do is covered in what is a depeg, while what are reserves explains what reserves consist of and who may redeem tokens with the issuer.
The issuer can freeze tokens at a specific address (the number of your "account" on the network), and after that they cannot be moved. Under its own terms, Tether may freeze, burn and block transfers of its tokens, including at the request of law enforcement ⚖️4. In August 2022, Circle froze USDC at addresses that had come under US sanctions ⚖️5. For this reason, buy a stablecoin for savings on a legal platform, and buy from a private person, for example in a P2P deal, only through a platform that protects the deal. Your own wallet removes the exchange's risks, yet it gives no protection against a broken peg or a freeze.
You sell a stablecoin at the platform's price. In some countries it trades there above or below the dollar, and the fees for buying and selling eat part of the gain1. Before selling, compare the platform's price with the dollar exchange rate.
Your country's rules decide whether buying, swapping and selling a stablecoin are taxed and whether you have to declare the savings themselves ⚖️. The guide crypto taxes shows how to work through these rules step by step, and the laws of individual countries are described on the country pages from step 1.
What is the catch when DeFi pays more on a stablecoin than a bank?
For that interest you take on risks that an insured bank deposit does not have. In DeFi, meaning programs inside a network that work without a bank, people put stablecoins into a shared pool, other users borrow from it, and those who put money in earn income. The rate goes up when many people want to borrow stablecoins, and it changes constantly.
A bug in the program or a broken peg can cost you what you put in, and then only the service itself can return the money, if it decides to cover the losses.
A high rate with no clear source of income is a warning sign. In 2022, holders of the UST stablecoin were promised a supposedly risk-free 19.5% a year, and in May of that year UST lost its dollar peg6. If you try DeFi, put in only a small part of your savings that you can afford to lose, and choose services that have been running for a long time and are widely known.
More detail on country figures, insurance rules and DeFi services
In Nigeria, people turned to stablecoins because of the sharp fall of the naira, high inflation and the difficulty of buying foreign currency9. In Argentina in 2024, stablecoins made up 61.8% of crypto transactions, and people kept their savings in cash dollars bought at the unofficial rate (the "blue dollar") and in stablecoins10.
In the EU, the MiCA regulation states directly that stablecoins fall outside public deposit protection11. In the US, the rules for the GENIUS Act proposed by the Federal Deposit Insurance Corporation (FDIC) insure the issuer if its reserves sit in an insured bank, and the token holder stays uninsured12. Exchange funds and insurance, such as the SAFU fund at Binance or the Coinbase policy against theft from its storage, protect the company itself from hacks and are no substitute for deposit insurance13.
The DeFi services Aave14 and Compound15 are examples of this design.
