Hello defiers! A more closed and controlled economy is coming back to Argentina after elections over the weekend. Today I want to talk about why Dai and DeFi are better alternatives for Argentines seeking financial freedom than Bitcoin and the black market dollar.
Argentina’s Currency Controls are Back, But This Time There’s Dai
Argentines have a long history of governments telling them what to do with their money and after elections over the weekend those days are back in full force. The last time around savers bought Bitcoin. Now they have Dai.
President Mauricio Macri, who was elected on the promise of bringing free market solutions to the country’s ailments, lost to the old guard. Alberto Fernandez will be sworn in president in December, with former ruler Cristina Fernandez de Kirchner as his vice president.
Results weren’t a surprise as primary elections in August showed voters favored the Fernandez/Fernandez formula by a wider margin than previously expected, which sent the peso and local securities into a tailspin. Anticipating that Argentines would again rush to buy dollars, Macri cut the USD purchase limit to just $200 per month, from the $10,000 limit he had already imposed in September.
That may be just a taste of what’s to come. Fernandez ruled for two terms financing spending by printing more pesos than the country was earning, which caused constant double-digit inflation. Argentines who wanted to protect their savings from a devaluing peso were banned from buying foreign currency and had to go to the black market to buy dollars at a rate that was sometimes 50 percent higher than the official exchange. Some also bought Bitcoin.
Image source: bluedollar.net
This time around, Argentines have a better alternative thanks to decentralized finance. Bitcoin allowed Argentines to put their savings into an asset which wasn’t subject to their government’s reckless monetary policy or currency controls, and they knew there was no way officials could come and seize it, like they’ve done before with dollars in the bank. But it was still just as volatile as their own currency and it depends on the moment they bought it whether it was good at preserving savings.
Dai is just as censorship resistant as Bitcoin, but it’s pegged at 1-to-1 to Argentines’ long-time favorite safe haven: The dollar. And it’s better than black market dollars because it can be bought on a laptop, held in a digital wallet and transferred across the world in a few clicks, for just cents.
Unlike with other stablecoins, like Tether and USDC, Argentines who have historically been screwed over by financial institutions don’t need to trust banks to use Dai. MakerDAO’s stablecoin is backed by ether in smart contracts, not by fiat currency in vaults.
It’s also easier to put Dai to work, than black market dollars and even Bitcoin. There’s this cliche about Argentines holding dollars under the mattress, and they were essentially doing the same thing with their Bitcoin by just hodling. Now, they can hold a censorship digital asset, and also earn interest on it after a few clicks on one of the many DeFi platforms offering this option.
After the scary primary results (which ended up materializing), Argentines buying up Dai caused it to trade at a premium over $1. That premium is still holding. Dai on Cryptofacil is trading at 67 pesos per dollar, while the official dollar rate is at 58 pesos and the black market rate is at 65.
Image source: Cryptofacil
Hopefully, growing Dai liquidity in local exchanges will reduce that premium and Argentines will be able to really buy Dai for the peso equivalent of $1.
At this stage though, Argentines probably shouldn’t pour their lifetimes savings into DeFi. These platforms are only a couple of years old and use very early-stage technology. But it’s worth allocating a small portion. When they do, they’ll hopefully cut back on the number of trips to and from the black market “cuevas” downtown and instead watch their Dai grow real time from their cel phone.
There’s a robust, new financial system being built that gives more control to the individual and cuts away banks and governments. It’s unfortunate that institutions in Argentina are showing exactly why that’s needed.
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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.