The use of cryptocurrency-based
That’s the most eye-popping conclusion that comes from a research report titled Stablecoin Landscape and the Remittance Use Case that I co-authored and just published with two other DeFi industry colleagues.
We found that foreign/migrant workers sent more than $800 billion to their families back in their home countries in 2022. The dynamic underlying guest worker remittances almost always involves low-wage workers from poorer nations laboring in wealthier countries and sending a large portion of their earnings home to support their families.
It costs them dearly to do so: the World Bank’s June 2023 report found the average foreign worker paid out 6.2% of the amount sent home in fees and expenses to banks and companies that facilitate their remittances.
That means that this struggling class of workers paid almost $50 billion in aggregate for transmitting their funds back home. Regional remittance transmission prices ranged from 4.3% of the amount sent for South Asia (primarily the Indian subcontinent) to 7.9% for sub-Saharan Africa.
The families on the receiving end of those payments are in countries like India, Mexico, the Philippines, Egypt, Bangladesh, and other nations with a high proportion of families living in poverty. Foreign-working Indians alone sent an estimated $100 billion home.
The largest current players in the foreign worker remittances business are companies like Western Union and Moneygram, with Western Union controlling up to 20% market share. It’s a business so important to Western Union that the company has traditionally spent significant sums of money lobbying for migrant-friendly US immigration policies.
So with regulators and legislators regularly railing at the cost of financial services for their poorest constituents, and with so much revenue at stake, it appears that the market growth opportunity for companies using stablecoins to transmit foreign remittances is substantial.
Stablecoins can be thought of in one way as “putting the dollar on the blockchain.” Unlike bitcoin, which is a blockchain-based currency that is traded based on its perceived value, stablecoins are cryptocurrencies pegged to the value of traditional fiat currencies like the US dollar itself.
Governments around the world are increasingly setting regulatory standards for stablecoins, such as the European Union’s MiCA regime. Congressional bills have been introduced in the US by both Republicans and bi-
As a result, the ease of access to stablecoins should continue to grow while the cost of access should continue to shrink, setting the stage for their growing usage.
The Western Unions and Moneygrams main appeal is simplicity of use; a migrant worker need only walk into a Western Union office or agent with their cash. But that convenience comes, as our report found, at a steep price to workers.
Enabling stablecoin-based remittances requires more than just the wad of currency, but it also has the potential to be much simpler than the multi-layered cryptocurrency ecosystem. While those simple interfaces are not yet in widespread usage, it’s clear that with the right precursors, they could be.
The main implications here are that stablecoins -- if backed with some measure of government regulation and the right consumer technology interfaces -- are increasingly simple to use and safe to hold. That, in turn, could enable an explosion in their usage for foreign remittances, and a dramatic drop in the amount foreign workers have to pay to support their families at home.
A World Bank study indicated that a $500 international transfer using current service providers would on average cost a worker $31. Our study suggested that the same transfer using stablecoins would cost an average of $7.83, or a savings of more than 75%.
The implication, of course, is that a global group of workers who can least afford the expense of transmitting funds could potentially achieve an enormous percentage savings on the fees they’re required to pay to do so, leaving them with more to support their families.
But the interfaces have to be simple enough, their availability broad enough, and the overall perceived safety of the system high enough for widespread adoption to occur.
Will it happen? Partnerships and market trials are in the offing, with companies like Hedera partnering with Asian banks to test remittance-oriented systems. Circle, the issuer of the US dollar-pegged USDC stablecoin, is engaged in multiple trials to deploy stablecoin-based remittance capabilities in Latin America.
One of the larger challenges will be the ability of U.S. lawmakers to settle on their regulatory regime for stablecoins. In the present political climate, getting bills passed into law seems highly challenging, even when the underlying subject matter seems non-controversial.
In addition, the matter may be both more important than ever and more challenging than ever given America’s current migrant crisis.
Still, the ability of the public blockchain ledger to dramatically undercut the costs and inconveniences of the current foreign remittance system suggests that stablecoins could well prove to be the “killer app” for cryptocurrencies and decentralized finance.
And with global migration and economic uncertainty increasing, it seems that the remittance market will continue its rapid growth. Hurdles remain, but the era of mainstream usage of stablecoins may be upon us, courtesy of foreign workers.
