American crypto finance company BlockFi announced support for customers using Gemini USD (GUSD) as a substitute for fiat USD, on May 29, 2019.
This move paves a path for non-U.S. residents to access the dollar-denominated debt market. Support is currently limited to non-U.S. residents given the regulatory uncertainty within the United States.
Dollarization of Debt Markets
The move to issue loans in GUSD will help give small businesses and individuals access to the American debt market. Since beginning in January 2018, BlockFi claims to have not had a single loan default. Whether this is due to secure underwriting practices or selective lending is unclear.
BlockFi’s customer base extends to 50 countries, all of which can now borrow at a mere 4.5 percent interest per annum. Deposits, on the other hand, are collateralized with ETH or BTC and issued in GUSD to those outside the U.S. at 6.2 percent APY, with a minimum deposit of $2,500.
If the deposit exceeds $100,000, the yearly interest drops to a tiered 1.5 percent and all withdrawals are subject to a 30-day processing period.
Emerging markets tend to have high lending interest rates in their commercial sectors. India has personal loan rates of almost 11.5 percent while Russia’s is nine percent. The ability to borrow at a lower rate interest rate along with access to a stable currency may be appealing to specific groups.
However, a significant drawback is the depreciation of emerging currencies to the USD. Over the long term, if the borrower is earning in their local currency, it will lead to successive increases in the amount to be repaid.
Widening Stablecoin Use Cases
Stablecoin adoption has been tremendous from a pure trading and hedging standpoint, BTCManager reported. Adoption of GUSD by BlockFi sparks a new vertical of untapped potential for stablecoins.
Citizens in China and Turkey have been using USD denominated stablecoins to hedge against currency risks in their countries. The trade war and the Turkish Lira’s massive depreciation have left residents of both states in a smog of doubt.
Stablecoins have an additional layer of potential in the payments and remittance sector. Most economists do not believe Bitcoin is a store of value or a functional currency because of its volatility. Decentralized stablecoins like DAI and Reserve Protocol have the potential to facilitate payments from one corner of the world to another within minutes, or even seconds.