Valeria earns about $300 a month selling prepared meals that she cooks at her home in Buenos Aires. The 47-year-old woman feared keeping her savings in Argentine pesos because of inflation, which passed the 50% threshold in the spring, on the rolling year. She ended up investing a thousand dollars in terraUSD, a stablecoin, or stable cryptocurrency, supposedly backed by the US dollar. Valeria, like other people interviewed for this article, is only identified by her first name to preserve her privacy.
While cryptocurrencies such as bitcoin have a reputation for being unstable, stablecoins offer a promise of security. Their course is backed by a strong currency such as the dollar or a raw material such as oil.
Valeria spent months learning about terraUSD before she started investing in early 2022. In mid-May, the stablecoin has lost its anchor [1 terraUSD valait 1 dollar] and dived to reach a few cents. Valeria saw her savings completely melt away.
“I invested in a ‘‘stablecoin’ which today is worth $0.08. It makes me sick and I feel helpless.”
Believing that the stablecoins presented no risk, some were attracted by the view of high inflation or the devaluation of their currencies, in particular in Argentina, Iran and Nigeria. The terraUSD crash, which also hit other cryptoassets, shattered this illusion. Valeria, just like the dozen people rest of the world interviewed in Argentina, Venezuela, Iran, Iraq and Nigeria, have invested in terraUSD – the third stablecoin in importance – and lost tens of thousands of dollars in savings. “I was scammedsays Mudasir, holder of terraUSD in Pakistan. I’m stripped, I don’t even have a penny left.”
If the first digital currencies like bitcoin were often the preserve of people from tech and finance, the stablecoins provided an entry point for those looking to save, according to Pablo Sabbatella, director of Defy Education, an Argentinian company that teaches cryptocurrency courses. “A lot of people who didn’t know much about cryptos started with stablecoins to save, because you can’t buy dollars [des États-Unis] on the legal market [en Argentine].”
South America adopts cryptos at the end of 2020
The country’s central bank banned people from buying dollars for savings in 2012, to protect its currency reserves. In 2021, Argentina was tenth in the global cryptocurrency adoption rankings, an indicator designed by analytics firm Chainalysis, which identified a strong shift towards cryptocurrencies across South America since late 2020.
But according to Pablo Sabbatella, few users understood that terraUSD still involved risks. It was not actually backed by the US dollar, but rather by a complex algorithmic system that maintained its price through a network of brokers in luna, its underlying cryptocurrency. An extensive campaign to encourage the purchase of terraUSD ended up losing its footing [au dollar]which triggered a wave of massive withdrawals.
“Betrayal” and “scam”
An Argentinian says he invested in terraUSD to thwart inflation and the devaluation of the peso. He lost $17,000. “I felt betrayed by [la plateforme de crypto-échanges] Binance, which made us believe it was a risk-free investment.” Another says that terraUSD is very successful in Argentina, because “people want access to a stable and reliable currency”. But after losing 90% of his capital, he talks about terraUSD as a “scam”.
Binance and Terra declined to comment.
Amin Eftegarie is a 33-year-old former entrepreneur who has been into cryptocurrencies since 2012. Originally from Iran, he currently lives in the Netherlands. “terraUSD was considered such a safe and reliable savings protocol that even the top insiders in the cryptocurrency world trusted it.” He himself held about $8,000 in terraUSD.
After the crash, Amin Eftegarie started tweeting to demand accountability from the creators of the stablecoin and give them advice on how they could compensate for investors’ losses. He then received direct messages from hundreds of people who had lost money.
“People had no one to turn to. They desperately wanted answers.”
The vast majority of messages came from countries with highly fluctuating currencies. Many came from Iran, his country of origin. “When people get their salary, they often want to put it in assets that absorb inflation”explains Amin Eftegarie.
Six people who had contacted him give the same testimony: they believed in an investment that they considered risk-free and lost everything. Muhamad, a 30-year-old Egyptian, had heard about the luna from youtubers who claimed the cryptocurrency would hit $1,000. He bought 1,000 chips at $88 each. A token is currently worth less than $0.0002 [0,01 dollar au 2 juin]. “I do not have anything”, he despairs.
In Nigeria, bitcoin and some stablecoins are still very popular despite the implementation of regulations by the central bank which complicate the exchanges. Tether is thus used to transfer funds internationally and serves as a shield against fluctuations in the local currency, which has lost more than 70% of its value since 2014.
The crash of mid-May, “in Nigeria, like in every other market, was a shocker that caused consternation, assures an employee of a well-known cryptocurrency exchange platform in the region, who wished to remain anonymous. I personally know one person who lost nearly $1 million in the crash.”
A Nigerian investment adviser who has been investing in cryptocurrencies for a long time says he had some doubts about the reliability of the terraUSD algorithm, “but I didn’t expect it to explode at that time”. He adds that he invests for the long term and often buys other cryptoassets when prices fall. He has “bought low” when the luna fell to 20 dollars, but its value only went down. “I thought there were still reserves to avoid the collapse of terraUSD but my wallet was swept away”, he explains.
However, he remains optimistic about cryptocurrencies in general, and he is not the only one. “People like me got into crypto early on, so even though the market is down, we’ve had bitcoin at $3,000 and ethereum at $500, so we’re not doing too badly despite the crash,” he reassures himself. Bitcoin trades at [un peu plus] $30,000 and etherum almost $2,000 [1 695 dollars le 2 juin].
The newcomers who lost a lot in the crash are a bit burned out. Pablo Sabbatella assures him:
“What happened will be a milestone in the Latin American cryptocurrency market.”
He’s very optimistic nonetheless: On May 13, when terraUSD fell over 85%, he gave away 20 free trainings on Twitter, with this post : “If you have a friend who has lost a lot of money without understanding why, this training is for you.” He received 800 applications.
He acknowledges, however, that it will be difficult for the sector to rebuild its reputation. “Many people have lost money they couldn’t afford to lose, he said. They don’t care if it’s a stablecoin algorithmic, currency backed, decentralized or whatever, the only thing they think is: cryptos are crap, I lost all my money. It’s over for me.”