Venezuela's sanctions are stablecoins' proof of concept

Source: Blockworks Original Title: Venezuela’s sanctions are stablecoins’ proof of concept Original Link: “I don’t see it as a bad thing, this process that they call ‘dollarization’… Thank god it exists.”

— Nicolás Maduro

Venezuela has become “the first nation to manage a large share of its finances in crypto” — but not by choice.

Roughly half of Venezuela’s revenue comes from oil sales denominated in dollars, which Venezuela, being a sanctioned country, cannot legally send or receive. Previously, sanctioned governments would sell their oil for dollars through a web of shell companies and offshore banks, or barter their oil in return for goods or infrastructure investments.

Now, they have an easier option: Accept payment in stablecoins. Economist Asdrúbal Oliveros estimates that Tether’s USDT stablecoin is the means of exchange for roughly 80% of Venezuela’s oil sales.

The government once banned transacting in stablecoins, viewing them as a threat to the bolivar. But the crippling effects of US sanctions left Venezuela little choice but to embrace them. With state approval, banks now sell the USDT earned from oil sales to local businesses, which use them to pay both domestic and international suppliers. Grocery stores are working to implement systems to accept payment in USDT.

In other words, the Venezuelan government is encouraging the use of dollars issued by Tether in place of the bolivars it issues itself. USDT is now used “for everything from groceries and condo fees to salaries and vendor payments.”

The Limitations of Crypto in Large-Scale Money Movement

Despite this adoption, neither crypto nor stablecoins were mentioned in the US government’s indictment of Nicolás Maduro. Instead, prosecutors described illicit money moving the old-fashioned way: planes loaded with drug proceeds, weapons bartered for cocaine, and cash dollar bribes.

Why no mention of crypto? The more likely explanation is that “crypto and stablecoins aren’t quite capable of moving money in the size Maduro and his associates needed to move it.” As Asdrúbal Oliveros explains, “The state is struggling to liquidate these assets expeditiously, because moving crypto funds requires passing various controls that are not being met.”

Research from TRM Labs reaches a similar conclusion: “Large-scale trafficking organizations continue to rely heavily on physical cash, trade-based laundering, and state or quasi-state protection for moving core proceeds, with crypto generally playing a secondary or complementary role rather than replacing these mechanisms.”

National security analysts note that “Cryptocurrency-based sanctions evasion still represents only a drop in the bucket compared to traditional illicit financial pathways.”

Crypto’s Emerging Niches

However, stablecoins have found specific use cases. Mexican drug cartels are being sustained by an “industrial-scale crypto laundering pipeline” moving dirty cash through digital networks to Chinese chemical suppliers. Stablecoins have carved out a niche matching Chinese money brokers who need dollars to sell to clients evading capital controls with Mexican cartels needing to purchase fentanyl precursor chemicals from China.

The DEA reports its seizures of illicit cash are sharply lower because criminal groups are “prioritizing crypto over traditional cash-based laundering schemes.” From 2020 to 2024, the DEA has seized $2.5 billion of crypto versus just $2.2 billion of cash.

The Broader Implication

Nevertheless, Venezuela’s embrace of digital dollars is breaking new ground. As analysts conclude, “US adversaries have established an operational proof of concept, and emerging financial technologies will likely further solidify it.”

Being banned from using dollars didn’t make Venezuela accept yuan for its oil — it just made the government use digital dollars instead. This development suggests that the dollar’s dominance may persist even as payment mechanisms evolve.