Paraguay bank collapse shows stablecoins can offer a lifeline... of sorts
Ueno’s collapse exposed the fragility of digital banking in Paraguay, as customers scrambled for access to their money and stablecoins offered a lifeline.
Paraguay's digital lender Ueno Bank's collapse on November 3 exposed the fragility of digital banking in the country, leaving nearly three million customers—roughly 60% of Paraguay's adult population—unable to access their accounts. The incident triggered a political crisis, with thousands protesting and President Santiago Peña attempting to resign before being impeached and arrested.
The Central Bank of Paraguay placed Ueno into resolution due to its solvency ratio falling below the legally required minimum. An investigation revealed questionable lending practices and deficiencies in credit documentation and accounting. Amid the turmoil, the local crypto market reflected the uncertainty, with some sellers in the peer-to-peer crypto market asking for a USDt premium of up to 13%.
Tether CEO Paolo Ardoino stated that USDt is a lifeline for hundreds of millions of people worldwide. Many citizens turned to stablecoins to maintain the value of their funds and ensure payments moved along, as the local guaraní fell 12.3% in a week. For some, USDt became the most liquid money they had, indicating that having an account is not the same as having access to one's money.
Despite the Central Bank repaying 93.1% of Ueno depositors by November 9, confidence remains shaken. X4T, a Paraguayan crypto exchange, processed over $10 million in local on-ramp volume over the 30 days to early November, with demand for USDt and USDC as a dollar store of value rising sharply. However, there is no significant shift to stablecoins yet, as other banks picked up the slack and people grew angrier with the government than with the banks.
While stablecoins aren't decentralized and can be susceptible to the banking system, they can offer an alternative source of liquidity during periods of political instability and low trust in local systems. However, regulators need to address transparency and consumer protection concerns, as stablecoin holders lack deposit guarantees and have no central bank to step in and make them whole.
Written by urgent.news from Cointelegraph's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
