What is a humanitarian stablecoin? Well, definitions vary but it broadly refers to donations and aid made possible by fintech platforms and fiat pegged crypto. A humanitarian stablecoin could mean instant cross-border aid without a loss in value. This concept has the potential to change the way countries deal with disasters and conflict.
For its part, the World Economic Forum released a white paper to take a closer look at various humanitarian stablecoins and tokens in existence today, to better understand their advantages and disadvantages.
A stable connection or not?
In particular WEF studied Circle’s partnership with Airtm, the Diem payment system, Grameen Foundation and the Celo Platform, and the Inter-American Development Bank (IDB) and LACChain Blockchain Network. These organizations are working towards the development of stablecoins for aid, in diverse parts of the world.
Though many projects are still in the conceptual stage, WEF found that some benefits could include dodging oppressive regimes and beating the effects of hyperinflation. It can also enable tracking where donations were going, saving on remittance fees, and reducing dependence on intermediaries.
However, WEF listed out some weaknesses as well. One major factor seen across many projects was the user’s digital literacy level, which might block them from accessing aid. Other challenges included lack of access to digital tools, the need to trust third-parties, poor internet, and excessive KYC requirements.
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WEF interviewed various stakeholders to better understand the need for fintech solutions in global aid. Its report suggested that while humanitarian stablecoins or even CBDCs could help the “underserved”, there were worries about centralization.
The report added,
“Typically, aid organizations rely heavily on third-party banking and financial institutions, particularly for digital aid delivery. However, new fintech platforms and API-based designs open the possibility for humanitarian aid organizations to operate as regulated financial institutions…”
On the flip side, about the Grameen Foundation and the Celo Platform in particular, WEF reported,
“Self-custody has proved to be risky, as 1% of users eventually lost access to their funds”
UN, you too?
A major player in the humanitarian aid space is none other than the United Nations. For example, UNICEF has a crypto fund with Bitcoin and Ethereum which it can use to transparently fund other organizations. Adding to that, WEF reported the World Bank also uses DLT to be able to audit donors and recipients.
Finally, WEF reported that the World Food Programme had an Ethereum based DLT platform for payments without intermediaries.