Stablecoins: Revolutionising Humanitarian Payments

One of the most promising innovations in financial technology is the rise of stablecoins - cryptocurrencies pegged to a stable asset, often fiat currencies like the U.S. dollar or euro. Beyond their impact on global finance and trading, stablecoins are increasingly being explored as a powerful tool for humanitarian aid and payments.

Today we're sharing how stablecoins are revolutionising humanitarian payments, discussing their unique benefits, use cases, and the challenges they must overcome to reach their full potential.

Photo by Safi Erneste

What Are Stablecoins?

Stablecoins are a type of cryptocurrency designed to maintain a stable value relative to a reference asset. Unlike traditional cryptocurrencies like Bitcoin or Ethereum, which are known for their price volatility, stablecoins aim to provide the reliability of fiat currencies with the speed and transparency of blockchain technology. They are categorised into three main types:

1. Fiat-collateralised stablecoins: Backed by reserves of fiat currency (e.g., Tether (USDT), USD Coin (USDC)).

2. Crypto-collateralised stablecoins: Backed by other cryptocurrencies but over-collateralised to absorb price fluctuations (e.g., DAI).

3. Algorithmic stablecoins: Use smart contracts to maintain a stable value through supply adjustments (e.g., UST).

Stablecoins’ unique combination of stability, transparency and accessibility makes them particularly well-suited for humanitarian payments.

Photo by Safi Erneste

Why Stablecoins for Humanitarian Payments?

Humanitarian aid is critical for addressing crises such as natural disasters, armed conflicts and economic collapses. However, traditional payment systems face significant hurdles that hinder aid distribution:

1. Delays in Fund Transfers: Cross-border payments through traditional banking channels can take days or weeks to process, delaying urgent assistance.

2. High Transaction Costs: Bank fees, currency conversion rates, and intermediaries significantly reduce the value of transferred funds.

3. Lack of Transparency: Limited traceability in traditional systems often leads to inefficiencies or corruption, with funds failing to reach their intended recipients.

4. Access Challenges: In conflict zones or underbanked regions, beneficiaries may lack access to reliable banking infrastructure.

Stablecoins address these challenges in the following ways:

1. Speed: Blockchain-based stablecoin transactions are processed within minutes, enabling near-instant delivery of aid.

2. Low Costs: By eliminating intermediaries, stablecoin payments drastically reduce transaction fees.

3. Transparency: Transactions recorded on public blockchains are immutable and auditable, ensuring funds are traceable from donors to recipients.

4. Global Accessibility: Stablecoins can be accessed via a smartphone and internet connection, making them a viable solution for unbanked populations.

   
   

   

   Photo by Lagos Food Bank Initiative

Use Cases of Stablecoins in Humanitarian Payments

1. Emergency Response and Disaster Relief

In the wake of natural disasters or sudden crises, delivering financial aid quickly can save lives. Traditional methods often struggle to meet the urgency required in such scenarios. Stablecoins enable humanitarian organisations to send funds to affected areas instantly, bypassing bureaucratic delays.

For example, during the 2021 earthquake in Haiti, organisations experimenting with stablecoins distributed aid to local beneficiaries within hours. This rapid response enabled recipients to purchase essential goods like food, medicine, and clean water.

2. Supporting Refugees and Migrants

Refugees and migrants often face significant barriers to accessing financial services in host countries, including a lack of identification documents. Stablecoins provide a portable and borderless solution for financial inclusion.

Refugees can receive stablecoin payments directly to their smartphones, which can be used for day-to-day expenses or converted into local currency. Blockchain wallets also allow users to store value securely, reducing the risk of theft or loss during transit.

3. Direct Cash Transfers

Humanitarian organisations increasingly favour cash-based assistance over in-kind aid, as it allows recipients to prioritise their specific needs. Stablecoins enhance the efficiency of direct cash transfers by reducing administrative costs and ensuring that recipients receive the full value of aid without deductions.

For example, the World Food Programme (WFP) piloted blockchain-based cash transfers in Jordanian refugee camps, where beneficiaries received stablecoin vouchers to buy food from local merchants. This approach minimized waste, boosted the local economy, and ensured greater transparency.

4. Cross-Border Remittances

Many humanitarian efforts rely on cross-border remittances to deliver funds to communities in need. Traditional remittance systems are often expensive and slow, with fees ranging from 5% to 10% of the transfer amount. Stablecoins provide a faster and cheaper alternative, making more funds available for relief efforts.

Additionally, stablecoins enable remittances to reach remote or underserved regions where financial institutions are absent or unreliable.

Real-World Examples of Stablecoins in Action

Several organisations and initiatives are already leveraging stablecoins for humanitarian purposes:

• GiveDirectly: This nonprofit organisation uses blockchain technology to distribute stablecoin payments directly to families in need. Their model ensures that aid reaches recipients quickly and with minimal overhead costs.

  
  

• Stellar Development Foundation: Stellar’s blockchain has been used for cross-border payments in humanitarian initiatives, demonstrating its potential for delivering aid to unbanked populations.

  
  

• Circle: Circle, the issuer of USD Coin, partnered with organisations like Mercy Corps to explore stablecoin applications in delivering financial aid to vulnerable communities.

Photo by Lagos Food Bank Initiative

Challenges and Risks

While stablecoins hold great promise for humanitarian payments, several challenges must be addressed to ensure widespread adoption:

1. Regulatory Uncertainty: Governments around the world are still formulating policies on stablecoins, which could impact their usability in certain regions.

2. Technology Access: Beneficiaries in underdeveloped areas may lack internet access or smartphones, limiting stablecoin adoption.

3. Volatility Risks in Non-Fiat-Backed Stablecoins: Algorithmic or crypto-collateralised stablecoins may not provide the same level of stability as fiat-backed ones.

4. Trust and Education: Building trust among beneficiaries and local organisations requires education on how to use stablecoins safely and effectively.

5. Fraud and Misuse: While blockchain offers transparency, it also presents opportunities for fraud if proper safeguards are not implemented.

Photo by Şeyhmus Kino

Despite these challenges, the potential for stablecoins to revolutionise humanitarian payments is undeniable. To maximise their impact, stakeholders must collaborate to address existing barriers. Key steps include:

1. Building Infrastructure: Expanding access to digital wallets and internet connectivity in underserved areas is critical.

2. Enhancing Regulation: Governments and international bodies must establish clear, supportive policies to enable stablecoin use in humanitarian contexts.

3. Capacity Building: Training local organisations and beneficiaries in stablecoin usage will build trust and competence.

4. Public-Private Partnerships: Collaboration between governments, nonprofits, and blockchain companies can accelerate the adoption of stablecoin-based solutions.

Stablecoins represent a groundbreaking opportunity to modernise humanitarian payments, offering speed, efficiency, transparency, and accessibility. By overcoming the inefficiencies of traditional systems, stablecoins can ensure that aid reaches those in need faster and with fewer barriers. 

As technology evolves and adoption grows, stablecoins could become a cornerstone of humanitarian aid, transforming how the world responds to crises. By embracing this innovative tool, the global community can move closer to a future where financial assistance is swift, reliable, and inclusive - leaving no one behind.

Find out more about how Paycode's digital identity and payments platform supports and enables stablecoins for humanitarian aid. Book a meeting with our team here.