This is a product for people who live in countries with severe inflation and are unable to protect their wealth due to strict capital controls.
If the government makes it illegal for the financial system let people store their wealth in dollars, how would they - a part of the financial system - be able to let people store their wealth in dollars?
Trading currencies is basically zero-sum. A VEF/USD seller needs a USD/VEF buyer. That buyer demands some VEF for each USD i.e. the floating exchange rate. In a free market, imbalance in the foreign exchange flows either reduces the exchange rate, or forces the issuer to take action by supporting the market at the desired rate with USD reserves, or offering higher interest rates to attract more dollar demand, etc. All of those are expensive, so some issuers might try to prohibit foreign exchange at rates less advantageous than the desired rate. Circumventing that prohibition (i.e. capital control) lessens its effectiveness.
None of which is to say that capital controls are a good thing, but you can understand how a government might want them, and might view circumventions as 'distortions'
I don't agree with capital controls either, but it's still illegal in some countries. Basically any country where, in my opinion, it would be a good idea to use such services.
> Investors often attempt to withdraw their money en masse if there is an overall erosion in confidence in an economy's stability. This is referred to as capital flight. Once investors sell their domestic currency-denominated investments, they convert those investments into foreign currency.
> This causes the exchange rate to get even worse, resulting in a run on the currency, which can then make it nearly impossible for the country to finance its capital spending.
That's fine and dandy, and I agree. But it's still illegal to provide means to circumvent the law. Well, depends on the country and enforcement I guess. It's pretty hard to do so.
you will be surprised, but it's all about corruption oportunities.
In venezuela right now, there's a YC startup (2023), "Kontigo" [1], who's part of it, they went all in with this "stablecoin" bullsh*t and manage to get a license to operate in US (stripe) and with Venezuelans users with absolutely NO KYC, fully connected and "licensed" by the venezuelan "National Superintendence of Cryptoassets and Related Activities" a.k.a SUNACRIP
Take note that this SUNACRIP had closed operations since 2020 when a huge corruption scandal hit the govt, they used crypto to run corruption operations and money laundering [2][3][4] and somehow SUNACRIP, an organization that is not even working or functioning, this january licensed "Kontigo" to operated in the country, the founders themselves made a bragging video on instagram about "noone expecting it", wich is hillarious, you can find the video at https://www.instagram.com/p/DFd8ouoNKuI/
Anyways, the corrupted govt, approved a YC startup to exchange instantly USDC to VEF using venezuelans banks APIs and USA banking system (plaid, stripe, etc), without any KYC, without any sanctions screening, nothing, the reason for this approval is pretty simple, they doing the money laundering process super easy for them lol, they helping venezuelan corrupts officials bypass sanctions and easy money laundering.
I'm absolutely baffled at the situation and wondering how the fuck this happened, I myself know lower/mid size venezuelan corrupt officials using Kontigo to instantly wash money into USDC, and all of this is backed by YC itself.
And inbefore any user comes here telling me that "venezuela is sanctioned" and whatever other random thing, this company absolutely doesnt help venezuelans, it only helps corruption and launder money from corruption and drugs
If the government makes it illegal for the financial system let people store their wealth in dollars, how would they - a part of the financial system - be able to let people store their wealth in dollars?