According to data from payments infrastructure firm Borderless.xyz, covering 66 currency corridors and nearly 94,000 price observations, Africa recorded the best average stablecoin-to-fiat conversion spreads amongst monitored regions in January.
The regional median spread was 299 basis points, or about 3%, in comparison with about 1.3% in Latin America and 0.07% in Asia. In Africa, switching costs ranged from about 1.5% in South Africa to almost 19.5% in Botswana.
The data measures “spreads,” or the gap between a provider’s buying and selling price for a stablecoin-to-fiat pair. Similar to a bid-ask spread in traditional markets, it reflects the execution costs paid when converting stablecoins into local fiat currency.
The results suggest that while stablecoins are touted as a less expensive alternative to traditional remittance rails, the actual costs vary widely across African markets and look like closely linked to the competition and liquidity of local providers.
Regional median spreads for stablecoin conversions. Source: Borderless.xyz
Competition results in price differences
Borderless.xyz found that in markets with multiple competing providers, conversion costs generally ranged between 1.5% and 4%. In markets with just one provider, costs were often over 13%.
Botswana recorded the best average conversion cost in January at 19.4%, although prices improved later within the month. The costs in Congo were also over 13%. In contrast, South Africa, which has a more competitive foreign exchange market, had costs of around 1.5%.
The report suggests that these differences are primarily because of local market conditions resembling liquidity and competition, fairly than the underlying blockchain technology. In countries where multiple providers operate, switching costs remained closer to the regional average.
Switching costs at different levels of competition. Source: Borderless.xyz
Stablecoins versus traditional currencies
The report also compares stablecoin mid-market prices to traditional interbank exchange rates, measuring what it calls the “TradFi premium.”
This metric reflects whether stablecoin exchange rates are cheaper or dearer than traditional mid-market FX rates.
Across 33 currencies worldwide, the median difference between stablecoin exchange rates and traditional mid-market FX rates was about 5 basis points, or 0.05%, suggesting that the 2 were largely in line.
In Africa, the median gap was larger, about 119 basis points, or about 1.2%, with the difference various significantly by country.
On Jan. 24, economist Vera Songwe said on the World Economic Forum in Davos that stablecoins are helping to scale back remittance costs across Africa, where traditional remittance services can charge around $6 for each $100 sent.
The recent data adds context and suggests that while stablecoins offer faster settlement and potential savings in comparison with traditional services, conversion costs remain elevated inside certain corridors.
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