Suppose you do a quick search on the internet about new cryptocurrencies. In that case, you will notice that the market is full of great projects whose cryptos are presented as an alternative to investment since the objective of many is usually that it increases in value with time. However, you can also come across stablecoins, whose focus revolves around maintaining a stable price. It is helpful for investors to protect their money from abrupt market movements, allowing them to be used as a savings tool.
Investors and savers can encounter a common problem in the early stages of crypto projects; lack of liquidity. This makes it challenging to exchange cryptos for each national currency; this situation is experienced primarily in Latin America. Still, a platform seeks to change this: El Dorado.
This article has been written based on the Tech Talk Bootstrapping Liquidity in Emerging Economies, in which the CEO of El Dorado, Guillermo Goncalvez, participated. If you want to see the whole talk, you can click here.
What is liquidity?
Liquidity is the ability of an asset to be exchanged for money without the need to reduce its price. The more liquid an investment is, the faster it can be sold, incurring minimal risk. This is why crypto markets always seek a high degree of liquidity. This requires supply and demand, which means that there must be a sufficient quantity of the asset available for sale and a proportionate number of people interested in buying it.
If in an active crypto market, many people want to buy, but few are willing to sell, it is considered that there is a lack of liquidity. Similarly, a market is considered illiquid if there are many sales orders but few people interested in buying the asset.
The Latin American problem
If we review economic theory, traditionally, the most liquid asset is fiat money since you can exchange it for other assets without losing value. However, in Latin America, a particularity is observed in most countries; national currencies lose weight quickly, so liquidity is often easily depleted, which means that people find saving long-term and accessing assets challenging.
Among all the continent's countries, one, in particular, stands out: Venezuela. This is the only country facing a hyperinflationary process due to wrong economic policies. Its inhabitants usually noticed that the bolivar, their national currency, abruptly lost its value in days and even hours.
In response to this, Venezuelans began to acquire dollars and cryptocurrencies to safeguard their money; first, merchants and business owners, then the rest of the citizens, until the economy was almost entirely dollarized through an informal process. So it became common for citizens to exchange bolivars for dollars or cryptocurrencies and vice versa.
However, carrying out this transaction through the traditional banking system is usually full of complications (and was even a prohibited activity for many years), so most Venezuelans had to take the risk of carrying out exchanges in the informal market.
That is why the founders of El Dorado, Venezuelans who have experienced this process first-hand, saw the need to create a P2P platform where dollars, euros, and cryptocurrencies could be easily accessed, not only in Venezuela. Since they decided to extend its use to other countries such as Argentina, Colombia, and Peru, where access to savings and investment through their national currencies is also limited.
Other common Latin American problems are the lack of bancarization of a large population sector and the inexistence of interoperability between Latin American banks. For example, suppose you are from Peru and wish to transact with a bank in Argentina. In that case, it is almost impossible to transfer directly from one bank to another, so the situation will force you to exchange your money and use an intermediary or external bank, which means losing a significant percentage in commissions.
El Dorado offers a solution to these problems, but we will explain this in detail later.
Celo: The ecosystem that made El Dorado possible
To achieve the goal of reaching El Dorado, it was necessary to allow access to stablecoins that had a value close to more liquid currencies, such as the dollar and the euro, although there are a couple of stablecoins circulating with some age in the market, there is a younger pair that stands out from the rest; the Celo dollars and Celo euros (cUSD and cEUR).
Despite being relatively new, they have been chosen to be the protagonists of El Dorado because they are 2 of the stable cryptocurrencies belonging to the Celo ecosystem, which seeks to create financial tools that guarantee opportunities for prosperity for all. In addition, they stand out from the rest in the technical aspect since by simplifying the addresses of the wallets and allowing the use of their cryptocurrencies to pay ERC20 tokens, fintech applications can be created in which users can easily exchange cryptos and tokens without the need for high pay commissions for the gas fee.
And it is there that a solution is offered to the problems related to banking interoperability and the low level of banking because through this technology adopted in El Dorado, cryptocurrencies can be exchanged for Latin American currencies, while all you need is a smartphone to carry out national and international operations.
All of the above increases the liquidity of both stablecoins in Latin America, which means that, regardless of where you are, you can easily access a reliable savings mechanism, which you can then convert into fiat currencies without incurring a high risk.
Consequently, they become a better alternative than other more volatile cryptocurrencies since they offer the possibility of setting aside exact amounts as part of a savings plan, bringing dynamism to the market, acquiring products and services through e-commerce, and many more options. These alternatives mean new opportunities for finance and commerce to be promoted in the continent in a way never seen before.
Would you like to protect your income through cryptocurrencies that offer you stability? Download El Dorado and discover for yourself the various benefits. Don't stay out of new financial technologies!