The first "Crypto Fiscal Nation" is born: Venezuela under sanctions becomes a testing ground for stablecoins

Written by: Byron Gilliam

Translated by: Saoirse, Foresight News

Venezuelan President Nicolás Maduro | Image source: StringerAL/Shutterstock and Adobe, as modified by Blockworks

“I don’t think the so-called ‘dollarization’ process is a bad thing… Thank goodness, such a process does exist.” — Nicolás Maduro, President of Venezuela

Recently, The New York Times reported that Venezuela has become the “first country to manage a large part of its financial affairs through cryptocurrency.”

But this is not by choice.

About half of Venezuela’s fiscal revenue comes from dollar-denominated oil sales, and as a sanctioned country, it cannot legally send or receive US dollars.

In the past, sanctioned governments would settle oil transactions through complex networks of shell companies and offshore banking systems in USD, or barter oil for goods or infrastructure investments.

Now, they have a simpler option: accepting stablecoin payments. Economist Asdrúbal Oliveros estimates that Tether’s USDT stablecoin has become the transaction medium for approximately 80% of Venezuela’s oil sales.

The Venezuelan government once banned stablecoin trading, believing it threatened the national currency, the bolívar. But the heavy blow from US sanctions left the country with no choice but to accept stablecoins.

Vice President Delcy Rodriguez of Venezuela realized as early as August last year that dollarization driven by cryptocurrency was an inevitable trend. She told business leaders that the government was implementing “non-traditional management mechanisms” to better regulate the bolívar exchange rate.

Shortly thereafter, Reuters reported: “Since June this year, the Venezuelan government has allowed an expanded use of USDT.” With government approval, banks now sell USDT obtained from oil sales to local businesses, which then use USDT to pay domestic and foreign suppliers.

The Venezuelan government also hopes stablecoins can circulate in retail: the head of the National Supermarket Association recently told national television that grocery stores are building systems to support USDT payments.

In other words, the Venezuelan government is encouraging citizens to use “dollars” issued by Tether rather than the country’s own bolívar.

Therefore, as a supporter of stablecoins, I am disappointed that cryptocurrency (including stablecoins) is not mentioned at all in the US government’s indictment against Nicolás Maduro.

Instead, the indictment describes illegal fund flows in very traditional ways: a plane returning from Mexico “full of drug trafficking proceeds,” weapons like hand grenades and rocket launchers exchanged for cocaine, some of the transported cocaine used as “protection money,” and a $2.5 million cash bribe.

Why is there no mention of cryptocurrency at all?

There are probably two reasons: 1) The US government no longer issues negative evaluations of cryptocurrencies, so prosecutors are deliberately avoiding this topic; 2) The scale of funds carried by cryptocurrencies (and stablecoins) still cannot meet the needs of Maduro and his associates.

The first explanation is more interesting, but the second is clearly more likely.

Asdrúbal Oliveros explained: “The Venezuelan government finds it difficult to quickly liquidate these (cryptocurrency) assets because transferring crypto funds requires multiple control procedures, and these procedures have not yet met the requirements.”

A report from TRM Labs also reached a similar conclusion: “Large trafficking organizations still heavily rely on physical cash, trade-based money laundering, and state / quasi-state protection when transferring core illegal proceeds; cryptocurrencies usually only serve as an auxiliary or supplementary role and cannot replace these traditional methods.”

National security analysts at Lawfare magazine also agree: “Compared to traditional illegal financial channels, the scale of using cryptocurrencies to evade sanctions remains insignificant.”

However, there are also views more optimistic about the role of stablecoins and cryptocurrencies in the “international payments” field.

For example, InSight Crime reported that Mexican drug cartels rely on an “industrial-scale cryptocurrency money laundering network” to sustain operations — this network transfers illegal funds to Chinese chemical suppliers through digital channels.

The report detailed that stablecoins have found specific matching scenarios between two groups: one is Chinese currency brokers who need to sell dollars to clients avoiding Chinese capital controls, and the other is Mexican drug cartels that need to purchase fentanyl raw materials from China.

While this is not the “product-market fit” that cryptocurrency supporters hope for, practical applications show that stablecoins are highly influential in such scenarios. For example, the DEA (Drug Enforcement Administration) stated that because criminal groups “prefer cryptocurrencies over traditional cash laundering schemes,” the amount of illegal cash seized has significantly decreased.

Correspondingly, the amount of “virtual currency” seized has risen sharply: from 2020 to 2024, the DEA seized a total of $2.5 billion in cryptocurrencies, surpassing the $2.2 billion in cash seized during the same period.

This may explain why Maduro and his associates still insist on using traditional payment methods — traceable cryptocurrencies and freezeable stablecoins have not yet met the large-scale money laundering demands.

Nevertheless, Venezuela’s acceptance of digital dollars remains groundbreaking. Lawfare summarized: “US adversaries have established a workable proof of concept, and emerging financial technologies could further solidify this model.”

If that is the case, it may also further strengthen the US dollar’s dominance.

The ban on using traditional US dollars did not lead Venezuela to settle oil transactions in RMB or other currencies — the country simply shifted to using digital dollars.