Maduro’s Crypto-Backed Oil Deals Put Tether at Center of Venezuela Money Drama
The stablecoin served as a tool to avoid sanctions and a lifeline for everyday citizens
- The arrest and removal of Nicolás Maduro is unlikely to diminish tether’s presence in Venezuela, where hyperinflation remains a problem, crypto analysts said.
- Tether’s financial ties to Venezuela put the cryptocurrency company in prime position to aid U.S. authorities seeking to track down what happened to funds allegedly stolen by the Maduro regime
- Faced with escalating U.S. sanctions in 2020, Venezuela’s state-run oil company began demanding payments in tether.
Nicolás Maduro helped make tether the world’s dominant stablecoin. And with the former Venezuelan leader now sitting in a Brooklyn jail, the cryptocurrency’s central role in his nation’s economy is back in the spotlight.
Tether emerged as a vital tool for the state-run oil company to sidestep sanctions, serving as the currency for settling oil transactions. It also has offered a financial lifeline to everyday Venezuelans racked by the tumbling value of their home currency, the bolivar. Like most popular stablecoins, tether maintains a one-to-one peg to the U.S. dollar.
Maduro’s arrest and removal as Venezuela’s president is unlikely to diminish tether’s presence in Venezuela, where hyperinflation remains a problem, according to crypto analysts. Tether’s financial ties to Venezuela put the cryptocurrency company in prime position to aid U.S. authorities as they seek to track down what happened to funds allegedly stolen by the Maduro regime.
“Crypto use in Venezuela will persist and likely expand in the short term,” said Adam Zarazinski, chief executive officer of the crypto-intelligence firm Inca Digital. “For everyday users, it’s a coping mechanism for economic dysfunction and failing institutions. But those same governance failures also enable sanctions evasion, an outcome that won’t change without credible improvements in governance.”
Maduro pleaded not guilty to narcotrafficking charges during his arraignment this past week in U.S. federal court.
The new phase comes as the cryptocurrency company Tether and its eponymous token, once maligned as the stablecoin choice of outlaws, seek to gain acceptance in the U.S. Last year legislation was passed that paved the way for greater use of stablecoins, and Tether has announced plans to issue a stablecoin available to U.S. investors. Doing so would put the company on equal footing with such rivals as Circle Internet Group and Paxos. Without such a move, Tether risks being sidelined in the U.S. market.
This past week Energy Secretary Chris Wright said the U.S. would sell blockaded Venezuelan oil indefinitely. Proceeds from the sales, Wright said, would be deposited into accounts controlled by the U.S. government and eventually moved to the Latin American country to “benefit the Venezuelan people.” A senior Trump administration official told The Wall Street Journal that the government was selectively rolling back sanctions to enable the transport and sale of crude oil and oil products to the global market.
Faced with escalating U.S. sanctions in 2020, Venezuela’s state-run oil company, Petróleos de Venezuela, or PdVSA, began demanding payments in tether to bypass the traditional banking system. Oil-export payments were settled through direct tether transfers to a certain wallet address or through intermediaries swapping cash proceeds for tether.
The shift was transformative for the country’s oil economy. By one estimate, almost 80% of Venezuela’s oil revenue is collected in stablecoins like tether, a local economist, Asdrúbal Oliveros, said on a recent podcast.
Tether has since cooperated with U.S. authorities to freeze dozens of wallets identified as being involved in the Venezuelan oil trade.
A spokeswoman for Tether said the company complies with all applicable U.S. and international sanctions and works closely with U.S. authorities, including the Office of Foreign Assets Control. “We do not issue USDT directly to sanctioned governments or sanctioned individuals, and we regularly assist law enforcement by freezing addresses linked to illicit activity or sanctions violations in response to valid requests,” she said.
Not long after the sanctions took effect, tether, whose ticker is USDT, became a viable alternative currency to many Venezuelans, who used the stablecoin to send money across borders, secure savings and pay for daily transactions.
“The Venezuelan bolivar lost 99.8% in the last 10 years against the U.S. dollar, the Turkish lira lost 80%, the Argentina peso around 94.5%,” said Tether CEO Paolo Ardoino at a recent crypto conference. “That is, in one simple chart, the reason why USDT is successful.”
Mauricio Di Bartolomeo, a crypto entrepreneur born and raised in Venezuela, said his 71-year-old aunt called him two months ago because she needed to get tether to pay for the homeowners-association fees for her condo.
“It’s how you pay your landscaper and how you pay for your haircut. You can use tether basically for anything,” said Di Bartolomeo, the co-founder of the crypto lender Ledn. “Stablecoin adoption has gone so far into Venezuela that even without having regulated venues where you can buy and sell them, people still choose to go for stablecoins as opposed to using the local banks.”
Researchers said tether’s role in Venezuela is inevitable owing to the people’s lack of trust in the domestic banking system and strict capital controls that limit access to physical dollars. A case in point: The Venezuelan government’s attempt to introduce an oil-backed cryptocurrency called Petro in 2018 failed because of a lack of public trust and international acceptance.
“The issue isn’t tether itself, but the dual-use reality of stablecoins,” said Ari Redbord, global head of policy at TRM Labs, which has a partnership with Tether to track illicit activity involving the use of the stablecoin on the Tron blockchain. “They can be a civilian lifeline and, under sanctions pressure, a tool for evasion.”