Can Stablecoins Revolutionize Foreign Aid? The UN Thinks So.

The UN’s move to send stablecoins to Ukrainian refugees has industry participants parsing the potential opportunities for crypto to play a greater role in foreign aid

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If only stablecoins had been around in the late aughts.

The likes of USDC and USDT would have provided a viable — and, potentially, game-changing — alternative for cash aid disbursements in Iraq and Afghanistan following the US’ invasion of both Middle Eastern countries, according to the chief investment officer of a crypto hedge fund firm who served in the US Army from 2008 to 2015. 

They weren’t on the market, of course. A cumulative trillions of dollars of aid from countries around the world largely came in the form of fiat. Billions — $8 billion in US reconstruction funding alone, by one estimate — were embezzled, squandered. Poof. 

Envelopes of cash were disbursed to villagers in the morning, and al-Qaida and the Taliban came by to claim it at night after the westerners left. 

The UN’s move this week to render humanitarian aid payments to displaced Ukrainian refugees via USDC through its affiliate, UNHCR, provides a blueprint for what could have been different. And the end results of the program could have massive implications for how government actors and NGOs alike act as a safety net for society’s most vulnerable, industry participants told Blockworks. 

Nico Cordeiro, Strix Leviathan’s chief investment officer, said it was “very difficult” for US soldiers to drop off aid payments in Iraq then. The UN’s latest USDC maneuver — which is being carried out via the non-custodial Vibrant wallet, which runs on the Stellar blockchain — is “quite the pivotal step,” he said, adding that the UN has become the “largest global entity to legitimize the use case.” 

That’s not to say the move comes without its fair share of complications. It’s the same fundamental problem set that comes with fiat-based aid: How do you ensure the money earmarked to help those in dire situations arrives — when and where it is supposed to?

Carmen Hett, UNHCR’s treasurer, said the notion has been paramount.

“Obviously, we need to make sure the money goes exactly where it’s supposed to go…and they need money right now, so speed is of the essence,” Hett said. “We obviously do our utmost to help people in dire situations. This solution is not to put people at increased risk. We are not experimenting.”

With that caveat, the agency is considering the partnership with Stellar and Vibrant as a pilot program of sorts — with the potential to expand into other mechanisms for crypto-based aid moving forward. A number of technical factors are at play, too. Hett’s team made the call to remove send and receive functionality from the Vibrant wallets. The wallets function, as such, as a mechanism to cash out USDC into fiat, mainly via MoneyGram locations. It’s first set to take effect for residents of Kyiv, Lviv and Vinnytsia. 

Moving the needle — so wallets are able to freely exchange value — would mark a crucial next step, experts said. But the UN isn’t ready for that. At least not yet. 

“We don’t want to open that right now at that stage of full capability for these people, the most vulnerable,” Hett said. “They need cash…This wallet is not to support the further acquiring of digital assets, because these people are the most needy. They need to be able to eat. They need to be able to house themselves, to go about their basic needs. So, the purpose is different.” 

UNHCR is considering, however, adding integrations for Ukraine’s planned CBDC, which could launch in the first quarter of 2023. The group is also considering adding additional on- or off-ramps when it comes to its usage of cryptocurrencies more broadly. 

What are the risks?

It’s crucial to weigh the upsides of crypto-based aid with the potential for security vulnerabilities, according to Bill Callahan, a longtime Drug Enforcement Administration agent now serving as the Blockchain Intelligence Group’s director of government and strategic affairs. 

The plus side, Callahan said, is the ability to track the disbursement of aid from its origination to its wallet, live and on-chain. Hett confirmed that UNHCR has a live dashboard monitoring the exchanges. 

Keeping a close pulse on that system will be key to preventing malfeasance, Callahan said. 

“It [used to] take weeks, downloading CSV files, analyzing the upload and putting them in some sort of chart…Now, in a matter of seconds or minutes, you can start to build a chart of tracking and tracing the flow of these currencies, right — and then seeing where are your on and off-ramps.”

And it’s an especially pressing challenge now, according to Callahan, given the complexities of setting up a system that keeps bad actors at bay. While a couple of years ago, he said, investigators would have had the capability to track down illegal activity, it would have been a time-consuming and costly process. Advancements in technology and expertise since have gotten to the point where aid-givers would now be more comfortable, he added. 

Rene Reinsberg, president of the Celo Foundation — which has also worked to disseminate aid via stablecoins — said the UN’s move is “more than an incremental step” in terms of advancing the “real-world use cases” for stablecoins to combat global financial inequities. 

From a technological perspective, the fact that UNHCR is exclusively using Stellar’s blockchain — and just one wallet, for now — is problematic, according to Alex Gladstein, chief strategy officer for the Human Rights Foundation and an active participant in cryptocurrency markets. 

Gladstein favors an approach of sending bitcoin to Ukrainian refugees, noting recipients could cash out via the abundant number of bitcoin ATMs now available in Europe. Failing that, he said, it would make sense to disseminate stablecoins, including USDC, on open permissionless protocols. The concern, in part, stems from one protocol’s ecosystem developing an improper monopoly, of sorts, when it comes to processing foreign aid payments. Financial details of the UN’s arrangement with Vibrant were not disclosed. 

Oleksandr Bornyakov, the deputy minister of the Ministry of Digital Transformation of Ukraine — the government body that led the project — said in a statement that the choice of a stablecoin provides at least one advantage over fiat: “The ability to provide assistance directly from donor to recipient.” 

“There will be a loss of time and commissions if there is an intermediary,” Bornyakov said, “The intermediary must also prove to the donor that it has an obligation to transfer the donation.” 

There’s a need for a multi-chain future in terms of aid, Reinsberg said, one that would connect different wallets and protocols to different desired end outcomes. 

“To me, this is something that became really clear last year: We’ll be in a world where we have assets on multiple chains, right?…How do we have all the key building blocks available for people to use?”

Denelle Dixon, chief executive officer of the Stellar Development Foundation, who worked closely with Hett’s team on the rollout, said she’s in favor of a multi-chain future in general — which also extends to the role of digital assets in aid. 

“I don’t think that there should be one protocol to sort of rule it all, if I just wanted to be very honest,” Dixon said. 

Part of the UN’s selection of Vibrant boils down to the ease of use and interface for refugees. The Stellar Development Foundation had already been working with the Ukrainian government before the war broke out, Dixon said, especially because Ukraine has been moving toward becoming a cashless society and is considered more crypto-savvy than many nations.

The Vibrant wallet was designed to cater to non-crypto natives, she said. And the relationship with MoneyGram helped make the case.

A healthy amount of due diligence was conducted, too, she added, especially when it comes to meeting best know-your-customer identification practices. The effort is designed not only to combat potential fraud, but also to ensure recipients are easily able to cash out via MoneyGram — especially when it comes to different cultures having different standards for identification. 

“These people are in the most sensitive situations, and you don’t want them to have to jump through a bunch of hurdles,” she said. 

At least one big hurdle remains. 

“In order for this to really change the dynamics of how aid is delivered on a global basis, to different parts of the world, you really do need those on and off ramps that make it very simple and that make it user-friendly for the individuals who are receiving that aid,” Dixon said. “Without that, then I think a lot of aid organizations sort of lean toward choosing the current options that they have in front of them.”

Cordeiro of Strix Leviathan said he first heard about bitcoin in 2010 or 2011 while in the military, when the use case “just immediately clicked in [his] mind, standing in Iraq.”

Later, in the Arghandab River Valley outside Kandahar, Afghanistan, Cordeiro and his fellow troops were speaking to a village elder, trying to persuade him to work with the Americans on proposed improvements, including road work and building a school. The soldiers were gaining traction, and then a younger man, perhaps in his 30s, walked up, flanked by a couple of bodyguards — likely dispatched by the Taliban.

The men sat down and stayed silent, with the elder looking over to them before responding each time. 

“That’s a situation where we couldn’t have given the elder anything, without the Taliban taking it and distributing it the way they saw fit,” he said. “In a scenario now, 11 years later, it would be interesting if we were able to distribute, very discreetly, digital currencies to get those things going.”


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