When El Salvador passed a law making bitcoin legal tender in the country, it did not just set itself on a path to add the payment option to existing infrastructure. It provided regulatory clarity that allowed an existing Bitcoin-forward platform to better serve its citizens.
Thanks to the regulation, Strike, the Lightning Network-focused startup helping El Salvador build its national bitcoin-based payments system, will no longer need to substitute U.S. dollars with Tether’s USDT stablecoin.
Why Strike Had To Use USDT In El Salvador
Strike CEO Jack Mallers shared on a recent episode of the “What Bitcoin Did” podcast that, before his first trip to El Salvador to work with the Bitcoin Beach community, he connected with some financial institutions in the country and discovered that it was illegal for a financial service to custody dollars on behalf of a user. In addition, there was no regulatory clarity on Bitcoin in El Salvador at that time.
As a result, he immediately saw an impairment to helping the majority of the country’s population that does not have access to the traditional banking system by implementing Strike.
Consequently, Strike, which leverages dollars and the Bitcoin Lightning Network to allow instant, cheap payment transfers worldwide without intermediaries, had to resort to using USDT to achieve basic, minimum-viable-product functionality in El Salvador.
However, after the country’s president’s bill to make Bitcoin legal tender was approved, Strike was able to secure partnerships with some of the biggest banks in El Salvador, which will be interoperable on Lightning. The resulting system, Mallers said, will replace what is the equivalent of automated clearing houses in the U.S. with the Lightning network, without the need for USDT.
“Tether is no longer a part of anything,” Mallers said on the podcast. “Tether was part of the plan originally because it had to be, because I didn’t have a choice.”
The Benefits Of Abandoning Tether
The ability to abandon USDT on the platform is one that should be highly preferable to many in El Salvador, given Tether’s issues as a project.
Since its launch in 2014, Tether stated that its USDT tokens were fully backed one-for-one by U.S. dollars in bank accounts. But it pivoted in 2019 to say that its reserves included traditional currency, cash equivalents and other assets and receivables. Such a move spurred skepticism and criticism in the Bitcoin community. And the New York Attorney General has found Tether to have misrepresented the assets backing USDT and obscured the loss of $850 million in user funds. Currently, only 4% of Tether’s reserves are cash.
On the podcast, Mallers celebrated that Strike no longer needs to use the controversial USDT for its financial services in El Salvador.
“You know, you launch with Tether, learn, be a good listener and a good observer, end up meeting with the president and helping define regulatory clarity in the country and then you roll Tether out,” Mallers said. “And you help the country build the most inclusive, resilient, and reliable financial infrastructure that any country has ever seen in human history.”
Mallers also shared that Strike will be integrating with the country’s two top “cash point distributors,” a solution that allows “unbanked” people to walk into a physical location with dollars or an app balance and walk out with cash. With this integration, Strike will be available on over 1,000 cash points across El Salvador and other countries in Central America, allowing people to easily port physical dollars into or out of their Strike app balance.