Valiu's Bitcoin dollars are changing remittances, starting in Venezuela

Sending money across borders into places like Venezuela can be difficult. The local currency suffers from historic hyperinflation, and US dollars are restricted.

But Valiu, a cross-border payments startup in Colombia, might just have found a new way—powered by Bitcoin.

Valiu today revealed on Twitter that testing is underway for its new Bitcoin-backed synthetic dollar savings account. Last year, the company had launched a service for people in Colombia to send cross-border payments directly to Venezuelan bank accounts.

Valiu CEO and native Venezuelan, Simon Chamorro, told Decrypt that he started the company after he saw how many new migrants were coming to Colombia from Venezuela who needed a better way to send money back home to their families. 

“We now have over six million migrants” spread across Latin America, he said. “But most of these people are unbanked, so they get to a new country and the only way to send money to Venezuela, due to capital controls, is through a black market.” According to Chamorro, the black market emerged after legacy services like Western Union, MoneyGram and wire transfers, exposed to capital controls in Venezuela, stopped working well for his compatriots.

Informal markets, however, expose these migrants to potential fraud, high fees, and delays, all which affect their ability to send and receive funds.

For the past seven months, Valiu’s remittance service has helped 38,000 households in Venezuela access funds to buy food and pay bills, according to Chamorro. The Valiu CEO said each user often represents families of three to four people.

But this method still suffered from one big problem: hyperinflation. Once these funds were accessed in Venezuela and converted to bolivars, the money rapidly lost its value. By the next day, these bolivars might be worth less than half what they were valued at the previous day. 

How Bitcoin solves this

To solve this, Simon and his team sought out Alejandro Machado of the Open Money Initiative (OMI), now the Head of Research at Valiu, to explore the issue. Machado reaffirmed the thesis that Venezuelans want US dollars as a store of value. OMI studied how Venezuelans at home and abroad used dollars, Bitcoin, and bolivars.

OMI found that the use of Bitcoin in Venezuela is an exaggerated meme, and that only a small portion of the population uses it. The organization found that, in Venezuela, the limited amount of dollars in circulation were still king, meaning that they are still the preferred way to preserve wealth against inflation.

Meanwhile, Bitcoin is still too difficult to use, especially for the elderly population. At the same time, bolivars remained the preferred method for daily purchases. Nevertheless, the research showed that Venezuelans are adept at using digital payments through banking apps, because the alternative would mean using wheelbarrows of hyperinflated cash to make small purchases.

The solution? Simon and his team created a bridge between all three currencies: Bitcoin-backed US dollar derivative contracts. 

The new feature, slated to launch later this year, will offer users exposure to dollar liquidity as the world scrambles to nab the real thing amid the coronavirus crisis.

How Valiu’s crypto dollars work

This is how it works: Like their remittance service, depositors in Colombia can connect their bank accounts to the Valiu app or hand over cash to thousands of major remittance partners in physical locations all over Colombia—even mom and pop shops. Users never have to touch Bitcoin.

The funds could then be deposited in the new US dollar savings account, which is a synthetic representation pegged to the dollar and backed by Bitcoin. Users can then hold on to their synthetic dollars in their wallet app, or send them to users in Venezuela for no fees. It’s like Square’s Cash App in the US, but across borders.

So while it can help users preserve their wealth and purchasing power, they can still withdraw to bolivars whenever they need to buy food or pay bills. And it’s not just for Venezuelans either. Chamorro said this would also be useful for Colombians, whose fiat currency is also plagued by inflation.

In terms of storage, the app runs very light and is only 14MB, meaning users with low-end smartphones might still be able to use it.

“We fundamentally believe the user experience, and the institution around it, should not confuse users or have to go through the norm of having a set of private keys, or having to sync a blockchain node, or doing any of the kind of things you would expect to on traditional crypto applications,” Sid Ramesh, an advisor to Valiu, told Decrypt. “We believe first hand that we need to solve the users problem, not create more.”

The company said it is already fully compliant with regulators in Colombia and plans to replicate that across Latin America. It also recently partnered with Rappi, a food delivery app similar to Uber Eats, that employs thousands of Venezuelan delivery workers across Latin America. Chamorro noted that he’s already seen massive use of his company's remittance service from these workers in Colombia. Valiu also created a Facebook group where users can sell goods, offer jobs and learn about the service.

If its new crypto dollar succeeds in Colombia and Venezuela, Valiu stands to help thousands of migrants and users across Latin America survive turbulent times ahead.

Editor's note: This article was updated after publication to clarify that Valiu is already compliant with regulators in Colombia, according to the firm.