Venezuela - Reserve’s clever maneuvering to dodge US sanctions might pay off
This Ethereum project shows that even in the riskiest jurisdictions, finding a way to operate in Latin America is possible.
Possibly one of the most interesting bits of Latin America crypto news last week was this Rest of World profile describing the inner workings of Reserve, a stable coin project percolating in Venezuela’s bizarre and experimental economic landscape.
Reserve is basically a stablecoin that inter-operates with the US Dollar and the Bolivar. It was started in 2018 by Nevin Freeman and Matt Elder and launched in Venezuela in 2019. They raised $10 million from some high profile Silicon Valley VCs and crypto firms. They discussed a long runway in 2020. The project is built on Ethereum.
What’s interesting is not the fact that Reserve chose Venezuela. It’s how Reserve got into Venezuela. In March, 2019 - shortly after the humanitarian aid convoy fiasco - president Nicolas Maduro allowed international assistance and aid organizations to enter the country. It seems that this is around the time that Reserve launched, meaning Freeman’s platform likely gained access to Venezuela’s economy as an aid organization. Their community rangers are not employees of a US multinational, but rather aid-driven community organizers.
It’s a clever strategy considering the risks of doing business in Venezuela. US sanctions have made it extraordinarily difficult for the Chevrons and Pizza Huts of Venezuela’s economy to repatriate dollars made in Venezuela back into international bank accounts. But Reserve seems to be expanding its app and the circulation of tokens inside the country via its army of volunteers. It claims 600,000 users and $5 million in daily transaction volume.
Separately, it is very risky from a sanctions perspective for any foreign crypto project to engage with SUNACRIP because of the radioactivity of the agency. Even though Venezuela’s regulatory agency demands that exchanges and projects gain permits to operate crypto trading platforms, Reserve would risk a freeze of its US accounts were the authorities to see the company as violators.
They have an advantage: Gabriel Jimenez, the coder who was made to program Petro and then got allegedly bullied into submission by Maduro’s people, is their COO. Jimenez is unlikely to be targeted for a second time in the middle of an attempt by Caracas to normalize relations and get more oil revenues into the government. Reserve, via Jimenez, is probably operating with an extra degree of immunity (or credibility, depending on how much he’s leveraged his old contacts) in Caracas.
The goal here is obviously to vacuum up users and improve daily transaction volume in Venezuela. But there are identifiable challenges for Reserve. At some point, it will need to convert from an NGO-like structure to a legitimate bank or financial firm with a company registered in Caracas.
Biden’s team of negotiators is preparing for another session with Maduro’s representatives this month. The target is not regime change. The target is normalization of relations. In New York and Miami, there are rumors of billions of US dollars getting lined up for investment into Venezuela. Barring the possibility that the tech-pocalypse destroys it, Reserve’s team could benefit from the thaw between Washington and Caracas.