A stablecoin future for Pakistan

While the risks of increasing stablecoin adoption initially seemed distant, if not invisible, the recent news of a $12.9 million seed investment in the founders of Sadapay’s new stablecoin venture, Zar, increases the urgency for regulation and an undisputed regulator. It is necessary to provide founders with incentives to build freely and commercially to sustain innovation, jobs, and opportunities in Pakistan, without compromising guardrails that safeguard the national interest.

This comes against the backdrop of a recent report by KTrade, authored by its Associate Director Equity Research, Muhammad Faran, highlighting the key economic risks of stablecoin adoption — a use case Zar is tapping into to broaden access to capital inflows, primarily remittances.

Zar raised its seed funding from leading dollar investors following its previous $7m pre-seed round — both rounds led by Andreessen Horowitz (a16z), often ranked as the company with the most assets under management amongst venture capital management firms globally.

Other notable investors include Coinbase Ventures, Endeavour Catalyst, as well as VanEck, who wrote in an investor note from the previous round that “trust in local currency is gone”. This note, reiterated by a local expert who read it as a threat, begs an evolved question: Does national interest trump commerce?

Sadapay’s new stablecoin venture Zar, could potentially broaden access to capital inflow, primarily remittances

Aatiqa Lateef, a Dubai-based policy expert who has previously served as Director of Policy at Rain, the Middle East’s first licensed cryptocurrency exchange, says that she reads that note as “investor soundbite, not a policy reality”, while a senior source inside Zar distances Pakistan from that framing as they think VanEck’s comments reflect “a global macro view of dollar demand in high-inflation economies”.

They further add that the “rupee has shown remarkable stability” as inflation fell sharply from over 30 per cent in 2023 to “around 4–5pc in 2025”.

But stablecoins can pose risks to stable currencies too. “The Bank of England governor has warned that significant stablecoin adoption may pose risks to financial system stability,” says Mr Faran, as more and more countries are exploring their own digital currencies to fight against this risk to traditional banking. This is because of the uniquely accessible and centralised nature of stablecoins being pegged to a currency, which creates an environment where national interests of different countries intersect and often clash.

“This is why regulation is important,” as Ms Lateef says, “Stablecoins do warrant bespoke oversight because they behave like short-term money. The answer isn’t prohibition, it’s transparency and convertibility under supervision.” That supervision includes licensing, daily reserve reporting, segregation of client assets, service-level agreements for the redemption service, and caps that gradually increase as compliance maturity improves.

According to Ms Lateef, “If on/off-ramps clear through regulated PSPs [Payment System Providers] and settle locally in rupees, the central bank preserves visibility and mitigates dollarisation risk.”

It is also understood that Zar does not ‘aim’ to facilitate local transactions via digital dollars. A senior source from within opines that “people will want to save dollars, not use them to pay for things locally”. However, when asked if the app will feature functionality to support such transactions, the source says that while their “main aim is for savings”, users could still technically use their US-issued Zar Visa cards locally, though it would be “quite expensive to do so”.

Ms Lateef says domestic peer-to-peer (P2P) foreign currency stablecoins should remain restricted because that accelerates crypto dollarisation. Zar currently boasts around 200,000 users on its waitlist across 100+ countries, and its initial focus will be on Pakistan, according to VanEck’s initial investor note.

With that in mind, she further highlights that if a digital currency is truly rupee-denominated and settled domestically through licensed on/off-ramps with State Bank (SBP), then P2P does not need to remain ‘restricted’ beyond a phased, tier-limited rollout. “The start should be with ‘capped wallets’ and limits can be raised as operational/consumer-protection tests are met,” she says.

So, as we regulate crypto to enable innovations like these and the digital rupee to address some of its risks, a question remains unanswered: where should the line be drawn between commercial and national interests?

Ms Lateef says, “promote anything that improves financial inclusion, lowers cost, and increases transparency, provided it is auditable and reversible where needed, and inside SBP oversight.” She adds that a line needs to be drawn at products that create unhedged foreign exchange (FX) exposure, opaque leverage, or unchecked data and consumer-protection risks.

In short, commercial freedom should exist within measurable public-interest outcomes, managed through regulations adopted without commercial conflicts of interest.

Cautioning of another risk, Mr Faran highlights, “Fintechs can profit from offering faster, cheaper cross-border payments and dollar exposure to their customers.” However, with the potential of diverting “deposits and transaction flows away from the regulated banking system, ultimately reducing the local currency demand”.

Commenting on this risk, Ms Lateef says, “Without any constraints, a venture-backed stablecoin model can disintermediate bank deposits, compress net interest margins, and shift liquidity into non-bank balance sheets.” This raises questions for liquidity coverage, net stable funding, monetary policy transmissions and FX leakages. She adds, “The objective isn’t to protect ‘middlemen’, it’s to protect intermediation.”

According to her, the policy answer is to let banks compete on-chain: enable tokenised deposits, allow banks to serve as custodians/issuers under clear reserve and redemption rules, and impose graduated caps for non-bank issuers that rise with compliance performance. Paired with granular reporting to the SBP and rupee settlement for the onshore leg, Ms Lateef says that this system can “keep competition and efficiency, without sacrificing macroeconomic control”.

The writer is a freelancer journalist

Published in Brackly News, The Business and Finance Weekly, November 17th, 2025