As US sanctions bear down on the Houthi group, Yemenis are gravitating towards decentralized finance (DeFi) for financial solutions. This is primarily due to the US labeling of the Houthi faction as a terrorist organization.
Earlier, the limited adoption of cryptocurrencies in Yemen was due to internet infrastructure issues and a lack of financial literacy among its conflict-ridden population, as indicated by a report from blockchain intelligence firm TRM Labs on April 17.
However, as the TRM Labs report indicated, “There are increasing indications of interest and usage, primarily driven by necessity rather than speculation.”
Cryptocurrencies provide an alternative for Yemenis, offering a certain degree of financial stability in a situation where banks are either inaccessible or inoperable due to ongoing conflict.
Since September 2014, Yemen has been embroiled in a civil war between the government and the Houthi group. The US has regularly imposed sanctions on the country’s financial infrastructure to disrupt Houthi activities, with the most recent action targeting the International Bank of Yemen on April 17.
DeFi platforms comprise the majority of Yemen’s crypto-related web traffic, accounting for over 63% of observed activity. In comparison, global centralized exchanges account for 18% of crypto-related web traffic, as per TRM Labs data.
Some Yemenis also engage in peer-to-peer crypto transactions for cross-border fund transfers and remittances. As TRM Labs observed, “These interactions do not necessarily indicate high transaction volumes, but they do confirm that decentralized infrastructure can provide a necessary alternative to traditional payment methods for some people in Yemen.”
Yemen currently lacks legislation for crypto usage. However, TRM Labs postulates that escalating sanctions against the Houthi group could catalyze greater crypto adoption in Yemen.
Following the Biden administration’s reclassification of the Houthis as a Specially Designated Global Terrorist in January 2024, a Yemen-based cryptocurrency exchange witnessed a 270% surge in volume, according to TRM Labs. While this eventually subsided to pre-spike levels, it experienced another increase of 223% in the three months following the US’s re-designation of the Houthis as a foreign terrorist organization on January 22.
As TRM Labs noted, “Given the escalating international sanctions on the Houthis and their main supporter, Iran, the group’s use of cryptocurrency is likely to expand in scale and sophistication. As traditional financial channels increasingly tighten, decentralized digital currencies present a less traceable and less oversight-prone alternative.”
