Cryptoasset ecosystem in Latin America and the Caribbean

Roman Proskalovich, Christopher Jack, Alex Zarifis, Diego Montes Serralde, Polina Vershinina, Santhiran Naidoo, Damaris Njoki, Ingolf Pernice, Diego Herrera and Jaime Sarmiento.

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The Cambridge Centre for Alternative Finance, in partnership with the Inter-American Development Bank, conducted a comprehensive study on the cryptoasset landscape in Latin America and the Caribbean (LAC) throughout 2022. This research initiative encompassed surveys, interviews, and extensive data collection from key stakeholders within the LAC cryptoasset ecosystem. The overarching goal was to gain valuable insights into its growth trajectory, prevalent market trends, existing challenges, and potential opportunities, while also delving into the regulatory and policy dimensions.

The methodology employed in this study was twofold, involving targeted surveys conducted online over the period of June to August 2022. The private sector survey was directed at companies actively engaged in cryptoasset-related activities across LAC, yielding a total of 52 responses. Complementing this, the public sector survey was tailored for institutions responsible for overseeing and regulating the LAC cryptoasset domain. Additionally, in-depth interviews were conducted with some of the largest cryptoasset firms in LAC to augment both qualitative and quantitative data. Furthermore, data from sources such as the Cambridge Fintech Ecosystem Atlas (Atlas) and the Cambridge Bitcoin Electricity Consumption Index (CBECI) were leveraged. Secondary resources, including legal documents, central bank releases, and industry reports, were also tapped to provide robust contextualisation and augment the primary findings. In totality, data was sourced from over 80 public and private institutions across the LAC region.

Highlights from the report

  • Cryptoasset companies in Latin America and the Caribbean (LAC) are transitioning into comprehensive fintech providers, offering a diverse array of services. On average, each entity provides four services, with buying and selling cryptoassets, payment services, and custody of cryptoassets being the most prevalent offerings. Companies are abstracting blockchain technology to attract users without prior cryptoasset knowledge, aiming for a seamless user experience akin to traditional financial services.
  • The cryptoasset industry in LAC has experienced substantial expansion, with companies extending their reach beyond their home countries. Nearly half of surveyed entities already operate in three or more LAC countries, with Mexico, Chile, and Colombia being the most frequently served. The industry demonstrated remarkable growth from 2020 to mid-2022, with a median company doubling its user base in 2020 and maintaining a growth rate close to 50% in subsequent years. This surge in user engagement has led to increased hiring, contributing to the industry’s overall growth.
  • Regulators in LAC exhibited a progressively positive outlook on cryptoassets as of mid-2022. Thirty-six percent of public sector respondents expressed a more favourable attitude compared to five years prior. Notably, private sector entities expressed an improved understanding of cryptoassets by regulators since 2020. Interactions between companies and regulators remains low.
  • Regulators largely recognise the value of cryptoassets in fostering a more inclusive financial services landscape, with only 7% considering them not useful. Cross-border remittances and payments have emerged as crucial use cases, signifying a shift from previous emphasis on profiting from cryptoasset price fluctuations. This shift highlights the practical, real-world applications of cryptoassets in the region.
  • Both industry players and regulators affirm the necessity of a collaborative approach to foster a secure and innovative cryptoasset ecosystem in LAC. Over half of public sector institutions expressed support for ongoing dialogue with companies and stakeholders. However, despite growing interaction with fintech and blockchain associations, most respondents noted limited cooperation with private companies, both domestically and internationally.
  • Clear regulatory guidelines and frameworks are identified as crucial needs by both public and private sector respondents. Regulatory ambiguity is deemed a more significant obstacle to industry growth than business-related challenges. Additionally, a dearth of regulatory personnel with in-depth cryptoasset knowledge is highlighted, underscoring the demand for further training and research in this domain.
  • The future trajectory of the LAC cryptoasset industry envisions expansion into corporate services and the broadening of decentralised finance (defi) offerings. Private sector respondents emphasise the importance of comprehensive regulations and the evolution of cryptoasset companies into full-service fintech entities. Despite this, regulators show hesitance towards immediate implementation of defi-related regulations, with nearly half having no plans or clarity on their defi regulatory stance in the next five years following the survey.