0x8439...1d8F, Adam and Gnosis Research Hub
Latin America (LATAM) has been a region of economic instability and financial challenges for decades. Many countries in the region have experienced hyperinflation, currency devaluation, and limited access to traditional banking services. These factors have created a unique opportunity for the adoption of cryptocurrencies as an alternative means of storing value, conducting transactions, and facilitating cross-border payments.
Among the LATAM countries, Brazil, Argentina, and Mexico stand out as the most primed for crypto adoption due to their specific economic situations and market characteristics.
Brazil, the largest economy in LATAM, has a well-developed institutional crypto market and a higher demand for Bitcoin and altcoins compared to its neighbors. Despite having a convenient traditional payment system called Pix, many Brazilians view crypto as a cheaper alternative to address issues such as high export taxes and remittance costs.
Argentina faces extreme economic challenges, with a 50% unbanked population and an annual inflation rate exceeding 200%. Argentines have turned to cryptocurrencies, particularly stablecoins like USDT, to cover day-to-day expenses, save money, and facilitate remittances. The demand for crypto in Argentina is driven by the need to preserve value in a hard currency.
Mexico, the second-largest receiver of remittances globally, has also shown significant potential for crypto adoption. With an estimated $61 billion in remittances flowing into the country annually, mostly from the United States, cryptocurrencies offer a cost-effective alternative to traditional remittance channels.
The cryptocurrency landscape in Latin America has been growing steadily, with the region showing a high level of crypto adoption compared to other parts of the world. According to the 2023 Global Crypto Adoption Index by Chainalysis, Brazil, Argentina, and Mexico rank 9th, 15th, and 16th, respectively, in terms of overall crypto adoption.
LATAM is responsible for approximately 7% of the total cryptocurrency value received globally, encompassing various use cases beyond just payments. Crypto adoption in the region has been growing faster than in the United States, driven by factors such as the devaluation of local currencies, particularly the Argentine peso, and the recovery of Bitcoin prices.
Source: https://www.chainalysis.com/blog/latin-america-cryptocurrency-adoption/
One notable characteristic of the LATAM crypto market is the strong preference for centralized exchanges (CEX). Latin America shows the highest preference for CEXs compared to any other region worldwide. This trend is consistent across individual countries, with users favoring the convenience and all-in-one solutions provided by CEXs.
Another key aspect of the LATAM crypto landscape is the significant usage of stablecoins, particularly in countries like Argentina. Due to the high inflation rates and economic instability, Argentines have turned to stablecoins like USDT to cover day-to-day expenses, save money, and facilitate remittances. In contrast, countries like Brazil show a more balanced distribution between stablecoins and other cryptocurrencies, similar to North America's transaction volume.
The growing adoption of cryptocurrencies in LATAM is evident from the increasing transaction volumes and the proliferation of local crypto exchanges and service providers. CEXs like Binance have established a strong presence in the region, while local players such as Lemon Cash in Argentina and Bitso in Mexico have emerged to cater to the specific needs of their respective markets.
Brazil, the largest economy in Latin America, has a well-developed and dynamic financial sector, with a high penetration of digital transactions and a growing crypto market. The country's GDP stands at around $1.6 trillion, with a moderate GDP per capita of about $7,500. The widespread use of card payments and the successful implementation of Pix, Brazil's instant payment system, have paved the way for a more digitalized and inclusive financial landscape.
Pix: The Traditional Payment System and Its Limitations Introduced by the Central Bank of Brazil, Pix has achieved rapid adoption due to its efficiency and accessibility. It operates on the Instant Payment System (SPI) infrastructure and allows for various types of participants, including direct, indirect, settlement service providers, payment initiation service providers, and IT service providers. Despite its success, Pix is primarily designed for domestic transactions and does not directly compete with cryptocurrencies in terms of international remittances and cross-border payments.
Below is a chart of PIX + SPI infrastructure
Explanation of the PIX rail from our Gnosis Pay team:
The PIX rail allows for five types of participants in its design and hierarchy:
Direct - provides account services to end users and is directly connected to the SPI infrastructure (the system supporting the Pix scheme).
Indirect - provides account services to end users but are connected through another direct participant.
Settlement service provider (SSP) - Does not provide account services to end users but provides access to other institutions.
Payment initiation service provider (PISP) - Does not provide account services to end users but initiates payments on behalf of end users in their account service providers. Account service providers can also apply for special authorisation from BC to work as a PISP.
IT service provider (ITSP) - is an integrator that facilitates access to the Financial System Network (RSFN) being certificated by the central bank to operate as a technical partner and gatekeeper of the network.
The Brazilian crypto market is characterized by a higher demand for Bitcoin and altcoins compared to its neighbors, indicating a more speculative and investment-oriented approach. Centralized exchanges (CEXs) dominate the landscape, with major international players like Binance customizing their offerings for the Brazilian market, alongside smaller local exchanges like Foxbit.
Below, you can see some graphs from Chainalysis' "The Geography of Crypto 2023" report on important stats happening in Brazil
The regulatory framework for cryptocurrencies in Brazil is still evolving, with the Central Bank of Brazil (BCB) and the Brazilian Securities and Exchange Commission (CVM) playing key roles in shaping the industry. While the BCB has not issued specific regulations exclusively for cryptocurrencies, it is actively monitoring the market. The CVM has taken a more active stance, overseeing Initial Coin Offerings (ICOs) and other crypto assets that may be considered securities. Brazil is also exploring the potential of a Central Bank Digital Currency (CBDC) called "DREX." The central bank is currently running a proof of concept with 11 institutions, with plans to create technical specifications and guidelines for the platform and participants.
Despite the regulatory challenges, Brazil presents significant opportunities for crypto adoption. The country's multi-currency needs, such as cheaper international spending and remittances, can be addressed through crypto-based solutions.
Argentina has been grappling with severe economic challenges, including hyperinflation, currency devaluation, and limited access to traditional banking services. With an inflation rate exceeding 200% annually and a 50% unbanked population, Argentines have turned to cryptocurrencies as a means to preserve their wealth, facilitate daily transactions, and protect themselves from the instability of the local currency. There is a strict control on the exchange for US dollars by the Argentinian government, and a large black market around acquiring USDT. Argentinians have turned now to USDT, but mostly through centralized exchanges, like Binance and Lemon Cash, a local provider.
Vice News: Living With Nearly 100% Inflation; A short documentary on Argentina's Inflation Problem
Argentines have been increasingly using stablecoins for day-to-day expenses, savings, and remittances. The demand for USDT is notably higher in Argentina compared to other Latin American countries, reflecting the urgency to preserve wealth in a hard currency.
As inflation continues to rise, Argentines have been depositing more stablecoins into platforms like Lemon Cash, a popular local crypto exchange. This trend highlights the growing trust in cryptocurrencies as a means to safeguard against the devaluation of the local currency.
The Argentinian crypto market is dominated by major international exchanges like Binance, which has established a strong presence in the country. Binance offers a wide range of services, including peer-to-peer (P2P) trading, a centralized exchange, and debit cards. The exchange has tailored its offerings to the specific needs of the Argentinian market, such as integrating with local payment systems and providing competitive fees.
Moreover, Argentinians have even been pursuing yield on their USDT through Lemon Cash, which is distributing payouts from the AAVE protocol. So while LATAM mostly skews towards CEXs, after the FTX collapse platforms like Lemon Cash have started to diversify and expose their users to protocols like AAVE.
According to the Lemon Cash 2023 report, there are more than 10 million crypto accounts open in Argentina, equating to the number of accounts in the traditional capital market. This high adoption rate is a clear manifestation of the lack of trust in the current state and money systems. The problems with the Argentine peso, combined with the country's high internet access (over 92% of households in the third quarter of 2023), have given Argentina a competitive advantage in adopting one of the most important technologies in history.
The report also highlights that 80% of crypto purchases on exchanges in Argentina during 2023 were stablecoins, indicating a strong preference for preserving value in a stable currency. Additionally, the proportion of payments made in crypto with the Lemon Card doubled throughout the year, reaching 20% of total payments by October 2023. This trend suggests that more Argentines are choosing to live with crypto in their daily lives.
Some notable charts from the Lemon Cash report 👇
Mexico is the world's second-largest receiver of remittances, with an estimated $61 billion flowing into the country from overseas annually, primarily from the United States. This significant inflow of funds highlights the importance of remittances for the Mexican economy and the potential for cryptocurrencies to disrupt traditional remittance channels. The high costs associated with traditional remittance services have created an opportunity for cryptocurrencies to provide a more efficient and cost-effective alternative. Traditional remittance channels can charge between 5% to 10% in transfer fees, while crypto remittances offer a significantly cheaper option, with fees often being a fraction of those charged by conventional services.
Companies like Bitso, a leading Mexican crypto exchange, have been at the forefront of this shift. In 2022, Bitso processed over $3.3 billion in crypto remittances sent from the U.S. to Mexico, representing 5.4% of the total remittance market. The use of cryptocurrencies for remittances offers several advantages over traditional methods. Crypto transactions are faster, cheaper, and more secure than conventional remittance channels. By leveraging blockchain technology, crypto remittances can reduce transaction costs, eliminate intermediaries, and provide real-time settlement of funds.
The Mexican crypto market has attracted a diverse range of players, including local exchanges, international platforms, and remittance-focused startups. Bitso has established itself as a major player in the crypto remittance space, partnering with leading U.S.-based crypto companies to facilitate cross-border transactions. Other notable players in the Mexican crypto market include Volabit, Bitlem, and Tauros, each offering a range of services such as crypto trading, wallet solutions, and payment processing. These local exchanges have been instrumental in driving crypto adoption in Mexico, providing user-friendly platforms and educational resources to help Mexicans navigate the world of cryptocurrencies.
International exchanges, such as Binance and Coinbase, have also entered the Mexican market, recognizing the country's potential for crypto growth. These global platforms bring their expertise and liquidity to the market, further enhancing the crypto ecosystem in Mexico. Mexico has taken a proactive approach to regulating the crypto industry. In 2018, the country passed the Fintech Law, which established a legal framework for cryptocurrencies and other fintech innovations. This law requires crypto exchanges and other service providers to obtain licenses from the central bank and comply with anti-money laundering (AML) and know-your-customer (KYC) regulations.
The potential for cryptocurrencies to revolutionize remittances in Mexico is significant, offering a faster, cheaper, and more inclusive alternative to traditional channels. As more Mexicans become aware of the benefits of crypto and as the industry continues to mature, we can expect to see an increasing share of remittances being processed through cryptocurrencies. Moreover, the success of crypto remittances in Mexico could serve as a model for other countries in the region and beyond, showcasing the transformative power of cryptocurrencies in cross-border payments and financial inclusion. As the global remittance market continues to grow, Mexico's experience with crypto remittances will provide valuable insights and lessons for other nations looking to harness the potential of this innovative technology.
Referencing back to Chainalysis's 2023 Geography of Crypto Report, we can see that Mexico has pretty significant activity on both CEXs and DEXs, as well as a large amount of capital inflows into altcoins.
Sharing this research with the wider Gnosis community is an important step in fostering a deeper understanding of the global crypto landscape and the diverse ways in which cryptocurrencies are being used to address real-world challenges. By engaging in knowledge sharing and collaboration, we can collectively work towards building a more inclusive and accessible financial future, which is apart of the Gnosis 3.0 vision.
If you are a Latam founder, or startup looking to build in Latam w/ Gnosis, please reachout to our BD team through our ecosystem page(top right, click Join Us and fill out our ecosystem page). We'd love to speak with you!
A Portal to Gnosis Chain Ecosystem. Gnosis Chain
In the latest blog, @adamtj-xyz explores LATAM's crypto adoption, driven by economic instability & financial limitations. Notably, Brazil sees crypto as an alternative for high export taxes, Argentina uses crypto to tackle inflation, and Mexico leverages it for remittances.