5 investors explain why Latin America is ready to make it through the crypto winter – TechCrunch
The Web3 cart really took off in 2021 and 2022 when entrepreneurs and investors both tried to make a name for themselves in the nascent industry.
But Latin America stood out thanks to its relatively high cryptocurrency adoption: According to Kim Grauer, head of research at Chainalysis, Latin America has consistently taken between 8% and 10% of global cryptocurrency activity. In addition, DeFi implementations have seen great interest in the region’s difficulties with how finance is traditionally conducted.
If my savings were in crypto, I would not exactly sleep well these days. But again, I would not either if they were in Argentine pesos.
In fact, Argentina is a good example of a country where alternatives to fiat currency look more attractive, as buying US dollars is becoming more and more complicated and expensive. When I spent a few months in Buenos Aires in 2014, you needed dollars all the time, and the best exchange rate you could get was around 10 Argentine pesos for one dollar.
But after Argentina’s economy minister abruptly withdrew earlier this month, the informal “blue dollar” exchange rate reached a record 273 Argentine pesos for $ 1. Meanwhile, there were also restrictions on buying US dollars in the first place.
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Several exchange rates also exist in Argentina, some of which are artificially disadvantageous. Claire Diaz-Ortiz, chair of the start-up committee at VC3, pointed out how difficult it is to escape the traditional banking system: be converted to pesos at the official rate of 130 pesos per dollar against the free market value of 270 pesos per dollar. “
Such a situation, she said, makes it “no surprise that crypto has taken root deep in the local culture.”
Not all Latin American economies are as volatile or politicized as Argentina’s. But from high poverty rates to low financial inclusion, there are common threads throughout the region that explain why trends such as the current craze for gambling to make money have been used significantly.
These factors also give us an indication of where crypto may be heading. “We believe that crypto has a great opportunity to digitize cash,” said Patricio Jutard, co-founder and general partner of Newtopia VC. “That is, if startups in this space manage to create simple, accessible, robust, reliable and beautiful solutions for the unbanked population.”
Homemade startups are already playing an important role in leveraging crypto for the Latin American and global markets. The investors we asked felt that startups in the region will continue to do so with tailwinds from global investment and partnerships.
The five investors we spoke to are active supporters of Latin American startups in the crypto and DeFi area. Below, they share their insights on where the market is headed, the growing presence of women in LatAm’s web3 scene, and, as a crypto winter seems increasingly likely, how they position themselves for a rebound.
We talked to:
- Matias Nisenson, co-founder, Wonderland
- Christine Chang, Head of Business Development and Ventures, Tribal
- Patricio Jutard, co-founder and general partner, Newtopia VC
- Claire Diaz-Ortiz, Chair of the Start-up Committee, VC3
- Andy Areitio, general partner, TheVentureCity
Matias Nisenson, co-founder, Wonderland
TC: Crypto is often designated as a means for those who are left out of traditional banking services. What steps are you taking to ensure that crypto will alleviate, and not exacerbate, inequalities in economic access?
Nisenson: I think we are all working to make crypto an alternative to traditional banking. I also think it will take time. At Wonderland, we say DeFi Sucks, and so is our URL (We, and many other players, do our best to fix it.
We think it sucks because of UX. Even someone who is knowledgeable can make a mistake that costs him thousands (if not millions). A few years ago, it also sucked because of the infrastructure that could not handle a few thousand users at a time, or because one could not use it from a mobile. Today, most of these things are solved with L2s [layer 2 solutions] and better wallets – but UX is still poor.
I believe in DeFi, but it will take time. I believe in CeFi [centralized finance, a mix of traditional finance (TradFi) and DeFi] is a good solution for now: It takes people to crypto and explains basic concepts to them. That’s why I invested in Buenbit, one of the largest stock exchanges in countries such as Argentina and Peru. I would choose CeFi over banks every day.
We’re still in the experiment phase, we’re finding out about the technology, we’re finding out how DAOs work (or do not work) and a bunch of other things. I think this movement is led by the Ethereum community – to put things in perspective, it is only seven years old.
Ethereum creator Vitalik Buterin noted that Argentina has one of the largest crypto communities in the world. As a consumer market, is Latin America currently served more by domestic or foreign companies?
It depends on the vertical. If we are talking about DeFi, I am sure that the most used protocols are foreign (Aave, Uniswap, Compound, Sushi, etc). If we are talking about exchanges, then it is mostly home-made (Bitso, Ripio, Buenbit, etc.).
This is mainly due to regulations and compliance that large foreign exchanges have not done, because it takes time. It is easier to get a local exchange with access and exit ramps for fiats that have already been set up (the shopping trip has already started).
Do you expect this to change soon?
No. I believe that this ecosystem is global in nature. I believe in products that come out of nowhere (like my home country, Argentina) and reach users all over the world.
Even before crypto, Venezuelans had been known to use games to earn a living. While Axie Infinity continues to crumble, do you still look at games to earn cryptocurrencies as a way to survive?
I think games are a great application for blockchains, especially because of the true ownership of assets – which means you can play a game, then get bored and sell the assets you spent money and time on.
My latest company, Experimental, was one of the first to launch a blockchain game on Ethereum, back in 2017. We spent a lot of time with the founders of Axie, OpenSea and all the OGs of the crypto game area.
Having said that, I do not see gaming as a magical solution to feed an entire country. I think most cryptogaming economies do not scale, especially when token issuance is not well designed and value is created out of thin air.
Did you notice any surprising developments or interesting trends around crypto-adoption in Latin America?
Well, this question is timely. Argentina’s Minister of Economy resigned on the weekend of July 2 when the markets were closed. Everyone started talking about how the national currency (Argentine peso or ARS) would “go to zero”, and it did: 1 USD was equal to 238 ARS when the news went out, and 36 hours later it reached 280 ARS.
Thanks to crypto, I was able to short the peso over the weekend! I took a loan secured by Buenbit, I left DAI (a stablecoin cryptocurrency on the Ethereum blockchain) as collateral, and they gave me NuARS (which is a stablecoin linked to ARS). I used these NuARS to buy more DAI, so when ARS goes down, I can sell my DAI and make money.
Another really cool thing is that before crypto, people would not have been able to buy USD with ARS over the weekend, but now they managed to do so before the value of the dollar soared.
