Crypto Startups in Latam
Financial Applications
2021 was defined by Web 3.0 and the rise of DeFi and NFTs. As of November 2021, crypto startups have raised over $27B globally, more than all previous years combined. All types of companies ranging from Goldman Sachs to Facebook to Nike have shown interest in capturing this growth. There have been cataclysmic shifts in the perception of crypto as the general conversation around crypto has expanded from just a digital currency to the potential future of financial products, marketplaces, media, and more.
In addition, the startup ecosystem in LatAm had another banner year and fintech companies especially have grown at unprecedented rates. This was due to happen as the majority of people in LatAm are still unbanked/underbanked and therefore have limited access to savings and investment products, are reliant on paper cash, and often face unfair interest rates. However, aside from a few large exchanges/wallets, the crypto ecosystem in LatAm is still quite nascent despite its potential to have widespread impact in a region that is still plagued by weak institutions, high inflation, and subpar financial inclusion. This article will explore the current activity in the crypto space in LatAm with respect to financial applications and where I see it going in the future. It is important to note that I will be focusing on companies that are based in LatAm and/or primarily targeting the LatAm market, but given the decentralized nature of Web3, LatAm-based users can also access many solutions created in other regions.
LatAm Fintech Funding
Crypto Exchanges/Remittances
As in the US, the first wave of crypto companies in LatAm were predominantly exchanges. These are centralized, regulated on-ramp solutions that enable people to buy/sell cryptocurrencies with local fiat money. One of the leading companies in the space is Bitso which was founded in 2014 and was most recently valued at US $2.2B (Tiger Global and Coatue led a $250mm round in May 2021). They have a consumer-facing product that enables 2mm+ users to buy/sell crypto and make free P2P transfers. Users have the option of starting with as little as $100 and can deposit this directly from their bank or cash at local Oxxo convenience stores. Bitso also has a product called Bitso Alpha, a premium, more sophisticated exchange for institutional traders. Unlike similar companies in the US, such as Coinbase, a major component of Bitso’s value proposition is payments/remittances in addition to providing investment opportunities. They have a B2B service that enables remittance service providers to use Bitso’s API to lower their costs, especially foreign exchange fees. They have been working with Ripple from 2018 onwards to offer cheap remittances between the US/Mexico in a matter of minutes. The company has since also expanded to other remittance corridors and countries including Argentina, Brazil, and El Salvador.
Traditional remittance services like Western Union can cost over 6% in fees and take weeks. Therefore, many Latin Americans resort to informal means (i.e. giving cash to a courier) to get money to their families back home. The demand for these crypto-based remittance services was significantly heightened during the COVID-19 pandemic due to the closure of traditional brick-and-mortar centric remittance services. Remittance services were especially crucial as, for example in Mexico, the government stimulus programs did not sufficiently alleviate the impact of the pandemic. Unlike many recent Web3 startups in the US, Bitso’s solution is focused on the usability of crypto for day-to-day real-life applications and directly replacing some traditional financial infrastructure.
Beyond Bitso, there are many other centralized exchanges based in LatAm today. The majority of them have been primarily focused on democratizing access to crypto over the past 5-7 years but are now starting to look into expanding into payments/remittances and more advanced investment products. Some of the other major crypto exchanges in LatAm are:
Mercado Bitcoin/2TM (Founded: 2013, HQ: São Paulo) – First crypto exchange in Brazil and has a rapidly growing customer base of over 2.8 million. They had over $5B of trade volume in the first half of 2021. They also own a multi-asset custodial wallet. Mercado Bitcoin is focused on digital asset ownership, rather than direct remittance services, but some of their customers use Mercado Bitcoin for crypto P2P transfers across borders. They will be expanding to Mexico, Colombia, Chile, and Argentina and aim to be the main blockchain infrastructure for financial markets in the region. In June 2021, Softbank led a $200mm Series B round that valued them at $2.1B.
Ripio (2014, Buenos Aires) – Large exchange/wallet with operations in Argentina and Brazil. In January 2021, the company acquired BitcoinTrade (the 2nd largest exchange in Brazil) for an undisclosed amount. The company now has 2mm+ users and runs a mobile app and OTC desk in addition to its original exchange product. In September 2021, Ripio raised a $50mm Series B led by Digital Currency Group to expand to Colombia, Mexico, and Uruguay. Looking forward, they plan to launch B2B blockchain services, crypto payments, and DeFi products.
CryptoMarket (2016, Santiago) – Crypto exchange, wallet, and payments company operational in Chile, Argentina, and Brazil. In 2018, the company raised a $600K seed round led by ConsenSys Ventures and Magma Partners.
Foxbit (2014, São Paulo) – Crypto company in Brazil that offers an exchange to buy cryptocurrencies and tokenized assets, payroll product for employees to get paid in crypto, and institutional trading product. They have 950,000+ registered customers.
Volabit (2014, Mexico City) – Exchange to buy/sell cryptocurrencies in Mexico. Now enables online payments and cheaper international transfers.
Panda Exchange (2017, Bogota) – Crypto exchange in LatAm for various crypto-fiat and crypto-crypto trades.
Buda (2015, Santiago) – Crypto exchange operational in Chile, Colombia, Peru, and Argentina.
SatoshiTango (2014, Buenos Aires) – Crypto exchange active in Argentina, Brazil, Chile, Spain, Peru, Venezuela, and more.
AgenteBTC (2019, Lima) – Crypto exchange for Peruvians to access Bitcoin and remittances. They have a hybrid online and physical presence with brick-and-mortar partners. They are focused on Bitcoin/USDT mainly and want to expand into payment systems, P2P transactions, and more with Bitcoin.
BitPreço (2018, São Paulo) – Crypto exchange in Brazil.
BitcoinToYou (2010, Curitiba) - Crypto exchange in Brazil.
Furthermore, there are many international exchanges such as Cex.io, Bitex, and Binance’s Latamex that are active in LatAm.
Inflationary Hedge
In addition to the creation of a new investable asset class and cheaper remittances, crypto is providing a way for people in LatAm to protect against the devaluation of their local currencies. Globally the pandemic has fueled rising inflation rates, but it has been especially exacerbated in LatAm (which already had high annual inflation historically). According to a November 2021 Bloomberg article, here are the weighted expected inflation rates around the world in 2021 and 2022:
Argentina ended 2021 with a worryingly high 52% inflation rate. Although 52% is very high, it is mild in comparison to the 6-7 digit annual inflation rates Venezuela has experienced over the past few years.
In order for crypto to be useful as inflationary protection, users need to be able to hold and spend various cryptocurrencies for daily needs. Given that most cryptocurrencies are volatile and can be inflationary themselves, stablecoins (most of which are pegged to USD) have been the primary cryptocurrencies used to protect against loss in purchasing power. There is a wave of new startups in LatAm that are spearheading saving and everyday payments with stablecoins. These companies have an on-ramp exchange component, which has become quite commoditized now, but are more focused on building their savings wallet and payments capabilities. Given that Argentina has the highest inflation rates in LatAm, it’s no surprise that a majority of these new startups are based in the country. Here are some of the main companies in the space:
Lemon Cash (2019, San Martín de los Andes) – An Argentinian crypto exchange to buy/sell various cryptocurrencies and collect yield on holdings. Uniquely, they recently launched the first crypto credit card in LatAm in conjunction with Visa that can be used in any digital/physical store that accepts normal Visa credit cards. The card works by converting users’ stablecoins into Argentinian Pesos at the point of sale (likely off-chain) and gives 2% cash back in the form of bitcoin. The company is also building DeFi lending, borrowing, and trading products as well as NFT games/ecosystem. They are targeting a younger, more tech-savvy population than the initial players in the ecosystem, as this audience is more likely to use crypto in their daily lives. In July 2021, the company raised a $16.3mm Series A led by Kingsway Capital with participation from Draper Associates, Valor Capital, and Coinbase Ventures. They are planning to expand to Chile, Colombia, Ecuador, Peru, and Uruguay in 2022.
Airtm (2015, Mexico City) – E-wallet that enables users to acquire, save, and spend dollars or cryptocurrency and do cheap P2P transfers domestically and internationally. Their primarily goal is to give their users inflationary protection from local currencies in LatAm and therefore a large portion of their activity is in Venezuela. The company first gained traction by integrating with bank accounts/physical remittance companies and creating a P2P, mobile FX market to convert and custody various fiat currencies. Digital remittances are also now a large part of their value proposition. They are currently active in 125 countries with 300,000+ customers. Today, the company is focusing heavily on crypto and has their own crypto exchange and stablecoin (AirUSD). In May 2021, the company raised $15mm from the Stellar Foundation and will also be integrating with their blockchain network within the coming months.
In September 2020, the Guaido administration (Venezuela’s opposition leader) attempted to use Airtm to facilitate a $19mm redistribution to Venezuelan healthcare workers from funds seized from Maduro’s government by the US. However, due to blockages from the Maduro administration and issues with local regulators (as the Venezuelan government is trying to reduce access to US dollars), only about $4.8mm was successfully sent to doctors. Despite the issues, the event demonstrates the potential use cases for crypto-powered platforms like Airtm, and their potential ability to circumvent detrimental institutions.
Belo (2020, Buenos Aires) – Mobile app that allows users to deposit and buy various cryptocurrencies and get yields of up to 8.25% APY. They are focusing on stablecoins because those provide the highest and safest value proposition for many Argentinians. For amounts under $500, anyone above the age of 13 with an Argentinian national document can buy on the app. They are also adding in free P2P payments and partner with merchants to enable QR-powered payments in stores through the Belo app. Eventually, they want to offer more DeFi products, in addition to high yield savings, such as collateral based lending.
Tauros (2017, Mexico City) – Crypto exchange and neobank that launched a crypto debit card powered by Visa in 2020. They allow users to spend their crypto holdings in physical and e-commerce stores by converting holdings to Pesos at the point of sale. They give a small amount of cashback (0.1%-2%) in crypto for each transaction. Tauros recently entered a partnership with Dash to both enable payments with Dash and get 2% cash back in Dash rewards. At the moment, they appear to be encouraging the daily use of all cryptocurrencies and not necessarily stablecoins in particular.
Defiant (2020, Buenos Aires) – Mobile self-custodial multi-chain wallet that enables users to store, buy, sell, send, and receive cryptocurrencies. The company is currently implementing P2P payments with crypto and eventually will offer a suite of DeFi products. Users can also store NFTs in their Defiant Wallet. The application is simple to use and does not require a KYC process or documentation (at the moment).
Reserve Project (2017, San Francisco) – An app and a protocol with a stable currency called the Reserve Dollar (RSV) that is pegged to the USD and a free-floating Reserve Rights (RSR) governance token. The app enables users to spend, save, and send/receive money in RSV tokens (including remittances). They target both consumers and businesses/merchants. Although, the founding team is based in the US, the main target markets are Argentina, Venezuela, and Colombia as these countries (especially Venezuela and Argentina) are suffering from hyperinflation. In the past year, they have had 350,000 app downloads and 55,000+ active customers in October 2021. Reserve is backed by investors and angels such as Digital Currency Group, Peter Thiel, and Sam Altman.
MercadoPago (2004, Buenos Aires) – Large payments company affiliated with MercadoLibre and operational across LatAm. Even though it is no longer considered a startup, MercadoPago is a large, important fintech player entering the crypto arena. In December 2021, the company announced a partnership with Paxos (US-based custodian and blockchain infra platform) to enable MercadoPago’s Brazilian users to buy/sell Bitcoin, Ethereum, or USDP (Pax Dollar stablecoin) without leaving the Mercado Pago app. Users will be able to use the money in their Mercado Pago account (as little as R$1) to buy these 3 cryptocurrencies without a bank account. Mercado Pago will supplement this material with educational content. This product can potentially help millions of Brazilians begin to learn about crypto and get an easy, cheap on-ramp to save in USD-pegged stablecoins. This is a significant and large-scale display of crypto’s ability to improve financial inclusion in LatAm.
Currently, all these companies and others are encouraging the use of USD-pegged stablecoins to protect against local inflation. However, as we have seen this year, the US dollar itself is susceptible to inflation. Furthermore, while US citizens benefit from the US government’s inflationary spending through stimulus checks and unemployment benefits, Latin Americans do not see any of these benefits. Therefore, I believe crypto companies in Latin America and other emerging markets will eventually transition to using crypto-native stablecoins that are not pegged to any fiat currency. However, these stablecoins are still in the early stages of development (Frax seems to be the furthest along) and it is currently still unclear how they will prove stability.
Another major roadblock in the proliferation of stablecoins in LatAm is that it is very unlikely that local Central Banks will support them in the near future. Stablecoins (especially those that are not 100% collateralized) add another money supply outside of a country’s control, and therefore will make it very difficult to implement effective monetary policy. One potential solution I can see is the creation of government-sanctioned stablecoins that are somehow backed by a country’s hard assets or natural reserves. It will be interesting to see how the dynamic between governments and stablecoins play out both in LatAm and around the world over the coming decade.
High Yield Savings
As alluded to in the previous section, crypto wallets can also enable their users to collect yield on their crypto holdings by integrating DeFi components. Companies right now are exploring this by working with 3rd parties that will pay interest for getting access to the users’ liquidity. High yield savings accounts in the form of stablecoins are very welcome in LatAm as the majority of savings accounts currently get 0% annual interest despite high Central Bank interest rates in the region. The lower and middle classes are often suffering from both inflation and lack of interest, and therefore are losing purchasing power simply by holding cash in their traditional savings accounts.
In addition to Lemon Cash and Belo, here are some other companies in LatAm that are focused on giving Latin Americans yield on their stablecoin holdings to essentially form crypto-based savings accounts:
Buenbit (2018, Buenos Aires) – Crypto exchange with a range of cryptocurrencies but mostly focused on stablecoins (60% of trading volume is DAI). They are currently offering ~13% APY on stablecoin holdings. They have 400,000+ users and have a B2B vertical called Buenbit Pro for institutional clients and businesses that want to access crypto markets and save and earn yield on DAI. The company is currently active in Argentina and expanding to Peru, Colombia, Brazil, and Mexico. In July 2021, Buenbit raised a $11mm Series A led by Libertus Capital, Galaxy Digital, and FJ Labs.
Luable (2021, Bogota) – Digital yield savings account. Currently do not use crypto but likely will integrate.
Levo (2020, Mexico City) – Competitor of Luable; high yield savings account online. Currently do not use crypto but likely will integrate.
Protecting purchasing power and yield on savings accounts are basic economic necessities that most people in more financially developed markets take for granted. Ultimately, the people that lose the most from inflation are the lower classes as they generally do not own more inflation-resistant assets such as real estate or have offshore investments in dollars or euros. Therefore, I believe the current fintech revolution paired with the potential impact of crypto/DeFi can have monumental effects on financial inclusion and wellbeing in LatAm.
Asset Management/ Sophisticated Investment Products
Many lower/middle-class Latin Americans still lack access to investment products and have low rates of financial education. As the crypto market begins to mature and gain larger adoption, there are companies that are creating investment products that are common in the TradFi world. These range from basic crypto portfolio asset management with financial education components to more sophisticated investments products such as blockchain-native options on crypto assets. Here are some companies based in LatAm:
Ridian (2021, Mexico City): Connect users with exchanges and provides them with automated investment products (right now mainly focused on large cap coins and high yield vaults). They charge a monthly asset management fee, performance fees, and interest spreads. They connect via an API to various exchanges and do not custody assets.
Xcapit (2018, Cordoba): Self-custodial mobile application/wallet for users to learn about finance/crypto, create financial goals, save and invest, and donate. Their backend is an open source blockchain protocol, and all transactions are done through smart contracts. There are no minimums, and no bank account is necessary. They offer AI-optimized wealth management investment strategies to their users. Xcapit is backed by the Unicef Innovation Fund.
Hashdex* (2018, Rio de Janeiro): Global crypto asset manager with over $1B in AUM and over 250,000 investors. They provide educational resources and a variety of institutional-grade financial products for the crypto economy. They have partnered with Nasdaq to create the Nasdaq Crypto Index (NCI). They also recently launched the world’s first crypto index ETF in February 2021. Hashdex has a very strong Brazilian investor base, but they have been expanding rapidly with the US audience with partner Victory Capital. In May 2021, the company raised a $26mm round led by Valor Capital, SoftBank, and Coinbase Ventures.
Pods* (2020, São Paulo): Decentralized non-custodial options protocol that allows users to buy, sell, and provide liquidity using an options AMM. Pods can be used to hedge crypto positions and is targeted at more advanced DeFi traders. The company is targeting crypto investors internationally, rather than specifically a LatAm audience, and faces stiff competition from similar companies in other regions.
RSK Labs* (2014, Buenos Aires): Smart contract network that enables decentralized applications secured by the Bitcoin Network. Supports a wide range of DeFi applications with bitcoin such as lending, borrowing, and trading. They plan to expand to many dApps that facilitate identity verification, payments, storage, communications, marketplaces, and more. The company has raised over $7mm from global investors including Digital Currency Group.
Percento (2021, São Paulo): Tokenizes real estate contracts (deeds) in Brazilian and international real estate. They fractionalize shares as NFTs, so smaller retail investors can more easily access investment opportunities in real estate. Percento operates as the intermediary between construction/realty companies and investors/investment funds. Investors can also sell their tokens on secondary markets managed by Percento and get access to loans to buy tokens.
*Companies based in LatAm but targeting broader international investors
In summary, the initial wave of crypto startups in LatAm were exchanges that got Latin Americans onto crypto. These exchanges not only democratized access to a new asset class for investment purposes but have also been providing infrastructure to make remittance payments in LatAm cheaper. The next wave of crypto companies is currently focusing on using crypto (especially USD-backed stablecoins) for everyday payments like P2P and with merchants. The main value proposition of these companies is to protect against inflation. Many of these companies are going a step further by also offering high yield on stablecoins, which solves another important problem in LatAm of no yield savings accounts. Finally, and concurrently, there are also a group of startups creating more sophisticated investment/asset management products for local and international investors.
Crypto Startup Landscape (Financial Applications) in LatAm
Legacy Banks in Crypto
Although this piece is focused on the crypto/fintech startup ecosystem in LatAm, it is worth highlighting several legacy bank and government-level activity in the space as they can be competitive or complementary to the startup ecosystem.
ReitBz – A security token backed by the large Brazilian investment bank BTG. The token is physically backed by BTG Pactual real estate investments in Rio and Sao Paulo and can be sold in secondary markets. Unlike many of the more crypto native companies above, BTG is emphasizing KYC/AML and other regulatory precautions. Due to regulatory concerns, the token is not available for investment by Brazilian or American investors. Furthermore, the minimum investment size is US$500,000 so the offering is aimed towards high-net-worth individuals. Despite its niche investor base, ReitBz signals BTG’s (and likely other banks in LatAm) willingness to use blockchain technology to augment their financial products.
Colombian Banks Crypto Trading – Colombia’s financial regulator (SFC) launched a pilot program in late 2021 to give banks to ability to offer cryptocurrency trading in a regulatory sandbox. For example, Bancolombia, the largest bank in Colombia, is offering crypto trading in partnership with Gemini. There are 8 other partnerships that have been formed as a result of this initiative. As with ReitBz, this initiative shows the willingness of Latin American banks and governments, to work together to make crypto more accessible.
Looking Forward
While all the activity in the crypto ecosystem in LatAm has been exciting so far, I believe we are still a while away from mainstream adoption and true usability of crypto assets/applications to improve day-to-day life. Other than younger tech-savvy people, most Latin Americans are likely still hesitant to get involved with crypto as it can sometimes be difficult to understand, require significant upfront capital and/or a traditional bank account for the on-ramp, hard to apply to their daily lives, or perceived as risky (both from an investment and regulatory/tax perspective). In the near future, I see the crypto landscape in LatAm continuing to advance rapidly and expect to see a few different trends. I will cover each of the following topics in subsequent articles:
Increased government/regulatory action – Some Latin American governments such as Colombia, Chile, Brazil, and Venezuela have shown willingness to support and regulate cryptocurrencies, but a strong regulatory framework is lacking. Many current crypto startups in LatAm are proceeding despite knowing operating in regulatory gray areas that can impact their business (negatively or positively) in the near future. Regulatory action is needed to make the ecosystem safer, drive mainstream adoption, and draw more entrepreneurs to the space.
Furthermore, it is likely that more governments will include cryptocurrencies as legal tender so they can better regulate usage. El Salvador has shown the strongest support on this from a government-level, yet it is too early to say how impactful using Bitcoin as a daily currency will be, and the country is likely too small to be a representative proxy for other countries. Venezuela also launched their own digital currency called Petro in 2018. However, it failed to get serious traction and was more of an ill-planned attempt for the Maduro Administration to raise funds and circumvent US-sanctions rather than a true cryptocurrency. Despite this, I predict larger, more stable governments in LatAm will soon be grappling with the question of where cryptocurrency fits into their monetary policy.
Additional TradFi institutions entering the crypto space – As alluded to in the previous section, many traditional banks are keen to maintain their existing customer base and improve their products by integrating blockchain technology, and likely DeFi solutions as well. However, many banks will likely move cautiously and avoid getting ahead of the regulatory environment. Legacy banks entering the space will likely help get a broader, older group of people in LatAm more comfortable with the crypto ecosystem.
Continued DeFi Evolution – I strongly believe that the DeFi landscape in LatAm is still extremely nascent. We have seen some initial players entering the space, but I see exponential expansion in crypto-based remittances, savings, payments, and more. The barriers to entry are still relatively high as crypto is still a daunting subject for the average person. I believe there is a continued need for more financial education and simpler crypto-on ramps that are easy, affordable, and do not require traditional financial infrastructure.
An area that has not been explored in detail in LatAm is loans/leverage with crypto holdings as collateral. Players like Lemon Cash and Belo seem well positioned to expand into this area but have yet to do so. Currently, LatAm is still one of the most expensive regions to get access to capital and many individuals/businesses struggle with cash flow constraints. Today there are decentralized platforms such as Abracadabra and Aave that more experienced DeFi users can use to get leverage (in the form of stablecoins) with their crypto holdings (such as Ethereum) as collateral. However, many of the platforms are very complex to use and almost impossible to use the gained leverage in the “real world.” Therefore, as more individuals/businesses get comfortable holding and paying in crypto, I see user-friendly and LatAm-specific lending protocols coming to market. One example of a startup beginning to tackle this is US-based Goldfinch, which is partnering with businesses in emerging markets (such as PayJoy in Mexico) and creating crypto-powered lending pools that are not collateralized by crypto assets. I believe many new startups will continue to innovate along similar lines. Yet, as mentioned earlier in the article, it is yet to be determined how governments will regulate the usage of these protocols when lending directly to consumers and the spending of stablecoins in the real economy, and whether or not they will try to create their own stablecoins in order to control the money supply.
Tokenized Assets – We have begun to see this with BTG’s ReitBz and the startup Percento, but LatAm would likely benefit from tokenizing assets as it could lead to increased efficiency, liquidity, security, and inclusion. Real estate and stocks are low-hanging fruit that I predict will continue to get tokenized in LatAm. However, I believe tokenization will open the doors for a wide range of alternative investments such as infrastructure, art, sports, restaurants, and much more.
Data Security/Trust – Given the secure, trustless aspect of blockchain technology, it is likely that many companies will begin to integrate a blockchain component for data security and interoperability or a ledger/document trail they can trust. This need is especially important in LatAm, which is ripe with corruption and antiquated systems to manage documents and data. I foresee many traditional companies (in almost any industry) integrating blockchain technology, government’s leveraging the blockchain for better recordkeeping and minimizing corruption, and new blockchain-based data and cybersecurity startups taking advantage of this opportunity.
Non-fintech related applications: Voting, research… - For the scope of this piece, I have been focused on financial applications of crypto in LatAm. However, there is the potential for many impactful non-financial applications. Some that come to mind are blockchain-secured elections to limit voting fraud, crypto-incentivized research in LatAm such as 1729.com, and play-to-earn (P2E) games that give Latin Americans additional income streams (already happening). The crypto landscape in the world, and especially in LatAm, and I expect to see a plethora of new startups creating novel solutions to complex problems in all fields coming up over the next 5-10 years.
Thank you for making it through this article. If you are a founder, fellow investor, or simply want to talk about crypto in LatAm, feel free to email me at nagarwal@nucleusdna.co or DM me on Twitter @neilagarwal98.