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IDB: Cryptoasset market on the rise in Latam, Caribbean

A new study has found that the cryptoasset ecosystem in Latin America and the Caribbean has shown substantial growth, with the number of firms more than doubling since 2016.

The landmark IDB/CCAF study by the Inter-American Development Bank and the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School, showed showed that over 170 cryptoasset firms were serving the region in 2022, of which almost 100 were headquartered or incorporated in Latin America and the Caribbean.

They surveyed 52 private firms and regulators, and interviewed several crypto players for the report titled Cryptoasset Ecosystem in Latin America and the Caribbean.

The study defined cryptoassets broadly, as digital tokens, such as security tokens, stable coins, utility tokens and cryptocurrencies that use distributed ledger technology or similar technology systems to electronically store or transfer the digital representation of value or rights, among others.

It said making cross-border remittances and payments are among the most important use cases for cryptoassets in Latin America and the Caribbean today.

According to the study, the cryptoasset industry grew quickly between 2020 and the first half of 2022. A median cryptoasset company doubled its users in 2020, with a median growth rate close to 50 per cent in 2021 and the first half of 2022.

User engagement with company services has also grown, as the share of active and identity-verified users has gradually increased over the past years.

Some 31 public institutions were also surveyed in mid-2022 to learn how regulators perceive the industry and what regulatory measures are being taken. Most regulators believe cryptoassets are useful, especially in creating a more inclusive financial services landscape. Only seven per cent of public sector survey respondents deemed cryptoassets as useless, and almost 80 per cent state that cryptoassets offer new functions complementary to traditional financial solutions.

Both cryptoasset companies and financial regulators believe that cooperation between industry and the public sector is necessary to shape a safe and innovative cryptoasset ecosystem in the region.

Both sides stressed the need for clearer regulatory frameworks to allow the industry to develop. Despite the perceived willingness to cooperate, most public sector survey respondents said their current level of collaboration with private companies is either low or non-existent.

“The cryptoasset industry, which encompasses more than the trading and speculation of cryptoassets, has the potential to be a game-changer for financial inclusion in Latin America and the Caribbean,” said Anderson Caputo, Chief of the IDB’s Connectivity, Markets and Finance Division.

“By providing new opportunities for payments infrastructure, cross-border payments, digital identity, and other services, cryptoassets could help to bring financial services to those who are currently underserved,” he added. “To realise this potential, the public and private sectors need to collaborate.”

He noted, however, that the collaboration first requires them to engage in dialogue to better understand the risks and opportunities of cryptoassets, and thereafter to develop public policy for the industry to grow while protecting users, investors, and the financial system as a whole.

CCAF Executive Director and co-founder Bryan Zhang said the rapid pace of change in the cryptoasset ecosystem has increased the urgency for greater understanding and cooperation among public and private stakeholders to ensure that the industry’s development is sustainable, consumer protection is robust and policymaking is evidence-based.

“We hope this study’s findings will provide insights into the development of the cryptoasset ecosystem in Latin America and the Caribbean and inform evidence-based decision-making and regulation,” Zhang added.

Cryptoasset companies are gradually evolving into increasingly full-service financial technology providers serving as a one-stop shop for investors, consumers and businesses. The most common services these firms offer are buying and selling cryptoassets, receiving, sending, and storing cryptoassets, cryptoasset-related education, and consulting, according to the study.


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