I’m just going to say it: there’s been a ton of money thrown into blockchain, but the results have been pathetic in comparison.

The tweet above by Polynya frames this post perfectly: what we have done until now might be all we ever accomplish with blockchain. The technologies we’re working on teeter on the edge of either changing the world or forever remaining a nerdy fad. We’ve succeeded at capturing the world's attention, but if we are going to take action and deliver, we need to pivot quickly or risk walking ourselves to what I call the Dead End of Eurocentric Crypto.

I couldn’t find hard data illustrating this, but based on my real-world experience and those of my peers in the space,  most of the VC money invested into crypto goes to European and North American teams. We keep seeing the same types of people from the same backgrounds building the same things over and over and over ad infinitum. If the industry wants innovative use cases and adoption, it needs to shift its attention and capital to builders who are addressing problems that need solutions. The industry can keep building more L1s, zkEVMs, and NFT platforms, or it can invest in powering the next generation of blockchain innovation that will inevitably come from Latin America.

I believe emerging regions are where most of the next trailblazing use cases for crypto and blockchain will originate. Why? Necessity breeds innovation. The financial, political, and social issues that so-called “developing countries” experience, paired with the maturing blockchain ecosystem, will result in an environment ripe for the development of some of the most high-impact applications of our time.

LATAM is Ground Zero for Crypto

Emerging geographies suffer from financial and social pressures. Latin America is particularly interesting because consumers exhibit behaviors that make them keen to explore crypto-based alternatives, such as mobile-first digital payments infrastructure, heavy use of neobank applications, and cross-border remittance payments.

The case for these technologies becomes even more compelling when you look at country-specific data around mobile finance and alternative payments and banking.  Ninety-six percent of Mexicans and Brazilians regularly use non-bank payment apps such as PayPal, Modo, and MercadoPago, according to this study released by Rapyd. Despite accounting for just 8% of the world’s population, Latin Americans received 20% of the total global remittance volume in 2021. Latin America already has widespread use of online consumer payment systems via mobile phones like PicsPay in Brazil, PSE in Colombia, and Mercado Pago in Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay, and Venezuela. With the prevalence of digital payments on mobile devices, cross-border remittance, and growing insecurity in traditional finance, Latin America has all the conditions to blow the doors open on global adoption through new and high-impact use cases for crypto and blockchain.

A global, permissionless, peer-to-peer (P2P) payment infrastructure could provide an alternative to remittance service fees, processing times, and severe currency devaluation and provides a secure financial infrastructure for the 666M+ people in Latin America. However, the only way to enable widespread adoption is to build secure, scalable, and affordable solutions tailored for a population with an average monthly income of ~$500. Specifically, this means transactions need to cost a fraction of a penny, and dApp UX should have the same look and feel as standard, modern web applications. Teams like Fuel, Bichonomy, Lens, Mirror, and Geo are innovating ways to improve the user experience with parallel transaction execution, gasless transactions, batching transaction signing, and abstracting the wallet creation flow for first-time users.

Beyond Banks in Latin America

Latin America is a demonstrated early adopter of new technologies, including neobanks & nonbank payment services, e-commerce platforms, internet-based text apps, and crypto. According to the Rapyd report, where 1687 respondents were surveyed from Argentina, Brazil, Colombia, and Mexico, nearly half of the population remains unbanked. As a result, the popularity and usage of neobanks and non-bank payment applications continue to grow across users of all ages and socioeconomic strata throughout Latin America. In Brazil and Colombia, most transactions happen via mobile phone, and the adoption of social commerce, purchases made using social media apps, is growing exponentially.

Mercado Pago is a shining example of the highly adaptive innovation happening in Latin America. Mercado Pago is a digital payment platform created to complement the e-commerce platform MercadoLibre. Mercado Pago has grown from a payments platform created solely for Mercado Libre to offer various financial services, from payment processing and gateway services to mobile payments and credit cards. Picspay is Brazil's dominant digital payments app, with over 60M users and BRL 6.8B in monthly transactions, equivalent to ~ $1,318,442,480 USD (Source: PicPay). In Colombia, everyday payments between individuals and businesses can be made using PSE. This mobile ACH service allows users to make purchases and payments online by debiting their bank accounts.

The prevalence of digital payments isn’t restricted to these aforementioned countries: 98% of Brazilian, 94% of Mexican and Colombian, and 89% of Argentinian bank customers stated regular usage of online payments (Source: Rapyd, pg 7-10). The trend is not restricted to bank-supplied services either, with the region demonstrating extremely high usage of non-bank payment apps. 96% of Mexicans and Brazilians, 87% of Colombians, and 84% of Argentinians regularly use applications such as PayPal, Modo, and MercadoPago (Rapyd, page 6). I’ll put all this data simply: Latinos already largely operate outside the confines of the traditional banking system.

Blockchain Beyond Borders

LATAM is made unique by its residents’ heavy dependence on cross-border remittance (Cross-border payments where the payer and the recipient are based in separate countries) as a means of income. Latinos commonly emigrate to other countries to work and  send money home regularly via remittance services. According to a report released by the World Bank, remittance flows to Latin America and the Caribbean reached $131B in 2021, up a notable 25% from 2020. According to the World Bank, remittances in 2021 represent almost 25% of the GDP in both Honduras and El Salvador and 14.8% of Guatemalan GDP. However, consumers pay the price for such heavy usage of remittance services, footing the bill for fees that average 5% per transaction (Source: Americas MI).

Two interesting data points reported by Chainalysis illustrate that users have already pivoted to using P2P crypto payments as a common way to send money back to their origin country. First, Latin America has higher than average p2p crypto activity, driving ~28% of all web traffic to P2P cryptocurrency platforms. Second, of all value received in Latin America, 11% is domestic and 89% of all value originated from outside of the country. Crypto transaction fees offer a more economical price to transfer funds across borders and blockchain technology provides higher transaction speeds, making LATAM the ideal setting for onboarding millions of users tothe cost, speed, and security advantages of using a new technology to complete a task that is embedded in the Latin American way of life.

Earlier this year, I was in San Andres, an island in Colombia home that serves as home about 61,000 people. On the island, there was only one remittance service provider, with a constant line wrapping around the building of people waiting to send money to the mainland or abroad. On that same trip, I spent some time in Santa Catalina, Panama, a small fishing town that now attracts thousands of surfing tourists yearly. There is no ATM in the town or any nearby town. The closest ATM is a ~1.5-hour drive away. The community relies on an informal market for cash, buying it from the lady who runs the local grocery store. Now a tourist town, many businesses operate cash-only, and if you didn’t get cash before heading down, you’d have to find someone to buy cash off of or make the trek to Santiago. This type of unique (yet common in parts of LATAM) situation creates the conditions for a community to benefit from these blockchains.

The Intersection of Finance, Politics, Culture, and Crypto

Due to growing insecurity and political instability, people in LATAM report a willingness to experiment with digital payment solutions that are not associated with a bank (Source: Rapyd). In the 2021 edition of the Chainalysis Global Crypto Adoption Index, Latin American countries constituted 4 of the top 20 countries measured by on-chain value received, the on-chain retail value received, and p2p exchange trade volume. The Chainalysis report further notes that Venezuela ranks high on the index mainly due to the country’s huge transaction volumes on p2p platforms. Venezuela has faced a period of heightened economic turmoil in the last two years, with an inflation rate of 2,000,000% in 2018. Although Venezuela ranks #7 on this index and Latin America makes up for 20% of the countries in the top 20, Latin America does not rank in the top of DeFi application users, signaling that the adoption of crypto in the geography is driven more by a need to store value rather than to access DeFi applications.

Figure 1.5 illustrates each LATAM country's total value received vs. the total value received via P2P platforms. The plot clearly shows that countries with high P2P crypto transaction rates are the same countries currently undergoing periods of socioeconomic and sociopolitical conflict. Argentina, Venezuela and Colombia have all faced record-breaking currency devaluation this year. Colombia and Brazil both had elections this year that shook the core of each country. Although the Chainalysis report did not specifically analyze the relationship between P2P transaction adoption and major shifts in the fundamental fabric of a nation, much of the reported data suggest that countries with the highest political instability or social inequality onboard and transact on crypto at a much higher rate than countries in the same region with less or no instability.

Adapt or Die

Latin America’s heavy reliance on digital payments and cross-border remittance, combined with low institutional trust, puts the region at center stage when considering both the customer segment the industry should build for and the developers we should seek to empower. We’ve made massive progress this year, with large-scale Ethereum developer conferences hosted in multiple Latin American countries for the first time to great success.

Diversity (of experience, not just of thought) is a catalyst for innovation. Each region of the world presents challenges and opportunities unique to that geography, fostering unique life experiences for those living in that region.  Try as we might, the global West will never be able to deliver the level of blockchain innovation that LATAM can, simply because LATAM innovation is driven overwhelmingly by need.

Eurocentric crypto is a path to a dead end. Adapt or die.

Sources Cited

Rapyd. “LATAM Digital Payments and eCommerce Guide.” https://www.rapyd.net/resource/latin-america-digital-payments/. Accessed August 20th, 2022.

Picpay. PicPay Payment Institution SA. https://picpay.com/sobre-nos. Accessed August 20th, 2022.

The World Bank Group. “Annual Remittances Data.” 2021 edition. The World Bank Group. https://www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/migration-remittances-data. Accessed August 15th, 2022.

Americas Market Intelligence. “The Cryptocurrency Revolution in Latin American payments.” April 2022. https://americasmi.com/pdfs_landings/220211_The_cryptocurrency_revolution_in_Latin_American_payments_EN_09.pdf Accessed August 13th, 2022.

Chanalysis. “The 2021 Geography of Cryptocurrency Report.” October 2021. https://go.chainalysis.com/rs/503-FAP-074/images/Geography-of-Cryptocurrency-2021.pdf. Accessed August 10th, 2022.