The Cambridge Centre for Alternative Finance (CCAF) has published a report on the crypto ecosystem in Latin America and the Caribbean (LAC).
CCAF is the leading research organization in the world studying innovation in financial services – Fintech. The Centre is noted for its evidence-based research, which is widely utilized to help craft policies and regulations around the world. Being based in the UK means there is a well-established group of policymakers that want to support Fintech innovation as it is viewed as vital to the economy. The crypto report on Latin America is published in partnership with the Inter-American Development Bank (IDB).
CCAF says it conducted targeted surveys online from June to August 2022. The private sector survey was directed at companies actively engaged in cryptoasset-related activities across LAC, yielding a total of 52 responses.
At the same time, interviews were conducted with some of the largest cryptoasset firms in LAC to provide additional perspective.
Other sources, such as the Cambridge Fintech Ecosystem Atlas (Atlas) and the Cambridge Bitcoin Electricity Consumption Index (CBECI), are referenced as well, along with outside industry reports, including data from central banks, which helped to craft the document.
Topics include CBDCs (central bank digital currency), DeFi (decentralized finance), digital asset mining, payments, regulation, and more.
Bryan Zhang, co-founder and Executive Director of CCAF, explains that the rapid pace of change in crypto has increased the urgency for understanding and cooperation to ensure that “development is sustainable, consumer protection is robust, and policymaking is evidence-based.” Zhang says that regulators have indicated a more positive attitude towards crypto – of course, this does not reflect the US. Zhang sees a warming towards crypto due to the perception it can foster a more inclusive financial sector.
“It appears that regulators and policymakers also lack sufficient technical understanding and capabilities when it comes to regulating and supervising cryptoassets, hence their need for technical assistance and capacity building,” says Zhang.”Both private and public sector institutions stated that increased cooperation is essential and that there is a need for regulatory clarity and certainty. Furthermore, private sector respondents identified working with corporate clients and expanding decentralised finance services as some of the most promising future growth opportunities.”
The report states that crypto firms are evolving into “full-scale Fintech providers” and one-stop shops for investors, consumers, and businesses. This comes as digital asset firms seek to reduce the complexity of blockchain technology, making services more approachable or similar to established financial services firms.
Some of the key takeaways from the report include:
- Crypto asset companies in LAC are transitioning into comprehensive Fintech providers, offering a diverse array of services.
- Digital assets in LAC have experienced substantial expansion, with companies extending their reach beyond their home countries. Nearly half of surveyed entities already operate in three or more LAC countries, with Mexico, Chile, and Colombia being the most frequently served.
- Regulators in LAC exhibited a progressively positive outlook on cryptoassets as of mid-2022. Thirty-six percent of public sector respondents expressed a more favourable attitude compared to five years prior.
- Regulators largely recognize the value of cryptoassets in fostering a more inclusive financial services landscape, with only 7% considering them not useful.
- Both industry players and regulators affirm the necessity of a collaborative approach to foster a secure and innovative cryptoasset ecosystem in LAC. Over half of public sector institutions expressed support for ongoing dialogue with companies and stakeholders. However, despite growing interaction with Fintech and blockchain associations, most respondents noted limited cooperation with private companies, both domestically and internationally.
- As one would expect, clear regulatory guidelines and frameworks are crucial needs by both public and private sector respondents.
The future trajectory of the LAC cryptoasset industry envisions expansion into corporate services and the broadening of decentralized finance (defi) offerings.
It is interesting to view the development of the digital asset ecosystem in LAC as the US pushes back against the industry. The regulatory situation in the US, largely driven by the Securities and Exchange Commission, can be described as hostile. Meanwhile, the US Congress has been more supportive, but there is little hope of legislation being approved that can advance the industry.
As always, CCAF puts together a respectable report that should be read by both digital asset advocates and opponents. You can download the report here.