Inside Latin America’s booming crypto testing area

“I finally found my tribe,” he shared Fortune.

Ribeiro immersed himself in technology, creating a crypto-focused Discord server and founding an NFT-based music company. He was not alone in Brazil. The country has one of the fastest growing crypto communities in the world, ranked seventh on Chainalysis’ 2022 Global Crypto Adoption Index.

People like Ribeiro who learned about crypto from social media may have been the early adopters, but the new entrants into the space are financial giants. In mid-August, Ribeiro saw an announcement from one of Latin America’s largest companies — e-commerce company MercadoLivre — that it was rolling out its own cryptocurrency, known as Mercado Coin.

Ribeiro saw the move as a simple matter. Despite being founded in Argentina, MercadoLivre’s biggest market is Brazil. “It’s an exceptional business, if implemented in a safe way,” he said of Mercado Coin. That same month, Mastercard and NASDAQ announced their own crypto-related initiatives for the region.

While critics often describe crypto as a solution in search of a problem, boosters point to Latin America as a fertile testing ground – a region teeming with volatile currencies, inbound remittances and numerous payment restrictions. As incumbent financial players move into the region, Latin America may yet provide the answer to whether cryptocurrency can gain mainstream traction.

MercadoLivre – or MercadoLibre, as it is called outside Brazil – was founded by Argentine entrepreneurs in 1999 as a competitor to eBay. It evolved over the years into the most powerful technology company in Latin America as it borrowed from Amazon’s playbook and built massive fulfillment networks. During the pandemic, with e-commerce sales soaring, MercadoLibre reached the highest market capitalization of any company in the region.

MercadoLibre has continued its ascent by diversifying. Just as Amazon began prioritizing cloud services through AWS, MercadoLibre realized it could expand its core business through financial technology, building out its online payment tool, Mercado Pago. In the second quarter of 2022, Mercado Pago represented 45% of the company’s revenue of $2.6 billion, with experts predict that it will soon surpass e-commerce.

“MercadoLibre is definitely pushing more into financial services to maintain market share in the region, further increasing market penetration,” said Grace Broadbent, an Insider Intelligence analyst who focuses on payments.

Latin America still has a large unbanked and underbanked population, with most estimates around 50%. MercadoLibre has relied on its broad customer base to ease users into its financial offerings. It found success by adapting to customer needs, such as allowing cash on board through Mercado Pago.

The results have been staggering. Like data analytics firm Latinometrics describedif Mercado Libre’s users were a country, they would represent the third largest in Latin America.

In December, MercadoLibre began experimenting with introducing crypto into its payment platform in Brazil, Latin America’s largest market. Using blockchain infrastructure company Paxos, it began allowing users to buy and sell Bitcoin, Ether and stablecoin Pax dollars on Mercado Pago, with a minimum transaction size of one Brazilian real, or about 20 cents. Within two months, the service reached 1 million users.

“It’s a good data point to see that there is interest in the region,” Broadbent said.

The recent launch of Mercado Coin came on the heels of the trading feature, further cementing the company’s commitment to crypto. The cryptocurrency will be an ERC-20 token built on the Ethereum blockchain in partnership with Latin America-focused crypto company Ripio.

Unlike the previous crypto trading function, Mercado Coin will be integrated into the company’s wider e-commerce ecosystem. Currently, Mercado Coin can only be traded through Mercado Pago for around 10 cents. Users can make purchases on MercadoLivre using the token and earn it as cashback.

“By pairing the e-commerce platform with a digital wallet and a digital currency, it gives MercadoLibre the growing capabilities of a super app,” Broadbent said. “The crypto element fits into financial inclusion and tries to meet consumers where they are.”

She added that crypto integration into MercadoLibre’s growing payments platform makes sense given global trends. Despite the crypto winter, Insider Intelligence estimates that the worldwide value of crypto payment transactions will reach $16.16 billion by 2023 – more than sevenfold over three years. According to Morning Consult, last year Latin America had the highest penetration of crypto owners globally at 30%.

Ricardo Ceppi—Getty Images

João Felipe Marques Falcão, a 24-year-old crypto enthusiast who lives in a Brazilian city near the border with Paraguay, said he has been following the launch of Mercado Coin, as there is nothing like it on the market yet.

“It’s nice that you can buy a product and receive an amount of cash back and use it to buy more things, or even convert it to other currencies,” he said. “It’s like a new way to spend money.” As a frequent MercadoLivre customer, he said he was eager to try it out.

The function was launched at the end of August for MercadoLivre’s 80 million customers in Brazil. Although the company declined to provide engagement figures, it said it soon hopes to expand its offering throughout Latin America.

MercadoLibre may be Latin America’s most important homegrown tech company moving into crypto, but it’s hardly alone from a global context. In the same month that the e-commerce giant introduced Mercado Coin in Brazil, Mastercard announced that it is partnering with Binance – the world’s largest crypto exchange – to launch a prepaid card in Argentina that will allow Binance customers to make purchases and pay bills with crypto. A Mastercard survey from July found that 51% of consumers in Latin America have made at least one transaction with cryptocurrencies.

Due to its ongoing battle with extreme inflation, Argentina is often touted as the ideal testing ground for cryptocurrency. Many of the region’s key crypto companies, from the metaverse Decentraland to the payments platform Ripio, started in Argentina, although the challenge has long been aboard ordinary people. Nevertheless, the country was ranked 13th^{this year on Chainalysis’ global adoption index.}

“Argentina makes a great test case to enter the region because of the speed of consumer adoption, but also because of the geopolitical and macroeconomic situations we see in the market,” said Kiki del Valle, Mastercard’s executive vice president of market development for Latin America and Caribbean. “A large influx of global players and Latin American players are entering the LAC region.”

Another newcomer is NASDAQ, which partnered with Brazilian crypto exchange Digitra in late August to help facilitate liquidity on the platform. While this is definitely a more technical application than Mastercard or MercadoLibre, Digitra founder Rodrigo Batista said it would help with the long-term goal of bringing everyday people on board.

“The main reason adoption isn’t widespread yet is user experience,” he said Fortune. He said people will start using crypto when they don’t even realize they’re using it, like how consumers don’t understand the underlying technology behind streaming services.

From President Nayib Bukele adopting Bitcoin as legal tender in remittance-dependent El Salvador to prepaid Binance cards in inflation-ravaged Argentina, Latin America represents a unique laboratory where the main use case for crypto is not speculation.

Even when companies bandy around buzzwords like “financial inclusion” and “democratization,” it will be difficult to assess whether they have succeeded in stimulating engagement before they start providing user data. In any case, the entry of major players such as MercadoLibre and Mastercard shows that a new financial era for Latin America is beginning.

“Competition is just good,” del Valle said Fortune. “It’s driving greater adoption and accelerated pace for everyone to understand and demystify some of the concerns they might have in the space.”