The Next Stablecoin Unicorn will be in Latin America

Overview

After the recently announced Bridge acquisition by Stripe for $1.1BN, bolstering Stripe’s stablecoin infrastructure and reaffirming the critical role stablecoins will play in the future of global payments, many of us in the venture world are keen to identify the next stablecoin unicorn(s) in a space which will reach trillions in annual payment volume over the next decade. I’m betting the next stablecoin winner will have a meaningful presence in Latin America, and I’ll unpack why below. I’ll also cover the emerging startup players you should be aware of in the region. 

Why Stablecoins: Stablecoins enable businesses and people to transact nearly instantly with minimal cost, avoiding intermediary bank transfer fees. They also enable holding funds in stable currencies like the US dollar, avoiding unpredictable fluctuations in wealth. In emerging markets with volatile currencies, that’s a powerful value proposition.

Why Now: Technological efficiency paired with globalization and proven business models mark an inflection point for stablecoin payments:

(1) Blockchain Cost-Efficiency: Transactions on public blockchains like Ethereum, Solana, Avalanche, and Ripple (XRP) are now fast and cost-efficient enough to enable high-volume stablecoin payments. That wasn’t the case just a few years ago.

(2) Battle Tested Stablecoin Models: Stablecoins like USDC, powered by Circle, have reached a level of regulatory compliance, commercial validation, institutional credibility, and developer accessibility that make them trustworthy & seamless enough to harness at scale.

(3) Globalization: emerging economies like Latin America are rapidly globalizing, driven by factors including payment digitization and trade reorientation (example: nearshoring in Mexico), positioning Latin America as a trade fulcrum between the west and east.

(4) Business Models that Scale: After several years of iteration, application layer payment solutions harnessing stablecoins like USDC have proven the viability of business models that include a combination of FX conversion fees, recurring subscriptions for virtual accounts, and premium feature add-ons like payroll & compliance. We’re seeing several companies (which I’ve mapped below) now hitting escape velocity with these hybrid business models.

Why Latin America

With an annual digital payments market of $200bn+ and growing fast, Latin America is ripe for a stablecoin payments unicorn for several reasons: 

(1) Currency Volatility: the region has experienced political instability and extreme currency volatility in recent years, with particularly notable fluctuations in countries like Argentina, Venezuela, Colombia, Brazil, Chile, and Mexico. These countries have resorted to central bank monetary spending (in the form of printing money) to fund government spending, exacerbated by a general flight to safety in foreign currencies like the US dollar.

(2) Latino Immigration to the US & Europe: The US has the largest concentration of latinos outside of Latin America, with about 20% of the US population being Latino, followed by Europe (and Spain in particular). In tandem, the economic output (measured in GDP) of Latinos in the United States continues to grow, at a rate of about 4.6% annually since 2017 to about $3.6 trillion in 2022. To put this in perspective, the Latino population in the US, if it were its own country, would rank 5th in the world behind the US, China, Japan, and Germany, and ahead of India, the UK and France, in GDP. In fact, between 2019 and 2022, Latinos in the US drove 41% of growth in real US GDP, much of which is subsequently sent back to Latin America in the form of remittances (which reached a record $154.5 billion in 2023). Mexican immigrants in the US send a major sum — approximately 17.3% — of their salary back to Mexico each month.

(3) Modern Digital Banking Rails: as open banking policy measures took effect across Latin America over the past 5 years, digital banking rails have emerged that make connecting with regional banks vastly more efficient. These include Pix, managed by the Central Bank of Brazil, Nequi, owned by Grupo Bancolombia (the largest bank in Colombia), Daviplata, owned by Colombian bank Davivienda, and CoDi (Cobro Digital), developed by Banco de Mexico. Many of these bank-sponsored platforms have garnered meaningful early traction.

(4) Consumer Mobile Connectivity: Internet penetration has jumped from 43% to 78% across Latin America over the past decade, and over 95% of Latin Americans now use digital platforms for financial services, nearly triple just 10 years ago. In particular, countries like Mexico, Colombia, Peru, and Argentina have exhibited exponential growth in mobile payments.

(5) Lenient Financial Compliance: Current regulatory rules around stablecoins are still nascent in Latin America, with a lack of harmonization across institutions and regions, creating breathing room for stablecoin payment systems to launch and scale fast. In Colombia, for example, there are no laws prohibiting payments harnessing “units” pegged to stablecoins or non peso currencies. However, payment platforms without a banking license must be wary of offering bank-related services such as yield on assets, as that is prohibited in Colombia for non-banks.

How to Win

Given the market opportunity in Latin America, there are several key factors that I believe will contribute to the emergence of a stablecoin unicorn in the region. 

(1) Complete the Business → Consumer → Business Stablecoin Payment Loop: A product that is able to complete a “Holy Grail” payment loop, enabling…

• (1) businesses to pay consumers

• (2) consumers to pay each other

• (3) consumers to pay businesses

• (4) businesses to pay each other

has the potential to unlock uniquely viral network effects in this market. Essentially, that product will deliver a closed loop experience where business stakeholders and consumers can accomplish everything they need to earn and live from one application, rendering other point solutions obsolete. Why download multiple applications when you can do everything you need to in one place…

• Business Payments

  • Payroll – paying your employees 

  • Vendor & Client payments – invoicing your clients or paying vendors 

  • Intra Company Transfers – transferring funds between accounts within your business, particularly across multiple countries

  • Point of Sale – receiving payments from consumers 

• Consumer Payments

  • Sending & Receiving remittances – sending funds to family members based in Latin America

  • Receiving Payroll – receiving payment from your employer 

  • Vendor Cashback – receiving loyalty rewards from a vendor 

  • Paying for Daily Necessities – paying for food, rent, entertainment, gifts, travel, and more 

(2) Bank Partnerships: I believe winning players will establish alliances early-on with the most important banks in each region. Banking partnerships unlock distribution, either via white-labeling or integrating directly with stablecoin payment solutions, thereby driving millions of existing users onto a platform overnight. Banks also have major sway over policymaking, with the potential to establish regulatory & political moats for the platforms they’re collaborating closely with. 

(3) Partnerships with Global Settlement Rails: Establishing partnerships with the most important settlement rails, like Mastercard and Visa, enables a platform to leverage their infrastructure for point of sale payment processing – critical to winning point of sale distribution. Partnerships with Mastercard and Visa also engender brand credibility early on, with ripple effects that extend into a company’s ability to land pivotal partnerships with the most important consumer brands across Latin America.

(4) A Focus on Compliance from Day One: As stablecoin payment companies in Latin America hit escape velocity over the next year or two, regulators will take notice; the companies that play by the rules, open lines of communication early-on with key regulatory bodies, and proactively obtain banking licenses, will avoid unintentionally overstepping regulations & bearing the consequences. 

(5) A Product that “Just Works”: Anyone who’s dealt with blockchain-based payments over the past decade has felt the pain of managing wallet addresses, signing transactions, and paying gas fees. We’re beyond that painful experience now. However, applications harnessing stablecoins face an extremely high user experience quality bar. In a sea of payment options, consumers lack patience for five steps to pay for a coffee. A product that makes digital payments delightful will be rewarded. 

Current Landscape

There is a range of fast-growing players in the stablecoin payments space in Latin America, now hitting inflection points of adoption. While there isn’t a dominant pan-Latin American market leader yet, below are several viable candidates in position to potentially take a large slice of the pie:

Characteristics of the Next Stablecoin Unicorn

Given the above contenders, what characteristics might a stablecoin unicorn in Latin America have?

(1) Meaningful User Scale: to catch the attention of a potential acquirer, whether its Stripe, Ripple, Mastercard, Visa, Nubank, Deel, Revolut, or another global fintech with deep pockets and a vested interest being at the forefront of payments in Latin America, a product must hit meaningful scale – both in revenue and user adoption  – proving its able to transcend geographic silos and unlock viral user acquisition. For reference, Bridge.xyz was doing about $15M in annualized revenue at point of acquisition by Stripe.   

(2) Completed the “Holy Grail” B2C2B payment loop: I predict a stablecoin unicorn in Latin America will have successfully completed a B2C2B payment loop, enabling business to pay consumers and back entirely in stablecoins, all via one harmonious application. The particular challenge here lies on the consumer utility front – a company must get buy-in from the most popular vendors, brands, utilities, and retailers that consumers engage daily. No small feat. However, I believe the network effects we’ll see from a product that does successfully complete this loop will vastly outstrip that of one with a singular go-to-market focus (i.e. B2B or B2C).

(3) A Hybrid Business Model: A unicorn will likely have nailed a hybrid business model designed for an environment in which conversion to local currencies is optional rather than mandatory. To make up for diminishing currency conversion fees, they will likely have layered in premium subscription features including virtual accounts, payroll, compliance, benefits administration, tax filing, and more. I would look at companies like Deel.com or Rippling.com for comparable business models.

(4) Integrations with Bank Owned Payment Backbones: By integrating with bank owned payment backbones like Pix in Brazil, Nequi and Daviplata in Colombia, and CoDi in Mexico, a company will be able to slipstream directly into incumbent user ecosystems. Furthermore, integrating with these payment rails indicates a company is “playing by the rules,” which will look better for regulators.

(5) Full Regulatory Compliance: Proactive compliance will be paramount, particularly as a breakout stablecoin payment platform catches the attention of regulators. To avoid costly legal hurdles, the next stablecoin unicorn in Latin America will have prioritized compliance via hiring a strong compliance leadership team and pursuing appropriate licensing.

(6) Trusted Brands: A unicorn will likely have leadership talent that includes people hailing from the most credible fintechs (think Nubank, Revolut, Pomelo etc.), along with a roster of well-recognized corporate partners – including incumbent settlement providers like Mastercard and Visa. From a signaling standpoint, aligning with these brands mitigates risk.

Contemplating a Future Entirely off Traditional Payment Rails 🤔

Once stablecoin payments hit a critical threshold of utility for businesses and consumers, we may see a world in which payments move entirely off traditional settlement rails. Logically, why pay intermediary fees for settlement collection or currency conversion if all parties can pay for everything they need via stablecoins?

This future has major implications for settlement infrastructure providers like Visa & Mastercard and traditional banks. As a result, I predict a land grab in the stablecoin payments market by traditional stakeholders seeking a foothold. We’re in for a ride. 

If you have any thoughts or suggestions, reach me anytime at [email protected]. 

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DISCLAIMER:

At point of writing this post, I have institutional and personal stakes in Mural and Conduit, respectively. Content contained above is not intended as, and shall not be understood or construed as, financial advice. All views and ideas expressed are my own.