LATAM stablecoin liquidity may depend on few providers, investor says
Reported by Cointelegraph · AI-assisted summary by ChikoCorp AI News Desk
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Summary
A report by Varys Capital and Verda Ventures highlights that Latin America's stablecoin payment ecosystem relies on a small number of liquidity providers, raising concerns about potential disruptions if a key provider loses banking access. Amit Chu, a partner at Verda Ventures, explained that while many firms offer liquidity, few specialize in wholesale stablecoin-to-fiat services, concentrating risk in a fragile layer. This could impact users' ability to convert stablecoins into local currencies efficiently.
Why it matters
According to the source, if a major liquidity provider faces issues, users might experience wider spreads, delays, or even pauses when cashing out stablecoins into local currencies. This fragility could hinder stablecoin liquidity and affect the growing role of stablecoins in Latin America's crypto economy. The report implies that regulatory clarity and local-currency stablecoins could reduce concentration and improve market stability.
Key context
The report analyzed 494 companies in Latin America, identifying only 16 primarily providing wholesale stablecoin liquidity and related services. Stablecoins accounted for significant portions of cross-border and domestic crypto activity by June 2023, especially in countries with monetary instability. The data derives from Verda’s Stablescape database, which tracks entities but lacks details on transaction volumes and market shares.
Key numbers and entities
The report involves Varys Capital, Verda Ventures, Verda’s Stablescape database, and comments from Amit Chu, partner at Verda Ventures. It analyzed 494 companies but identified only 16 key liquidity providers. A Chainalysis report cited indicates stablecoins made up 32.1% of cross-border crypto transfers and 22.1% of domestic peer-to-peer activity in Latin America by mid-2023.
What remains unclear
The exact degree of liquidity concentration and market share among providers is unknown since Stablescape does not track transaction volumes. It is also unclear how many providers manage currency risk independently versus passing it on to a few desks. The report does not specify the identities of these key liquidity providers or exact impacts on users under stress scenarios.