Inside Latin America’s booming crypto testing ground

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

Ribeiro immersed himself in the 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, ranking seventh on Chainalysis’s global crypto adoption index for 2022.  

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 biggest companies—the e-commerce company MercadoLivre—that it was rolling out its own cryptocurrency, known as Mercado Coin.

Ribeiro saw the move as a no-brainer. Despite being founded in Argentina, MercadoLivre’s biggest market is Brazil. “It’s an exceptional business, if it is put into practice in a safe way,” he said about Mercado Coin. The 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 knots of payment restrictions. As financial incumbents move into the region, Latin America may yet provide the answer to whether cryptocurrency can achieve mainstream traction. 

MercadoLivre—or MercadoLibre, as it’s called outside of Brazil—was founded by Argentine entrepreneurs in 1999 as a competitor to eBay. It evolved over the years into the most powerful tech 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 cap 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 $2.6 billion revenue, with experts predicting that it soon will outpace e-commerce.  

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

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

The results have been staggering. As the data analytics firm Latinometrics described, if 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 the blockchain infrastructure company Paxos, it began allowing users to buy and sell Bitcoin, Ether, and the stablecoin Pax dollar 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’s interest in the region,” Broadbent said.  

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

Unlike the earlier crypto-trading feature, Mercado Coin would be integrated into the company’s broader e-commerce ecosystem. For now, Mercado Coin is only tradable through Mercado Pago for around 10 cents. Users can make purchases on MercadoLivre using the token, and earn it as cash back.

“In coupling the e-commerce platform with a digital wallet and a digital currency, it gives MercadoLibre the growing characteristics of a superapp,” Broadbent said. “The crypto element fits into financial inclusivity and trying to meet consumers where they’re at.” 

She added that crypto integration into MercadoLibre’s growing payment platform makes sense given global trends. Despite the Crypto Winter, Insider Intelligence forecasts worldwide crypto payment transaction value will hit $16.16 billion in 2023—up 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 living 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 in the market yet. 

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

The feature launched in late August to MercadoLivre’s 80 million customers in Brazil. Although the company declined to provide engagement numbers, it said it soon hopes to expand the 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. The same month that the e-commerce behemoth introduced Mercado Coin in Brazil, Mastercard announced it was partnering with Binance—the world’s largest crypto exchange—to launch a prepaid card in Argentina that would allow Binance customers to make purchases and pay bills with crypto. A survey by Mastercard from July found that 51% of consumers in Latin America have made at least one transaction with cryptocurrencies.  

Because of its ongoing battle with extreme inflation, Argentina is often touted as the ideal proving 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 onboarding everyday people. Even so, the country ranked 13th this year on Chainalysis’s global adoption index.  

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

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

“The main reason adoption is not widespread yet is user experience,” he told 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 the 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 as companies bandy around buzzwords like “financial inclusion” and “democratization,” it will be difficult to assess whether they have been successful in spurring engagement until they begin providing user data. Regardless, the entrance of major players like MercadoLibre and Mastercard demonstrates that a new era of finance for Latin America is beginning. 

“Competition is only good,” del Valle told Fortune. “It drives greater adoption and accelerated pace for everybody to understand and demystify some of the concerns they may have in the space.”