Photo credit: Lionel Ng/Bloomberg

Stablecoins remains the most popular cryptocurrency in Latin America, prompting local central banks to consider developing a digital form of their fiat currency, according to new research.

Crypto assets pegged to particular assets, such as fiat currency or commodities held in reserve, are preferred by many traders on both local and offshore exchanges, with 63% of the top ten trade volumes involving stablecoin-to-fiat pairs, data from crypto research firm Kaiko shows.

Kaiko analyzed data from seven centralized exchanges that offer LATAM currency-denominated trading, namely Binance, KuCoin, OKX, Mercado Bitcoin, Bitso, HTX, and Bitfinex, aggregating figures across all trading pairs, including regional currencies.

The significant adoption of crypto assets pegged to particular assets, such as fiat currency or commodities held in reserve, in LATAM has induced interest among local central banks to consider turning to central bank digital currencies (CBDCs). However, it remains uncertain if such an asset could “compete effectively,” the research firm noted.

Crypto assets as inflationary shield

Historically, LATAM has had some of the world’s highest inflation rates and currency depreciation, with 122 million people remaining unbanked as of 2021. That, along with several other country-specific factors, including political uncertainty, drove crypto adoption in the region.

More than 40% of all trades involve Tether’s USDT and nearly half of Brazilian real (BRL)-denominated trades involve stablecoins.

Bitcoin (BTC) also gained more than 100% against the Argentine peso and over 70% against the BRL between January and May, outperforming other fiat-denominated pairs, Kaiko noted.

Specifically, the leading cryptocurrency peaked in Argentina when the price of 1 BTC equaled 63.8 million ARS on May 2.

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Crypto appetite increases post-downturn

Crypto trading has picked up in LATAM following the crypto collapses and bankruptcies in 2022. Trading volumes in the region crossed $3 billion, the largest month-on-month increase since mid-2021. The surge is aligned with improved global sentiment following the approval of some exchange-traded funds (ETFs) in the United States.

According to the report, the BRL dominates crypto trading, with a market share of 53% versus the Mexican peso (MXN), Colombian peso (COP), and ARS, despite having a small volume compared to other regional currencies.

Despite having a small volume compared to other regional currencies, the BRL dominates crypto trading, with a market share of 53% versus the Mexican peso (MXN), Colombian peso (COP), and ARS, the research finds.

BRL-denominated crypto trade volume touched $6.9 billion between January and May 2024.

Read more: Stablecoin issuer Paxos lays off 20% of staff: Report