According to a new report from crypto venture firms Varys Capital and Verda Ventures, the stability of Latin America's stablecoin ecosystem is at risk due to its reliance on a limited number of liquidity providers. Out of 494 companies analyzed, only 16 focus primarily on wholesale stablecoin-to-fiat liquidity, treasury, and credit.
Amit Chu, a partner at Verda Ventures, emphasized that this concentration creates fragility in the system. If a key liquidity provider were to lose banking access, users could face significant challenges when converting stablecoins into local currency, leading to higher costs and delays.
The report indicates that while many companies offer liquidity services, few specialize in managing currency risk, potentially exacerbating the situation. Chu noted that the lack of transparency in public data makes it difficult to assess how many firms are truly independent in their liquidity sourcing.
To mitigate these risks, Chu advocates for clearer licensing regulations to encourage banks to support liquidity providers. He also suggests that local-currency stablecoins could enhance market stability by enabling more on-chain transactions.
Despite these concerns, the report identifies Latin America as a promising market for businesses focused on cross-border payments, driven by the region's fragmented banking systems and high transfer costs.