Chile Stands to Lead Latin America For Crypto Regulation, Even as it Lags in Adoption – The Defiant

The country now has a FinTech law that creates a category for “crypto-assets.”

Of 33 countries in Latin America, it may be surprising for some that a small sliver in the deep south is paving the way for crypto.

Most following the blockchain industry will likely know that Argentina has a grassroots-led crypto ecosystem, while Venezuelans challenge an authoritarian system by using digital assets, and Brazil is a giant market of crypto holders.

Yet Chile is seldom in the spotlight. But that may be about to change.

Chile approved a new FinTech law in 2023, which includes a category for so-called “crypto assets.” That puts Chile at the forefront in terms of regulation for the blockchain industry versus its neighbors.

Last week, the nation’s crypto ecosystem gathered at CriptoSummit Latam conference in part to discuss the law’s implications regarding cryptocurrencies when it becomes effective in Feb. 2025.

“Having a FinTech law, and the [recently added] norm that will regulate crypto assets, places us in a leading position for the region,” said Felipe Godoy, partner at Wolf Group, a law firm that specializes in cryptocurrency.

According to Godoy, while the law is still in its early innings, he appreciates that it “offers legal certainty.”

In other words, the industry now exists within a regulatory framework, and not the gray area it had been operating in.

Easier to Transact

Chile, which has a small population and relatively high access to financial services, can prove to be a good testing ground for the rest of the region to follow suit if the approved legislation provides useful guidelines for digital assets.

Godoy’s view aligns with that of Cristóbal Pereira, CEO of Colledge, a Chile-based Web3 educational platform.

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“It’s positive because it will allow for a deeper market to develop, attracting both national and international actors,” he told The Defiant.

Although the law doesn’t affect Colledge’s business model, Pereira said, it does have administrative implications.

Pereira explained that now it will be easier to use domestic and international payment rails without having to offer banks explanations about where the money is coming from, “nor will our transactions get blocked.

Cumbersome Paperwork

However, at least one crypto entrepreneur isn’t entirely satisfied with the rule.

Sebastián Saá, CEO of SugarBlock, a Chilean startup that offers investors passive income on their crypto, told The Defiant there are a lot of unknowns still in the process. The CEO also said regulators often lack expertise when it comes to the industry and how blockchain technology works.

SugarBlock has been operating since April 2022, and has been busy trying to comply with the rules, which are cumbersome due to the misunderstanding of regulators, Saá said.

According to Saá, crypto companies have to deal with inefficiencies, since they have to adapt to norms written by agencies that don’t entirely understand the industry, or the underlying technology.

And newer companies, like SugarBlock, are finding themselves in the throes of large swathes of paperwork to continue operating–a reality that could hinder more companies from popping up.

Stable Financial System

Latin America is home to more than 650 million people, of which 122 million are unbanked, while several countries in the region have double and triple-digit inflation.

Meanwhile Chile, with a population of 19 million, has a relatively more robust and stable financial system that allows for 97% of the population to access financial instruments, according to a 2019 survey by the Superintendence of Banks and Financial Institutions.

Lagging Adoption

Yet, while Chile is no stranger to crypto – more than 1% of the population have scanned their eyeballs to Worldcoin’s orb, and the country’s largest exchange, Buda.com, has onboarded more than 500,000 users – it’s not known to be the most crypto-friendly either.

The nation’s stability, banking access and low inflation rates mentioned above, could be behind the low levels of crypto adoption in the country – there is no dire need for uncensorable money as in other parts of the region.

Chile is the sixth country in Latin America by cryptocurrency value received, according to a 2023 Chainalysis report, and it’s the fifth-largest in terms of GDP in the region. Argentina and Venezuela have higher degrees of adoption relative to their economic size.

Latin America Lacks Rules

Lagging adoption is not hindering local regulators to make moves embracing the technology at a policy level. Meanwhile, their counterparts have been slow in most of the region.

Mexican Senator, Indira Khempis, has been at the forefront of pro Bitcoin legislative talks, but has previously said they are still in the educational phase.

On the other hand, Argentina has one the largest crypto communities in the world, spawning dozens of projects, is yet to adopt pro-crypto legislation. Many also await a helping hand from recently elected libertarian president Javier Milei–although news surfaced on March 25 that the country would be creating a Registry of Virtual Assets Service Providers (VASP).

One exception is El Salvador.

Led by millennial president Nayib Bukele, the small Central American nation made headlines when it made Bitcoin legal tender in September 2021. But locals say adoption has been slow–Bitcoin users halved to 12% in 2023–citing a lack of a true educational approach from the government, but the move to become the first Bitcoin country was still pioneering.

While legislators have been slow to move in most of Latin America when it comes to crypto, Web3-native companies continue making large moves.

Buenbit, an Argentine exchange raised an $11 million Series A in 2021 to bolster crypto adoption in the region, Tether launched a stablecoin in May 2022 for the Mexican Peso, Unstoppable Domains expanded into the region in Dec. 2023 in what the company called a “calculated move,” and experts say Brazil has all the ingredients to be a Web3 powerhouse.

What’s Next

For Felipe Godoy, eyes should be set on February 2025.

That’s when the first round of inscription by crypto companies ends, and the industry will have a better picture of how many are operating, whether they are complying, and ultimately if the law is helping to foster innovation, or simply killing them by enforcement.

Godoy thinks that complexity is coming, due to the large amount of paperwork companies need to fill in, but calls it “normal.” First, he said, regulators need to acknowledge crypto in general before moving into deeper waters.

Pundits often tag emerging markets’ potential for disrupting traditional industries, especially banking or financial services. Chile now has the chance to lead the way in Latin America when it comes to crypto

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