The world of decentralized finance (DeFi) is revolutionizing the financial sector in Latin America, offering an innovative alternative to traditional banking systems. DeFi relies on blockchain technology to provide financial services such as loans, investments and insurance, without the need for centralized intermediaries.
In Latin America, DeFi has found fertile ground due to the high rate of unbanked people and distrust in traditional financial institutions. The region has seen significant growth in DeFi adoption, driven by the need for access to more inclusive and transparent financial services.
According to the study called Cryptoassets in Latin America and the Caribbean carried out by the IDB and the University of Cambridge, decentralized finance can be defined as “a general term which refers to an emerging economy that comprises various protocols, platforms and applications built on public software. Unlike established centralized finance (CeFi), projects and protocols under DeFi have the overall goal of enabling financial activity without intermediation. “DeFi protocols are typically controlled by decentralized autonomous organizations (DAOs) to achieve the goal of decentralization.”
The evolution of DeFi in Latin America is also favored by local innovation and the adaptability of its inhabitants to new technologies. Despite regulatory and infrastructure challenges, DeFi is emerging as a promising solution to combat inflation and foster economic development, offering users full control over their assets and transactions.
Claudio Cossio, co-founder of Meta Pool stated “applications that use blockchain technologies allow the user to retain part of the value generated from their transactions and activities; "Staking is something that is about to grow in Latin America."
What are the main factors behind the growth of the Defi world in Latin America?
The main factors behind the growth of decentralized finance (DeFi) in Latin America are technological innovation and the response to specific financial needs of the region. Blockchain technology and cryptocurrencies have provided tools to overcome the traditional barriers of the financial system, offering accessibility and efficiency in financial transactions and services.
The major economic problems faced by several countries in the region, such as high inflation levels and loss of value of local currencies, have generated a lack of confidence in several countries in the Latin American region.
This widespread feeling in Latin America has been one of the main drivers for new generations of inhabitants in search of new financial alternatives to traditional financial systems, as is the case of decentralized finance.
Likewise, growth is also driven by the entrepreneurial spirit and adaptability of Latin Americans to new technologies, which has fostered an ecosystem of startups and innovative DeFi projects. Despite regulatory and infrastructure challenges, DeFi is emerging as a promising solution to combat inflation and foster economic development, offering users full control over their assets and transactions.
The current challenges of the DeFi world
The main challenges of decentralized finance (DeFi) in Latin America are critical to understanding its growth and expansion potential. One of the most significant challenges is the lack of clear regulation. The absence of a defined legal framework generates uncertainty among investors and users, limiting the mass adoption of DeFi.
Safety is another major concern. Although blockchain technology is secure, smart contracts and other applications can be vulnerable to cyber attacks, putting users' assets at risk.
Additionally, education and understanding of DeFi is limited. Many potential users are unfamiliar with the concepts or operation of DeFi, which can lead to misinformed adoption and increase the risk of financial loss.
Technology infrastructure also presents challenges. Although there is progress, internet accessibility and the technology necessary to participate in DeFi is not evenly distributed, especially in rural or less developed areas.
These challenges require innovative and collaborative solutions to ensure that DeFi can reach its full potential in the region, offering inclusive and efficient financial services.
In conclusion, for the DeFi world to reach a point of greater growth, it will have to overcome several of the present challenges.
