Could CBDCs, stablecoins shift institutional funding in emerging markets? Panelists weigh in
Emerging markets today suffer from a scarcity of institutional funding in terms of DeFi and crypto-related solutions, Pablo Pizzimbono said Tuesday at the Permissionless conference in Austin, Texas.
Pizzimbono is the founder of CrossRegional Partners and Clave, an alternative asset manager and a crypto-based direct lending platform, respectively.
One thing Pizzimbono’s fellow panelists believe could alleviate the dried up investor appetite in emerging markets is wider access to stablecoins and central bank digital currencies.
CBDCs, for instance, could simplify the introduction to tokenized assets and borderless money, argued Credix Finance founder and CEO Thomas Bohner.
Specifically, the coexistence of those things could attract institutional investment into regions like Latin America for instance, Bohner said.
“I definitely think [stablecoins and CBDCs] can coexist next to each other. I think it’s a great way to get some institutions into this market, and I think we should definitely allow private stable coins to remain in existence, so that you can provide optionality.”
The assembled panelists appeared to agree that CBDCs are coming one way or another.
But it’s a bit more complicated than the utility of various crypto assets, in Pizzimbono’s view. His company, CrossRegional, manages institutional portfolios in Latin America, so he offered a behind-the-curtain look at what large investors consider when entering emerging markets.
He boiled it down to asset quality, governance, enforceability of collateral, and scalability.
“You need good assets, good credit characteristics, low defaults,” Pizzimbono said.
Having efficient bankruptcy laws is another gateway for institutional investors into emerging markets, according to Pizzimbono.
“The ability of an investor to enforce their security interests in the event of nonpayment is critical,” Pizzimbono said. “In Mexico […] with a well structured package, you’d have a lot of difficulty accessing their collateral because of those local court systems and they’re complex.”
Inefficiencies on the bankruptcy level are “very prohibitive” for local funding, Pizzimbono said.
Scalability is also important for institutions because they don’t really get a bang for their buck unless they’re investing $100 million plus, Pizzimbono said.
That sentiment was echoed by panelist Nick Carmi, Circle’s vice president of institutional markets.
“From my experience with investors […] they want to be able to execute at size,” Carmi said.
That means investing $1 million or $2 million is simply not enough. They want adequate reward for the risk they’re taking, Carmi added.
Circle’s most recent entrance into an emerging market came in late August with a USDC integration with Mercado Libre in Chile.
