Source: Zhiwubuyan
【Introduction】
Overnight, stablecoins have become a hot topic on the street. What are stablecoins, and will they subvert the traditional financial system?
Stablecoin is not a new concept that became popular overnight, but a giant that has gradually grown with the development of the industry. It has only been pushed to the forefront of global media and audiences with the recent passage of the GENIUS Act in the United States and the listing of stablecoin issuer Circle.
Therefore, Hazel and her partner Ivy started this podcast "OurTwoCents" around crypto payments, not on a whim, but at this right time, we firmly believe that the turning point of history has come. From a game in a small circle to an indispensable element in the daily life of the global public, in the next few years, we will witness blockchain truly rewrite the global payment rules, give birth to several unicorn companies in the payment field, improve the circulation efficiency of global value, and enable people ignored by traditional banks to have financial tools that can reach the world.
Of course, in addition to payment itself, we will also pay attention to its related fields, such as RWA, AI Agent payment, and new things that will emerge at any time. In short, we hope to pay attention to the combination of encryption and the real world, and stablecoins must be an important medium.
Hazel and Felipe met at a think tank meeting in Moscow. Due to sanctions, Visa and Mastercard cannot be used in Russia, which made Hazel, a Chinese who lived in Europe and had always enjoyed payment convenience, deeply experience the feeling of being "unbanked", which may be the daily life of many people in Asia, Africa and Latin America. Felipe founded Kravata because he saw how stable currency payments could release energy and truly change people's lives in a country where bank card penetration is less than 50% and credit card penetration is less than 10%, and in a continent with "same pain".
1. Introduction
In the first episode, we invited Felipe Montes, the founder of Kravata, a Colombian stablecoin payment company, to give us a detailed introduction to the payment ecosystem in Latin America and what Kravata is doing.
Kravata.co is a company headquartered in Bogota, Colombia, engaged in stablecoin fiat currency exchange and payment business in Latin America. It completed a US$3.6 million seed round of financing at the beginning of this year. Its investors include Circle Ventures, whose parent company Circle is the issuer of the compliant stablecoin USDC.
Our Two Cents, a podcast that explores the new frontier of payments and how blockchain is reshaping global finance, debuts in English
Guest: Felipe Montes
Kravata founder, X: @FelipeMontesJ
Felipe Montes is the co-founder and CEO of Kravata, a Latin American Crypto-as-a-Service (CaaS) B2B payments company based in Colombia. He has been involved in the crypto space since 2013 and has a diverse background including academia, government, and consulting.
Anchor Hazel Hu
Host of the podcast "Zhi Wu Bu Yan", 6+ years of experience as a financial media reporter, core contributor of the Chinese Public Goods Fund GCC, focusing on the practical application of encryption. X: 0xHY2049; Immediately: A careless Yueyue
Anchor Ivy Zeng
Host of the podcast "Zhi Wu Bu Yan", used to work in VC, participated in pop-up cities and payment, and is currently responsible for Latin American growth in a new bank. X: IvyLeanIn; Xlog: ivyheretochill
2. Latin American market background
Hazel: What is the current state of payments in Colombia? What are the most commonly used payment methods in daily life for people and companies in Colombia?
Felipe: Colombia has a population of 48 million, of which more than 50% do not have bank accounts, resulting in a large amount of cash being used across the country. More and more digital wallets are entering the market, such as
Nequi and Daviplata (which are the largest banks) allow people to make payments and open accounts using just their mobile phone number. These are gradually becoming the most commonly used payment methods. There is also PSE (Programa de Servicios Electrónicos) , which belongs to the ACH Group and is similar to the ACH system in the United States. PSE supports real-time bank payments and currently processes about 32% of e-commerce payments, although it is mainly used for cash-in rather than cash-out. Credit card penetration is low, less than 10%, which is a trend across Latin America, but debit cards are used. A new government initiative called Breve is about to be launched, which will be a real-time payment system that will enable instant settlement between banks and support deposits and withdrawals. Other methods include QR codes and mobile wallets, and about a third of transactions are digitalized through payment gateways.
Hazel : What are your observations regarding currency depreciation in different markets in Latin America?
Felipe : A key factor in the Latin American market is that the financial system is highly fragmented . Each country has its own system and KYC rules, resulting in a lack of financial interoperability between countries. There is no liquidity between different Latin American currencies; transactions usually need to be converted into US dollars (usually through a US correspondent bank) and then converted into the target currency. This process can involve multiple steps and multiple layers of intermediaries.
One of the main reasons for adopting stablecoins is that it simplifies this process into two steps: converting from local fiat currency to stablecoin through an on-ramp, and then converting to another fiat currency through an off-ramp using local liquidity.
Another key reason is to hedge against currency depreciation. For example, the Colombian peso has depreciated by more than 50% against the US dollar in the past 10 years (from 2,000 pesos/1 USD in 2014 to 4,170 pesos/1 USD currently). People need alternatives to save because USD accounts are not available in most Latin American countries. Exchanging to stablecoins such as DAI, USDT or USDC through an on-ramp helps achieve this. The only way to buy physical USD cash locally is to go to an exchange point, but cash is difficult to spend locally. Stablecoins provide availability, allowing them to be easily sent or exchanged through an off-ramp.
In Colombia, there is a large influx of dollars from exports and remittances, resulting in a greater supply of dollars than demand. The official exchange rate through banks is settled with the government. However, unofficial cash dollars from remittances and exports are not included in this settlement, resulting in cash dollar prices being 2-3% lower than the bank rate. This is similar to the opposite of the "kimchi premium". This has created a market for crypto arbitrage: people buy stablecoins P2P at a discount to the official price, convert them to dollars on exchanges, and then repatriate the dollars through official channels, making a 1-2% profit after deducting costs.
Regarding the cost of living, although the exchange rate is 1 USD to 4,000 pesos, in smaller cities, the purchasing power is probably closer to 1,000 pesos than in the US. Prices are rising in larger cities due to gentrification caused by the influx of foreigners. A Big Mac costs about the equivalent of 5 USD. The minimum wage is about 400 USD/month. People who earn more than 4,000 USD per month are among the richest 1%. Colombia is also ranked as one of the happiest countries despite its high level of inequality (7th most unequal in the world).
Across Latin America, currency devaluation is a common trend. Countries like Ecuador and El Salvador have fully dollarized. Uruguay is a smaller, richer, and more stable country. Argentina faces an annual inflation rate of more than 276% in 2023. In Venezuela, the use of the bolivar has declined, and people have turned to using dollars (through U.S. bank accounts like Zelle), stablecoins, or cash. Stronger economies like Mexico and Brazil have also experienced devaluations in the past decade, by the mid-teens. The COVID-19 pandemic has also hit the economy, and the government's excessive money printing has exacerbated this devaluation. The dollar is widely seen as a hedge and savings asset, similar to gold, but stablecoins offer the added advantage of usability.
3. Kravata’s business model
Hazel: What is Kravata? Can you describe the customer flow to our listeners? For example, if I'm a merchant that accepts USDC in Latin America business. Can you walk us through the process?
Felipe : Kravata is an infrastructure company that provides APIs. This enables any application, super app, banking application, digital wallet or business platform to provide stablecoin-based services to its end users.
For companies that need to exchange currency between countries, they can access Kravata through a web application or API to convert between its stablecoins and fiat currencies, or convert fiat to fiat currencies (using stablecoins as an intermediary in the process).
Another model is third-party payment capability . A company in Mexico that wants to pay a company in Colombia but has no account or knowledge in Colombia can send Mexican pesos to Kravata, which then pays the recipient in Colombian pesos. In the background, Kravata converts the Mexican pesos into stablecoins through the on-ramp and then converts them into Colombian pesos through the off-ramp.
Recently, Kravata has focused on deploying its infrastructure to banks, super apps, and neo banks that want to use stablecoin rails but lack the expertise or systems (for reasons including compliance teams, legacy rails like SWIFT, or because the business is too local). Kravata provides a widget that is embedded directly into its application. Through this widget, users can convert their local fiat balances (such as Colombian pesos) into a US dollar stablecoin, usually USDC, through an on-ramp. Subsequently, they can convert back to fiat through an off-ramp. USDC is often used because the company considers it more compliant. Users can save in US dollars and convert back to pesos through an off-ramp when the US dollar appreciates.
Kravata has also added a virtual account feature. Users within the app, using their existing KYC information, will receive a US bank account number and a European IBAN (International Bank Account Number). This allows them to receive international wire transfers directly, one-to-one, into their in-app USDC widget. This gives the app cross-border payment and remittance capabilities. With the USDC received, users can either pay third parties internationally or exchange it for local fiat currency through an off-ramp. Kravata can also provide a prepaid debit card topped up with USDC , allowing spending anywhere.
Additionally, the balance in the account can be connected to a yield protocol . This generates yield, which can range from very conservative (like treasury bonds) to high yields from DeFi protocols (currently 4% to 8-9% APY), depending on the agreement with the client (i.e. the app). Kravata takes a small portion of this, but gives most of it to the user to make the product more attractive. This represents the full suite of API services provided by Kravata.
Ivy ：Kravata converts USDC to local fiat currency? How does the conversion process happen? Do you work with banks?
Felipe: Kravata can handle different stablecoins and tokens, but they have a close relationship with their investor Circle. They have accounts with Circle in various corporate entities in Colombia, Mexico, Chile, Poland and the United States. Kravata obtains licenses in regions with clear regulation and cooperates with third parties to obtain liquidity in regions with unclear regulation.
In Colombia, they mainly use their internal liquidity book . Their B2B cross-border payments business generates off-ramp demand, while the widget solution embedded in the application generates on-ramp demand (for savings). They settle these flows internally, using USDC/USDT from off-ramp users to pay on-ramp users and vice versa, which reduces costs. When the demand on both sides is unbalanced, they go to the bank for foreign exchange. They can convert local fiat currency into US dollars and mint USDC when needed, or redeem USDC and do local foreign exchange to get more fiat currency.
Kravata's operations are built on four key models:
Compliance : A team is responsible for KYC, KYB (Know Your Business), transaction monitoring, customer segmentation, and blockchain analysis using algorithms.
Liquidity : An operations team of Python programmers and neural networks that manage settlements and find the best exchange deals.
Custody : Provide clients with segregated wallets and offer flexible fee models (based on AUM, transaction volume or active wallets).
Hyperlocal payment methods : Ability to cash-in/cash-out using traditional fiat channels in various countries through APIs. All their products are based on these models developed since 2022.
Ivy : Besides Colombian Peso, what other currencies does your on/off-ramp service involve? And different chains?
Felipe: Currently, Kravata's services involve US dollars, Mexican pesos, Venezuelan bolivars, Colombian pesos and euros, as well as stablecoins such as USDC and EUROC. They support all combinations of exchanges between these currencies and stablecoins.
For stablecoins, USDT supports Ethereum, Tron, Solana, and Polygon networks. USDC can be used on multiple chains.
Ivy : What is Kravata’s latest transaction volume or annual on-ramp/off-ramp service volume?
Felipe : In the past two years (2023-2024), Kravata has processed a cumulative volume of $260 million. Their highest monthly volume was over $50 million. This volume mainly came from on-ramp and exit services.
Ivy : As you mentioned, some of your clients are cross-border merchants. What business types are they?
Felipe : Kravata initially served crypto-native clients such as exchanges, OTC desks, and digital wallets. It then moved on to serving traditional payment companies. Their end users include companies engaged in the import and export of services (more than physical goods), payroll companies, franchises that need to transfer funds to pay fees (such as Visa/Mastercard fees), lending protocols that raise funds internationally for local lending, and food companies that purchase supplies in different countries.
With the launch of embedded widget solutions, they are now connecting banks, neo banks and neo brokers.
Overall, our client base falls into four main areas: crypto-native companies, fintech companies, retail companies, and traditional financial institutions (incumbents).
Hazel : What is your main source of income? How many employees does the company have?
Kravata has 28 employees. They have generated $2.2 million in revenue since the beginning of 2023. Revenue comes from multiple sources in their infrastructure business model:
On-ramp and off-ramp fees
KYC service fee
Custody Fees
Virtual Account Fee
Card Fees
Income service fee
4. Competition landscape
Hazel: We have to talk about competition, because the competition in payment is very fierce. Recently, I saw the news that Stripe opened its stablecoin financial account, and I also saw that Bridge is working with Visa. So I am curious, does this bother you?
Felipe : No, it doesn’t bother us at all. Our strategy is to work with these large players, leveraging their technology, while Kravata takes care of the local operations. This business requires local expertise to handle compliance, banking relationships, cultural understanding, corporate structures, and dealing with the informal market (which accounts for 50% of the total market). It is difficult for large companies to do this alone, as we have seen foreign banks such as City Bank and Scotia Bank struggle in Latin American retail banking.
The real competition is not other similar companies; it is the cash and informal markets - where people park their savings in physical dollars. That is where the huge market opportunity lies. The companies that understand this will grow.
Kravata positions itself as a participant in helping banks and fintech companies quickly adopt stablecoin services. It is a middleware that enables customers to integrate stablecoin channels in 6 months or less, avoiding the years required to reinvent the wheel . Kravata provides licenses, integration solutions, channels, white label services, compliance frameworks and educational support.
Ivy : Beyond global competitors, let’s go back to Latin America. What is the current landscape of fintech crypto payment startups in Latin America? Are there many companies in this space?
Felipe : There are not as many companies in this space as there were a few years ago. The early days of the market were dominated by large exchanges such as Bitso, Binance, Ripio, Mercado Bitcoin, and Buda, which are now expanding. The second phase saw the emergence of market makers and OTC desks, serving crypto arbitrageurs and traders who need an off-ramp. From around 2022 onwards, consumer apps focused on saving digital dollars (such as DollarApp, Lithio) began to grow. Recently, large financial institutions and neobanks (such as Colombian bank Bancolombia in partnership with Wibmo, Lulo Bank) began to embed crypto options in their apps. This shows regulators that cryptocurrencies and stablecoins are becoming part of the financial system.
Kravata’s role is as middleware, enabling other financial institutions and fintech companies to quickly integrate stablecoin services without requiring extensive development time.
Hazel ：All the systems we are talking about now are actually still based on the Visa, Mastercard system, right? Is the entire system still going to be based on this old system?
Felipe : To be completely independent from the traditional system, the entire supply chain needs to run on stablecoins, such as farmers being paid and paying suppliers in stablecoins. Currently, conversion to fiat is necessary because existing regulations in most countries require traceability and payments to be made in fiat. The debate about local stablecoins and central bank digital currencies (CBDCs) is related to this.
Visa and Mastercard are expected to be around for the long term. They are already entering the space with systems such as Visa Direct and B2B Connect, which use a blockchain-like layer to transmit cross-border settlement information, though not necessarily using stablecoins.
However, there is a huge market in regions such as Latin America, Southeast Asia, and Africa among the informal, unbanked population, and for cross-border transactions without using cards. Stablecoins can play an important role in this market. As mentioned earlier, the real competitor here is not necessarily cards, but cash.
5. Regulatory environment
Hazel: What is the regulatory situation like there? For example, for Kravata, do you know what licenses are actually required to operate this business in Colombia?
Felipe: Local regulation in Latin America has changed significantly since 2021.
Brazil has well-established crypto laws, and the central bank is supportive of blockchain initiatives.
Chile has implemented a fintech law that provides financial intermediary and custodian licenses; Kravata has applied for these licenses. Chile is considered the most advanced country in Latin America in terms of regulation.
Mexico has an older fintech law that includes a money transmission license and creates a vulnerable activity registry for cryptocurrency companies.
Bolivia initially banned cryptocurrencies but has now lifted the ban and is in the process of regulating them.
Peru recently authorized its largest bank to custody and sell digital assets.
Argentina is becoming more open to regulation.
El Salvador offers a VASP (Virtual Asset Service Provider) license, which many Latin American companies are seeking. Bermuda also offers a variety of licenses.
Generally, there are three types of licenses to consider:
Emission license: used to issue tokens or stablecoins.
Fiat currency deposit and withdrawal (VASP) license: used for the exchange between crypto assets and fiat currency.
Money Transmission License: used for payments.
Kravata is in the process of obtaining a fiat on-ramp license and a money transmission license. They are not currently applying for an issuance license as they are focused on distribution and transmission rather than issuing their own tokens.
Ivy : How do you build relationships with all these financial institutions and regulators? They are completely different from web3.
Felipe : Building relationships in the Web3 space is generally more open than in traditional finance. In banking, if you don’t belong to that circle, openness and network referrals are crucial . Kravata has advisors who were former bank executives. In my previous position as Deputy Minister of Education, I established connections with the president of the banking association and government officials who could facilitate referrals. And building connections with these people requires face-to-face meetings and lunches to gradually build trust.
The key is to demonstrate that the company is managed by mature, business-minded people who understand the importance of compliance and risk, not just young tech developers. Compliance officers play a key role in banking relationships. Kravata sponsors and participates in risk and compliance events, sometimes in partnership with international organizations, to position itself as a highly compliant local partner.
Banks often view new transaction businesses like crypto/payments as small compared to their larger credit and lending businesses. The challenge is to convince them that collaboration will not jeopardize their main business. This needs to be achieved by demonstrating strong standards, compliance procedures, risk management, and service level agreements. Building this trust will take time, but once it is established with some banks, it will be easier for others to follow. Important milestones include embedding services into regulated new banks, as well as partnering with large traditional banks.
Hazel : What questions do they usually ask?
Felipe : Banks ask everything. For example, they question the risk of holding USDC. This requires explaining the reserves of USDC, where the US dollars are kept, audits by companies such as Deloitte, and mentioning familiar names such as Bank of New York Mellon or BlackRock. Despite this, they usually still consider it a high risk.
You also need to educate banks about blockchain analysis. Many are not familiar with blockchain explorers. You need to explain that blockchain is not anonymous, wallets can be blacklisted, and that software like Chainalysis and TRM Labs exist. Showing Kravata's compliance process is a frequent topic. Sometimes banks even propose to use Kravata as their compliance provider, but this would create a conflict of interest if Kravata also processes their transactions.
6. Financing and future development
Hazel: You got investment from Circle, and I know you also got investment from a Chinese crypto investor called IOSG, right? I guess the Chinese are familiar with this name. I'm curious how you got connected with them?
Felipe : I got to know the IOSG team through an angel investor from Angel Dao, who had invested in Kravata. After the initial online call, I had the opportunity to meet some of their team members offline. I believe that IOSG appreciated our explanation of why Web 2.5 (embedding payment and savings services into existing applications) is the right path for Latin America at the moment, as the market is not yet fully ready to use complex Web3 activities like MetaMask for DeFi. He believes that Asian venture capital values underpenetrated markets and capital-efficient growth models, and Kravata's infrastructure model fits this while solving the market fragmentation problem in Latin America. The process for IOSG to make the investment decision was quick, in about a month.
Hazel : You are also looking for Chinese or Asian investors for your next round of financing.
Felipe : Yes, Kravata is definitely looking for Asian investors for its next round of financing. There are two main reasons:
Market Understanding: Asian investors understand the Latin American market very well, as Southeast Asia has similar characteristics, and they can provide valuable advice based on the experience of companies in the region.
Connecting the World: There is tremendous growth and potential in connecting business and transactions between Asia and Latin America. Building connections between these regions is critical to the future.
Ivy : What will be your top priority after you complete your next round of financing?
Felipe : The first priority after the next round of funding is to embed their widgets into applications that cover about 100 million users in Latin America. The goal is to connect Latin American users to stablecoins through applications that users already use and are familiar with.
Ivy : My last question is, what advice do you have for Chinese crypto/fintech companies considering entering the Latin American market?
Felipe : Advice for Chinese companies entering the Latin American market:
Find local partners: This is critical to understanding the market, obtaining the necessary infrastructure and access, and navigating the regulatory environment.
Understand currency volatility: Don’t simply copy the Asian model; understand the drivers of local currency volatility.
Consider infrastructure: Positioning in the infrastructure sector may be more defensible in the long term than B2C applications, which require a deep understanding of local consumer behavior.
Clarify market strategy:
If your strategy is based on cost (common for some Chinese apps/products going overseas), you must understand the informal market in order to reach the truly huge market.
If your strategy is high value-added/high quality, you need connections to reach the wealthy niche market.
Prioritize relationship building: In Latin America, relationships are extremely important. It’s difficult to do business alone; you need partners or players. Lobbying and meeting influential people can be harder than in other regions because there are fewer established paths.
Hazel : Do you have any recommendations for people or projects you think we should interview? Or do you have any questions you would like to ask others?
Felipe : I have a lot of questions about the Chinese market. I am very interested in understanding how Alipay has grown, especially their use of blockchain technology for business. I feel like these use cases are not fully understood by the “Western” market. I would also recommend looking at other successful Chinese companies that may not be as big as Alipay, but are also important players, like Reap.
For Latin American guests, he recommends those involved in local stablecoins, B2C applications (such as Lithio, DollarApp, El Dorado), and infrastructure providers (blockchain-based or API-based).
Suggested topics for future podcasts include:
The growth of payments/fintech in China: How did Alipay and Reap do it?
How do banks view stablecoins, both in Latin America and in China, Hong Kong, etc. He wondered if the situation in Hong Kong was similar to that in Latin America, with only a few banks interested.
How traditional companies (large e-commerce, food, retail companies, Walmart in Asia) view stablecoins, whether they are willing to use them, and what methods they currently use to manage funds. Understanding this will help the ecosystem identify growth areas.
Hazel : I’m sad to say goodbye, but that’s it for today’s conversation. Thank you Felipe for taking the time to join us and share your insights on Kravata and the Latin American crypto payment landscape. If you are an investor looking for a Latin American crypto payment portfolio, or a project that wants to enter the Latin American market, I hope this episode was helpful to you, and please feel free to contact us to get in touch. You can find our contact information at the bottom of the screen.
