How Argentina Adopted Crypto, and what it means for the rest of us by Isabel Gonzalez - Devconnect

Hi everybody. My name is Isabelle Gonzalez and I'm the US-based founder of POP Inc. and today I'm here to give you an outsers's perspective on the miracle of Argentina's crypto economy. What's at the table for it, how it happened, and what it means for the rest of us around the world. So, a little bit about me.

I was born in Spain, raised in Russia, and moved to Canada with my family in 2002. By the time I grew up and finished school for biochemistry, I pretty much realized that there was a whole world out there in tech and that if I wanted anything to do with this, I should find my find a way to make my way to where that market is. In 2019, I managed to relocate to the US after securing work building products in fintech. And I do that pretty happily for a few years, diving deeper into crypto along the way. In 2021, I meet Patricia Warhalter at an NFT collector's meetup, and he asks me to come help him with a few things related to POP.

And within a few months, I found myself relocating to Argentina because I've gotten full-time co-op. And this was the beginning of the story of how I got very intimately familiar with the Argentinian situation. The first day I arrived in Buenosirus, I got my dose of culture shock. When I deplained in the apartment I was renting, I received a pretty large bag of cash and I got the explanation that I should use this instead of my credit card to avoid converting at the official rate. You see, in Buenosyus, there are two different rates for for changing the dollars to pesos.

uh one which was listed uh on the official exchanges and then one which is the black market rate or the blue rate which uh somehow gives you twice as many pesos when you're selling dollars as uh you would get otherwise. And uh this obviously is the thing that made the most sense to do. And so later in the week I was explained how this cash acquisition system generally worked. The idea was that you send the guy that handles the conversion USDC and he delivers the pesos in a bag later in the day and you walk around with a large mix of cash for your daily spending. There were other things too that were a little bit unusual about trying to operate a company in uh Argentina's uh regulatory climate.

Let's say in general I can say that there was a big gap between the proper ways of doing things and the ways that got what I would call effective outcomes. So everything from uh running payroll to incorporating a business, paying taxes, uh renting office space, all of these things that you need to do in order to establish a business and operate it smoothly somehow became very very hard under the local conditions. And uh there always needed to be something that you do to kind of get uh around the proper system so that you can actually get the outcomes you want. This obviously creates a lot of friction when you're trying to do things. And um I think in general so I come from a family obviously that survived the Russian situation at some point in the '9s.

And uh none of us are particularly unfamiliar with uh let's say economic instability and the government corruption that normally comes with it. One of the things that was remarkable for me coming to Argentina was understanding firsthand uh as an adult what that actually looks like in practice. Right? I left Russia when I was very very young and uh coming to Argentina it was like uh dealing with these issues for for the very first time firsthand and uh at the same time coming to understand the possibilities that crypto could open up for people in that situation. At the end of the day, crypto winds up here being nothing more, nothing less than a way to kind of get your way out of a system that is fundamentally unstable that makes it very difficult for people to live and operate their lives in a sustainable manner.

So as I was preparing for this talk, I found myself researching quite a lot about Argentina's economic history and how it got to the situation where the 2011 era cryptocurrency. So this is think about it like before stable coins, before embedded wallets, before smart contracts, before all these things that we've gotten so used to today, somehow it was still a welcome solution to the problems that people had. And the catalyst for this revolution was by all accounts a fresh round of capital controls uh Sepo that was implemented by the Krishna government back in 2011. So before we get there, we should probably go over a brief economic history of the Argentine economic situation. So here's a brief economic history of Argentina just to set the table for the experience of 2011.

In the early 20th century, Argentina was a thriving economic powerhouse. Think in the top 10 of uh GDP per capita, thriving export sector particularly for commodities. And unfortunately, the great depression destabilized this uh tremendously. So the 30s were faced mostly with lots of corruption, electoral fraud and really really fast industrialization. Uh in the 30s the whole world was going through the industrial revolution and this had uh floods of people coming in from the countryside into the cities which created this new and uh pretty underrepresented political class that was by the end of World War II kind of desperate for things to change.

uh enter Juan Peron uh an officer in the assuing mil ensuing military revolt who even to this day remains kind of a polarizing figure in Argentina. He led super necessary labor rights reform. Uh so thinking raising wages, legalizing unions, creating a social benefit system and at the same time uh also wound up undermining a lot of the institutions that Argentina used to kind of get things done in a way that was um transparent, credible, legitimate and so on. So he created a kind of cult of personality. Um he ran things pretty well uh for a period of time and things were going okay by the end of uh kind of I think it was like the early 1950s uh you had uh Argentina being in a pretty strong industrial position but unfortunately this was when the world kind of went through an economic slowdown and uh this method of development wasn't sustainable.

the regime turned in a somewhat authoritarian direction and eventually the guy was uh completely unseated from uh his position by uh more or less a military uh coup let's say this led to several decades of uh back and forth fighting from one side to another uh lots of political violence uh lots of uh repression lots of uh in general I think there was this sense that the ideas that Peron was uh promoting were not a way that Argentina could have a sustainable ustainable future and so uh there was a big drive to push them down and at the same time for a lot of people he was a hero right he was kind of the way that people managed to make their way uh out of uh poverty out of unsustainable working conditions and so there's a lot of tension particularly class tension between these two parts of society so eventually 1976 comes around uh Pon briefly tries to return to power but unfortunately passes away during his first year in office uh another military coup um an authoritarian and right-wing government that tries to liberalize trade, deregulate the economy, uh, and kind of push the world more in a push Argentina's world more in a globalist direction. Largely, this does not work out so well, and, uh, it takes us all the way to roughly 1983 when democracy eventually makes its way back to Argentina. By this point, the country is in massive debt and uh some short years later, you have inflation surging at 3,000%, food shortages, riots, uh kind of a complete chaotic uh environment. This is when they came up with a convertability plan pegging the peso to the dollar one to one and uh this actually worked for a time. Uh so the peg of the peso to the dollar reestablished trust for some time and brought foreign capital primarily uh flooding into the country.

It seemed like the country was posed towards growth. Unfortunately, the global economy again was not in a good situation and when the foreign money stopped coming in, Argentina finally defaulted on the sovereign debt. At the time, Argentina had the largest sovereign debt balance and so there was uh I think a lot of general international uncertainty frankly about what would happen when you default on this amount of money. Uh it was a completely economically traumatizing experience for everyone in the country. you kind of had uh El Coralito which uh probably you've heard mentioned uh sometimes in some talks around Devcon connect an inability for people to withdraw money um from the banks the peso collapsing 60% overnight it's devastating.

You lose uh everything that you've worked for overnight and uh so it took a lot of time for people to reestablish the trust in uh the currency more or less. uh for several years conversions were turned off and um throughout the early 2000s people mostly worked within a biodal kind of monetary system right you had uh people on the one hand paying in pesos for their day-to-day spending but for large purchases savings anything that kind of required uh keeping money in something over a long period of time people turned to dollars and this wasn't great for the government it wasn't great for monetary sovereignty but it worked for a time for most people it kind of uh was an acceptable outcome given uh the history of the country and things were kind of running this way until in two in 2011 uh the Krishna government reintroduced um the pause on convertability more or less uh meaning that uh all of a sudden you couldn't convert dollars from pes uh pesos to dollars very freely. All of a sudden uh there was a restriction on how much of this you could be doing in a month-to-month basis. uh $200 a month roughly uh and only with permission from uh certain tax agencies. And so this obviously panicked people uh for most people this was like um not an acceptable outcome.

And uh people were very creative about finding their ways around it. So this chart behind me tracks how many pesos you could get roughly for one US dollar starting at about 4:1 in 2010 and going up to about a,000 to one by 2024. And this chart is pretty much the reason that Argentines have to be economic Navy Seals. Holding on to the value of your money here is the national sport and the only way to win winds up being to keep the money in dollars. And against that historical background, it becomes extremely obvious that Argentina was not going to take the step lying down.

People would come up with all sorts of genius ways to get their money into dollars. Often going through black markets, quas, accepting payment through services like PayPal, settling offshore, opening and maintaining foreign bank accounts that they'd work with family members to fund, and so on. And one thing that's really important to understand is that this instability in government and the economy really doesn't affect everyone equally. People who earn the money in dollars are abroad have a lot more options to keep it just completely out of the system. While ordinary people have a limited opt have an option of buying a limited number of dollars with their paycheck and watching the rest be sort of inflated away.

Life expenses like credit cards, mortgages, and salaries still mostly require legal tender pesos and the exchange can be a little bit inefficient, but due to the huge demand for dollars, you're normally able to sell them at a pretty attractive rate. And at some fundamental level, the difference between elites and everyone else in Argentina winds up being and still at some level is the ability to earn stable money in dollars and then to shelter it from taxes as needed to keep it out of the um overall uh complicated cycle. So historically, Argentina has had this kind of long track record of swinging between two opposite approaches to managing the economy. And the cycle kind of goes something like this. After a period of painful economic tightening, the new government coming into power promises change.

They increase handouts and subsidies, nationalize companies, and in general drive policy to support a large poor population through deficit spending. The initial reactions are good, but spending much more than you earn in taxes is unsustainable. Eventually, foreign credit to borrow dollars runs out. Central bank reserves to defend the value of the pestor run dry and domestic confidence runs out. The value of the money collapses and prices start rising out of control.

And now contracting the balance sheet, it becomes the most important way uh to get access to credit back, which is needed to import things like oil, foreign goods and so on. So the government uh usually turns over at this point and uh starts prioritizing uh tight balance sheets uh austerity usually raising taxes uh usually reimposing uh certain controls and uh unfortunately this is very painful for people particularly for people that have been uh operating under this old system and then let me see uh so usually at this point uh there's another thing which is people obviously get fed up um high taxes, lack of spending, lack of support. Uh it's very very difficult, especially if you're already leaving quite close to the margin. So people build up anger over the burden of tax increases and spending cuts, which is felt mostly by the poor and working class since most of the wealthy hold dollars and other assets abroad to insulate themselves from the domestic problems. Eventually, the new government loses support and new populist leadership comes into power with a stimulus agenda.

And so the cycle begins kind of all over again. In Argentina, the only way to have your money hold on to its value long term is usually to keep it outside the system. But in 2011, the system suddenly started working very hard to prevent this from happening. In the end of 2011, a new wave of capital controls arrived in Argentina, basically outlawing buying foreign currency for non-productive purposes. This pretty quickly led to the emergence of a black market for dollars, meaning blue dollars, which sometimes cost more than twice the official rate, with a whole ecosystem and infrastructure dedicated to supporting the exchange.

Although Bitcoin had been around for a few years by this point, it was the capital controls that finally made the local interest explode. And initially, Bitcoin served a pretty practical purpose. It helped manage the headache of operationalizing the quevas, these black market exchanges that traded the blue dollars. For everyday people, the idea of owning an asset that was inflation proof by design, had lots of appeal over earning, especially over storing pesos. And beyond this, the idea had a lot of narrative fit, capital controls, confiscations uh in inflation.

And Argentina was ripe to fall in love with crypto. In particular, freelance workers, graphic designers, programmers, and other small entrepreneurs who received dollars and didn't love losing a large portion of the value of their money during the forced conversion to pesos. They were pretty open to trying a new and exotic solution. And so by 2013, there was real energy around Bitcoin in the Argentinian community. Bitcoin Argentina, Labcon, and Espasio Bitcoin established 2014 were all hubs where Bitcoin enthusiasts could gather, exchange ideas, and work towards building a brighter future together.

Volater House was another significant early shelling point that brought together many of the founders and early team members of Argentina's best crypto companies. Local companies like BitGet, Open Zeppelin, Dententraland Maker, Buenbit Repio, and of course, POP can trace their roots back back to some of these communities. And for a long time, Argentina had a large and very well educated population of software developers, particularly coming from large software, e-commerce, and payments companies like Marcato Libre, as well as ITBA, one of the best technical universities in the world. It used to be said that building software and playing soccer were the two ways you could make money as an Argentine. And so when Bitcoin enthusiasts that were excited when crypto enthusiasts that were excited about Bitcoin and Ethereum in the early 2010s eventually started up their own companies, they quickly found large and dense talent networks to build those ideas out and spread the love of enthusiasm for this new new technology within their communities.

The biggest thing that first Bitcoin, then Ethereum, and later stable coins did for Argentina was no bigger and no smaller than giving talented, curious people an alternative to the local economy. Suddenly, it became possible for a person in the no to be paid in crypto and exchange the crypto for pesos or dollars as they needed. And in practice, this achieved two things. The peso escape hatch suddenly became accessible not just to elites, but pretty much anyone that could find a way to get paid in crypto and work on the internet. In practice, this was largely developers at first.

And not surprisingly, most companies that offered this perk wound up being themselves crypto companies. There was a good incentive for interested and capable local talent to go work there. Meanwhile, stable coins eventually arrived in Argentina in 2014, first with USDT, later die USDC, making it even easier and more efficient for locals to put away money in alternative currency and US dollar equivalents. And today it's not surprising that Argentina is a world leader in the adoption of stable coins, ranking pretty closely behind Brazil despite having a fifth of the population in terms of transaction volume. In many places in North America and Europe, we can take for granted the idea of stable money.

But in an environment where your paycheck becomes meaning worth meaningfully less the day after it arrives and where storing money in foreign currency is pretty normal but hard to do, cryptocurrency has a lot to offer the average person. And in the end, it was access that crypto killed Argentina. Crypto provided an opportunity to participate in a fairer system, the same one that was available out of the box to people born in a different place that provided those people with a better set of opportunities to create better lives. Bitcoin then later Ethereum and early stable coins were all a way for people to not only be able to keep the savings outside of a punishing system, but also to use those rails to access better economic opportunities. In different parts of the world, the story echoes a lot the one in Argentina.

People in countries with weak economies and unstable unstable currencies find themselves with strong incentives and easy pathways to dollarize with stable coins being a really efficient way of getting this done. People in countries with more stable currencies and better economies have less direct incentives, but tax regimes in a and a stronger talent market sometimes makes US dollarbacked stable coins a compelling solution for the population. Regardless, many countries, especially in Europe, are assessing how to position themselves to save off the risks of capital flight. And this is all coming at a time when around the world, central banks have been diversifying out of the US dollar as a reserve asset to pursue their own state level monetary sovereignty. Today, many countries in Asia, Africa, Eastern Europe, and especially Latam have a two-tiered currency system with the national currency as recognized legal tender.

But US dollars widely accepted due to a combination of tourism prevalence, remittances, and a general distrust of the national currency. Short-term, crypto rails will make these systems much more efficient and more integrated with their local economies. But longer term, we may find ourselves living in a world where dominant domestic currencies play a relatively smaller role in people's financial lives. And of course, this talk wouldn't be complete without a short discussion of the climate in the United States, which is the place that I live. It's disappointing when I hear Argentinian friends of mine say that they're seeing the US speedrun America's 20th century.

And in many ways, they are unfortunately not wrong. the awful cycle of government overspending leading to inflation, capital flight to other assets like real estate, equities, crypto, and anything else while cash and savings are devalued followed by moral grandstanding and reactionary whiplash in the opposite direction is unfortunately a cycle that is very very reminiscent of the Argentine story. The other thing is the big similarity is is that the sense that the rules don't really apply to everyone in the same way. In the last few years, US society has become a lot more aware of the ways in which the gaps between the halves and have nots have widened. In huge part because society's halves have a much wider uh range of ways that they can actually preserve their assets, ranging from uh things that are a little bit more savory, let's say uh instruments that have a higher a better return profile versus the stock market uh to things that are a little bit less savory.

like uh on the one hand uh let's say employing tax strategies that are technically not tax evasion but honestly are tax evasion by another name uh to seeing uh things like the congressional stock investment portfolio performance that is absolutely indicative of rampant insider trading. You kind of get the sense that we as a country play in two different systems and uh people crave an even footing at the end of the day. Another similarity is on the axis of loss of purchasing power. In the last few decades, the cost of necessities like housing, healthcare, education, and childare have been exploding in ways that are distressing, especially to young people. And wages just haven't been keeping up.

Meanwhile, public equity markets have been on this generational 15-year long run, fueled by money printing, retirement accounts, and incessant buying pressure from people seeking to prevent the devaluation of their money. To illustrate the point, if you'd put $1,000 in a high yield savings account sometime in 2015, today it would be worth approximately $1,070, while the cost of fundamentals like housing, healthcare, education, and childare are all up more than 50% on average. Buying the SP500 instead of putting it in savings would have had you up about six times. Buying the Mag 7 would have had you up about 14 times. And buying and then holding $1,000 worth of Bitcoin or Ether would have had you up hundreds of times on each instrument, which is uh an incredible profile.

Savings in both Bitcoin and Ethereum have outperformed pretty much every public market portfolio above since except holding maybe pure Nvidia stock over the last 10 years. And last year both Bitcoin and Ethereum finally became institutional assets in a record turnaround from being the subject of intense legal scrutiny the a few years before. The spectacular outperformance of these assets is difficult for people to ignore for long periods. And as a result, nearly 30% of American adults today own blue chip cryptocurrency, continuing the long trend of maintaining savings in a sufficiently inflationproof asset class. The other really interesting story for crypto in the US is the democratization of access to new and different financial instruments through platforms like Poly Market, Echo, Oium, and various others.

The onchain economy has opened a door for everyone to get access to attractive instruments with novel sources of risk which has one of the been one of the long key ingredients in the dominance of US capital markets. New markets also create new opportunities for hedging, derivatives, marketmaking, spot issuance and therefore an overall richer market landscape. In the US, unlike in other parts of the world, people have historically held much higher exposure to equity markets, making this transition a little bit more culturally adjacent. But there's still quite a long way to go. Markets need clear, efficient, legitimate and fair regulatory regimes to thrive, which in the mid in the mid 20th century was quite a strength of the US.

My hope is that the recent volatility aside, it will continue to be a strength. Pretty early on in a chemistry degree, you learn what it takes for a chemical reaction to happen. In general, the reactant the reaction and its components all need to be a lot more energetically stable after the reaction than they were before. But even then, you need lots of work to get through the transition state. The more energy is released by the reaction, the more the reaction wants to happen and the faster it'll typically proceed.

For Argentina, that activation energy came from tremendous political, economic, and especially regulatory volatility. Nobody wants to be an expert in tracking the relative prices of domestic currency, plus several different quotes for a foreign one. What people want is to be paid well for their work, hold on to the value they create, and live happy and fruitful lives. And in the US, we're still learning how the story is going to go. It might be that in 2050 I'm here talking to you about an index of content coins, creator coins, reality derivatives, Ether LP positions, and all manner of other crazy things that I find myself needing to do keep to keep pace with an otherwise deteriorating situation.

That going to the store on a given day is a matter of figuring out what to sell to convert into a currency the vendor would like to accept, and that my relationship with the dollar would be described as lukewarm at best, depending on the whims of the powers that be that year. My sincerest hope, however, is that we will settle into a regime where there are normal ways to save money, to spend it day-to-day, and to invest it for the future that allows everyone to focus on building a good life and doing the work that they're able to do best. Thank you everyone for your time and attention today. And if you enjoyed this talk, please scan the QR code to mint a pretty po to remember the occasion.

Awesome. Thank you so much as well. Um, cool. You know, I think like one of my favorite slides is just I mean a lot of them that just show that this is real. Like this is a real thing that's happening today.

It's not a talk of like we're going to be here in the future. Like we're here today. That's very very impressive. Like I guess what what is something that you wish more people understood about that? like the fact that how urgent this development is at how fast this is happening uh you know in all your years in crypto like how much of that has changed

particularly I wish that for anyone in this room that's from the west uh that we would understand that we are incredibly privileged to live in an economy that provides stable footing and that this is far from a guarantee that in many countries around the world this has uh deteriorated spectacularly and uh you know figuring out how you're going to provide a stable life for you and your family uh in spite of your best efforts is something that unfortunately takes up quite a lot of cognitive bandwidth for the average person and that having clear fair rules that stay mostly the same uh is a prerequisite for any kind of compounding to happen in any direction. I think that's kind of it.

Yeah. Um and you know I I think one of the things of like crypto being globalizing that is really powerful. Like so much of like savings and access to investments and stocks are currently like only possible for certain people in certain geographic locations. Like where you're born dictates how much you're able to actually invest.

And like this like crypto Ethereum just breaks open that canvas and allows way more people to take part into this thing that has clearly worked like these like structured financial products have clearly worked in helping some people achieve wealth. And the fact that this is getting democratized is really exciting. Is there something that you worry about when as like you know this is happening very fast? Um what would you say you wish people were a bit more like cognizant about or um you took to heart I guess when when they're exploring like the sheer rate at how crypto is growing?

Sorry I don't think I understood the question.

Um you know as like more and more people are getting access to crypto than ever before. How do you have any worries in the sense that like is there something there they could like more people should potentially know in terms of maybe risks or in terms of like you know best practices and stuff like for example a lot of people may access crypto through like in the past access crypto through FDX you know that might not have been the besture for them like how how do we kind of ensure that that doesn't happen.

Yeah. So, I think it really depends uh a lot on uh what crypto means for you and what it is that you were doing in that environment to begin with, right? Uh FTX being a pretty good example, like if you're looking to hyper gamble your money u from the US, maybe it was a reasonable way in and unfortunately the whole thing collapsed in a very bad way. Um, but I think ultimately it really does say that like uh the intermedi the intermediaries that you depend on to facil facilitate whatever you're trying to do are going to make or break your experience of uh crypto as a whole.

Awesome. How do you think about like on-ramps and off-ramps uh and how that's changed over time now? Like could it be better? I guess like in an ideal world like what what is

I mean uh I think overall my impression seems to be that they're not great and uh that let's say they've left a lot to be desired. Uh in many ways you could actually make the case that Ethereum today is harder to on-ramp to than Bitcoin was back before we had the proliferation of wallets L2s and all these other like micro components that add cognitive load for users without really managing to like uh be abstracted completely right. Right. So I think providing a coherent onboarding experience particularly when you're talking about like western audiences that are doing onramping voluntarily or out of an ideological position uh that UX really makes a big difference. At the same time you have to understand that like uh if what you're doing is offering um a value that people truly need people are going to find a way right and so uh it depends a little bit on uh why the people are coming on chain to begin with.

you're kind of uh going to run to whatever is the lesser of the two evils. And bad UX is a much lesser evil than uh you know having the economy collapse overnight several times within your lifetime.

Yeah, totally. I I guess like um you know I I think we're entering an era where I see better frontends and better products than ever before. Yeah.

And a big driver is just personalization.

Yeah. like it's not just here is the only way you can access Ethereum, but it's like here's a personalized like local specific or like you know specific segment oriented where you're like actually looking and talking to users and seeing okay what do they need like what how can I reduce clicks and all of that thing and like that level of product thinking has been really nice to see. Um

it's excellent. Uh it's uh I think as an ecosystem we've gotten a lot better at building these things uh within like the last 5 years that I've been here. uh it's been wonderful to see the improvement but I think it's also important to distinguish between like those UX level uh changes and uh let's say the core underlying value proposition of a trusted stable money that definitely will work.

Yeah.

So

totally. Yeah. I um it's like you can have the easiest way and one one example is like a microwave like I use a microwave for a given outcome which is to heat my food. I don't necessarily know how a microwave works. I don't need to.

Um, but you want to make sure you're

I remember reading uh somewhere online the other day uh from a founder of I think it was like a travel app

and uh he was like uh you know we've done a lot of things to try to fix retention in this travel app and the only thing that has worked consistently was making the flights cheaper. And so I I I think there's like a little bit of that where you need to understand the value that your users are coming for for and uh really optimize around that because if you get that value right then everything else like they will grumble about it but they at some point will probably ignore.

If you don't manage to get that value right it's a lot of window dressing without any substance.

Yeah totally. And it's like almost like understanding who the user is as well and like speaking to them. Um, people don't like use DeFi or use structured products just like for the case sake of it. It's not like there's an actual outcome for it. Like maybe someone wants to save up to buy something for their parents or the house or whatever it is.

And I think the more empathy we can have there, the better. What would you recommend to practice that and nurture that more that you'd like to see the industry do

in order to meet the world where it's at?

Talk to your users. Uh, if you are someone that builds products in crypto, uh, find the people that use your stuff and talk to them as much as you possibly can. I don't think there's anything that really substitutes for that. Awesome. Cool.