A new report suggests tokenized securities offer a cheaper framework for rebuilding the country's oil sector.
Forced by hyperinflation and sanctions to accept cryptocurrencies long before the rest of the world, Venezuela has consistently ranked among the top countries in crypto adoption worldwide, according to a report by Chainalysis.
But one digital goods company believes it is laying the groundwork for something big in the Latin American country.
“[Venezuela] it has significant natural resource assets, high diversification, and a population that has become familiar with digital assets and stablecoins due to years of economic instability,” Jesse Knutson, head of operations at Bitfinex Securities, told. Global Finance. “These factors may support recovery if the appropriate legal and regulatory framework is established.”
Changing Political Spirits
Following the arrest of President Nicolás Maduro by the US military in January, a window may open.
According to a Bitfinex report dated June 11, high issuance costs, lengthy procedures, and layers of arbitration are “hindering the green shoots of recovery” that have already taken root in Venezuela. And while oil production is expected to surpass one million barrels per day by 2025, its highest level in seven years, the nation is still well short of the 3.1 bpd it produced in the late 1990s. Closing that gap will require foreign capital at scale.
Knutson said a tokenized securities infrastructure could significantly reduce the cost of attracting investors.
“Tokenization does not overcome those challenges, but it allows the country to install an efficient system with less friction, which allows the country to attract foreign capital cheaply and a wider area for investors to reach Venezuela,” he said.
Lucky Time
Years of inflation and economic turmoil have caused Venezuelans to accept cryptocurrencies for payments, savings, and spending at rates unmatched anywhere else in the Western Hemisphere.
A UN report using 2021 data showed that about 10.3% of Venezuelans – about one in 10 – have cryptocurrencies. It also warned that cryptocurrencies are a threat to financial stability.
Maduro's regime, for example, eased sanctions by using digital assets to facilitate oil trade. (It's worth noting that the US is accused of “narco-terrorism,” not crypto-oil seizing, in its indictment.)
Still, familiarity with digital assets at grassroots level gives the country an edge, as long as there are “strong institutions, investor protection, disclosure standards, effective legal systems, and trusted market participants,” Knutson added.
Comparison of El Salvador
Knutson draws parallels with El Salvador, which opposed the International Monetary Fund when it became the first country in the world to make bitcoin legal tender.
Embracing digital goods has helped El Salvador attract much-needed foreign investment. “Venezuela can achieve similar success by adopting blockchain technology in a way that provides regulatory clarity to producers while providing strong investor protection,” Knutson said.
Bitfinex Securities, in turn, operates regulated platforms in El Salvador and Kazakhstan, with more than half a billion dollars in real-world assets – from treasury token debt to public bank debt – currently trading on its platform.
However, the company emphasizes that the success of tokenization depends on legal certainty, enforced property rights and investor confidence.
“Those foundations are always critical in any environment,” Knutson said.
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