In the last 15 years, Peru has been one of the fastest-growing economies in Latin America. But political turmoil and rising inflation over the past year has unsettled Peruvians, leading many to turn to crypto as a safe haven.

“There are two reasons for the increasing crypto adoption in Peru,” said Álvaro Castro Lora, a lawyer specialized in crypto regulation and founder of the Peruvian Blockchain Association. He said they are “inflation, which has made people lose confidence in the Peruvian sol, and concerns regarding the government.”

Buda.com, a Chile-based crypto exchange with operations in Peru since 2017, registered an “exponential growth” in crypto adoption in 2021. According to Carlos Bernos, country manager at Buda.com Perú, the platform’s annual trading volume went from $19,500 in 2020 to $74 million in 2021, reaching a trading volume of $22 million so far in 2022.

Buda.com, with more than 500,00 users in the region, is one of several crypto exchanges that landed in Peru in the last two years. Argentina's Buenbit and Let’s Bit opened operations in the South American country at the end of 2021, while Spain's Bit2Me entered it by acquiring the local exchange Fluyez in July of this year.

Buenbit, with more than 700,000 users, saw strong stablecoin adoption in Peru, in part because it is one of the countries with the highest adoption of U.S. dollars in Latin America.

Castro Lora said that despite the fact that the U.S. dollar is legal tender in Peru, the exchange rate imposed by banks between the Peruvian sol and the U.S. dollar is “usually very high,” forcing locals to look for other ways of obtaining U.S. dollars, generally through parallel exchange houses, also known as “cambistas.”

“We believed stablecoins would be in demand in the country, and they were, as they are the most traded cryptocurrencies on our platform,” Matías Romero, country manager for Buenbit in Peru, told CoinDesk, adding that 90% of traded volume fiat on the platform is exchanged for stablecoins.

Buenbit was the first exchange to add a Peruvian sol-pegged stablecoin called nuPen, developed in partnership with Num Finance, a crypto firm that also created nuARS, a stablecoin pegged to the Argentine peso that operates on Binance’s blockchain.

According to Bernos of Buda.com, USD-pegged stablecoins use in Peru has grown over the last year. So far in 2022 the exchange recorded $1.4 million in USDC trading, compared with the $945,000 volume for all of 2021.

With the Peruvian sol maintaining value against the U.S. dollar, Peru's economy grew steadily from 1999 to 2019, with peaks of up to 9.1%, as in 2008, making the country one of the most buoyant economies in Latin America.

Peru reported 1% monthly inflation in July, adding to a 9.28% year-to-year rise. That’s the biggest hike in prices in 25 years and far above Peru’s central bank annual goal of inflation between 1% and 3%.

“For us, who haven’t had inflation for a long time, 9% is quite high. Despite the fact that the exchange rate hasn’t shot up, the local currency has been depreciating little by little against the U.S. dollar,” Buenbit’s Romero told CoinDesk. “Therefore, there is a growing interest from users to protect their income, and they find in crypto a very good way to do that.”

Political instability is another problem. Seven presidents have taken office in Peru since 2011 amid multiple investigations of corruption.

Pedro Castillo, the current populist president who assumed office a year ago, has survived so far through two impeachment votes, was expelled from his own party, Free Peru, in July and is currently facing ongoing investigations alleging corruption. Since he took office, Castillo has made 50 changes to his cabinet, with his prime minister resigning at the beginning of August.

Castro Lora, from the Blockchain Association, said that when Castillo took office Peruvians feared the new government would impose exchange restrictions, capital controls or cause a devaluation of the currency, that fear forced wealthier Peruvians to take their money out of the country.

“People who didn’t have enough savings began to look to crypto as an alternative store of value,” Castro Lora stated. “Some started to invest in crypto precisely because its decentralization is a shield against state intervention.”

Remittances are one of the strongest reasons for crypto usage in Peru, partly because traditional banks can take up to 72 hours for a transfer and usually take commissions of 10% per transaction, said Romero of Buenbit.

Remittances from foreign countries reached $929 million in the second quarter of 2022, while money sent from Peru to other countries totaled $45 million, according to Peru’s central bank.

“There is a lot of space for crypto to help with those international shipments that the banking system hasn’t yet been able to solve,” Romero said.

According to Camilo Cristia, CEO of Let's Bit, a crypto exchange with more than 5,000 users in Peru, instability boosts crypto adoption in Peru, as stable countries, with fewer urgencies to address, have more time to vote for regulations that could affect the crypto industry.

At the same time, the lack of regulation in Peru makes it more difficult for exchanges to open bank accounts, given that banks are not “crypto-friendly,” Cristia said.

Peru’s legislature has been considering a crypto trading bill since December. It aims to regulate crypto exchanges and promote crypto trading as a legal, safe and state-protected economic activity, although it doesn’t consider cryptocurrencies as legal tender (unlike El Salvador).

Julio Velarde, Peru’s central bank president, announced in November 2021 that it’s developing its own digital currency (CBDC) in partnership with countries such as Singapore. The bank is now working on a white paper and holding meetings with India and the International Monetary Fund.

“Now we're beginning to see a little more interest in regulation, which we hope will be positive, so regulatory clarity can help us as exchanges, but also to give users more confidence in crypto,” said Buenbit’s Romero.