🔱 The LatAm Trilemma Pt. 2

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🔱 The LatAm Trilemma: Problems, Talent, and Capital

A few months ago we wrote an essay called The LatAm Trilemma.

It describes a three-pronged puzzle that has long stymied Latin America's crypto ecosystem: problems, talent, and capital.

LatAm has never lacked real problems (rampant inflation, pricey remittances, financial exclusion), all issues seemingly tailor-made for blockchain solutions.

And over recent years homegrown talent (founders and developers) has been on the rise.

What's been missing is the third ingredient, capital, which has remained scarce and disconnected from local innovation. This imbalance was the core of The LatAm Trilemma essay, which argued that lasting crypto transformation demands all three forces in tandem.

In our original analysis, we explored how Latin America’s pain points align uncannily with crypto’s value proposition, yet systemic impact was elusive because funding lagged far behind.

This week, we recorded a podcast with Gideon Greaves, Managing Partner at Lisk Ventures (go check it out here), which got us thinking about the trilemma again.

His perspective, grounded in both on-the-ground experience and new data, points to a potential solution to the LatAm Trillemma, which changes everything.

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☘️ Our Previous Thesis

In the original essay we stated the trilemma could be balanced with founder-driven solutions. 

The idea was to coordinate talent and capital by empowering local builders and connecting them with resources. We highlighted emerging initiatives that create meeting points for founders and investors, de-mystifying Latin American startups for backers and educating founders on how to navigate fundraising in a global context.

Crucially, the essay closed on an optimistic note which I have to quote because of its stunning accuracy:

“Funding will flow. The results are too asymmetric, the market too large, and the timing too good. Eventually, it will be frontrun.

The only question remaining is: who gets there first?”

📐 Why We Nailed It

We were 100% right with our ending.

So right, that our proposed solution turned out to be wrong.

In The LatAm Trilemma we correctly predicted that funding would eventually flow. The asymmetry, in my eyes, was too obvious to ignore. But we assumed the trilemma needed a bridge from talent toward the capital.

Instead, the pressure is coming from the capital itself.

In our episode with Gideon, he framed the shift in simple terms:

“From an economic standpoint, there's a massive opportunity to launch a fund and invest into emerging markets, with Web3 as the core catalyst for economic growth. The timing is perfect.”

We’ve been saying for a while now that local VC funds in Latin America do not touch local crypto startups, even when the asymmetry is right there. Despite understanding the problems better than anyone, despite proximity to talent, most local funds remain structurally unwilling to underwrite crypto risk.

This created the imbalance in the first place.

But, as you know, markets don’t tolerate inefficiencies forever.

Capital that can no longer find rational risk-adjusted returns in developed markets is looking elsewhere. Gideon himself is a clear example. Through Lisk Ventures, he recently raised a $15M vehicle, the EMpower Fund, focused on crypto as a disruptor across frontier markets.

Gideon explained that venture capital is just a financial product, like a mutual fund. Capital is locked for six to ten years, the risk profile is extreme, and failure is built into the model. Statistically, around 66% of seed investments fail.

The assumption here is that a small number of outcomes will be large enough to compensate for everything else. A single well-priced seed investment that grows into a meaningful exit can return an entire fund. That, however, only happens when entry valuations leave room for upside.

Which is no longer the norm in the U.S. According to Gideon, there is simply too much capital in the system, so everyone raised a fund, and consequently killed venture as an asset. 

Startups are now pitching at valuations that are completely detached from reality, while LPs still expect the same outcome they always have. 

🗻 Closing the Trilemma

Over the last three years, average venture returns in the U.S. have been negative, with IRRs around minus 2.7%.

For an asset class built entirely around risk and illiquidity, the reality forces a reassessment of where returns promised to LPs can be realistically found.

As a result, funds will start looking into frontier markets. The influx of outside capital into LatAm will effectively bridge the funding gap that defined the trilemma.

Local problems will be solved by local talent, backed by foreign capital. 

Which, of course, creates a new trilemma. But that's an essay for another day.