• Friday, February 23, 2024
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BusinessDay

The African DeFi Infrastructure System: Challenges and opportunities

COKE – 2

DeFi in Africa is projected to show an annual growth rate of 21.99% and reach over half a million users by 2027. However, industry experts have argued for revisions to these projections as grassroots penetration of blockchain products continues to record new highs. The past few years have seen Africa welcome some of the biggest global players in the crypto space, including Coinbase, Avalanche, and Polygon, all of which are setting up structures to onboard their share of Africa’s 1.4 billion people onto the blockchain. Providing access to financial services continues to be a key theme of these local projects.

Popular financial services that connect Africa to the global economy are lacking rails that make them efficient. Forex liquidity and currency swaps remain inaccessible to most of the population, who are forced to curtail their demand for dollar-based services, despite the country’s economy being import-dependent. This creates a vacuum that decentralised finance can solve, leveraging assets (cryptocurrencies), networks,(blockchains) and services (dApps).

Web3 startups such as OneLiquidity and Canza Finance are providing the rails that could make this a problem of the past for Africa, much to the applause of the rest of the world.

CoinMarketCap, the foremost global crypto information website, held a recent event which discussed Africa’s unique position in the DeFi race; its challenges and opportunities. Canza Finance founders, Pascal Ntsama and Oyedeji Oluwoye were on the call with Shogo Ishida, Emurgo’s co-CEO for Africa and the Middle East. Investors including Mia Mai from Asia-focused Hashkey Capital and Ava labs’ Nadim Chamoun also lined up as speakers.

Challenges and opportunities
“Africa-specific challenges make the need for services like ours crucial. We are solving the problem of dollar shortage on the continent, said Oyedeji Oluwoye,“ CTO of Canza Finance. Oluwoye described Baki, the company’s latest product—a liquidity and exchange platform, as a lasting answer to the FX issues that plague the African market.

When buying, say, cedis with naira, what happens at the backend is that the naira is exchanged for dollars, which is then used to buy cedis, resulting in the exit of funds from Africa, an inflation of the actual dollar value, and increased costs being passed across the entire system. These costs include currency slippages that erode the value of money when converting across African currencies. This was precisely the use case that birthed Baki. Now, traders across different countries can swap currencies without losing any value, and even better, can trade at official market prices set by the central bank.

Describing the challenges and opportunities of blockchain in Africa, EMURGO Africa Co-CEO, Shogo Ishida maintained that financial access remains a huge gap to be covered. “There’s a huge opportunity for web3-powered financial products in Africa. This can be driven by increased VC funding into the space as Africa only gets a small piece of the global blockchain funding.” Last year, the continent recorded a 429% increase in web3 deals, but its $474 million remains dwarfed by the $26.8 billion raised globally.

Hashkey Capital’s Mia Mai stressed the importance of data-intelligent platforms that educate outside investors about the peculiarities of the African crypto market. “Besides our portfolio companies, we hardly get to know so much about the nuances of the ecosystem in Africa. We understand the opportunities in DeFi and payments, but often lack the guided access to properly understand the market,”

Shogo Ishida, who serves as a Co-Founder of NODO, responded to Mai with NODO’s value proposition. “NODO is a product discovery platform that lets you in on everything happening in the African web3 space. We’ve listed over 700 exciting local blockchain products that you can explore on nodo.xyz,” he said.

Building for value
The conversation segued into the need for African founders to build viable business models, whether or not it’s on the blockchain. “It’s gotta make money,” Ishida said. “And affect the daily lives of Africans.” As an example, he pointed to how House Africa uses tokenisation to verify land ownership in Africa where buying land is often a gamble. NODO has extensively written about House Africa here.
“In the tech world, there is a lack of innovation and there are not a lot of people thinking outside the box, trying to understand what the problem is and building real solutions.

With Baki, we’re putting all our resources and energy towards making a product that can become a cornerstone player in the FX trade space within the continent.” Oluwoye said as the conversation rounded up.

Baki notably brings some innovative freshness to crypto exchanges that may make the solution more appealing to users and even crypto-averse regulators. It works with central bank rates and domesticates on-chain assets in local currencies.

Crypto exchanges, well-known for their inclination toward parallel market rates, have increasingly come under fire from regulators with popular exchange Binance facing a call to ban earlier this year. Similarly, crypto exchanges are widely critiqued for dollarising currencies by pricing assets in USD perpetually, making the African consumer susceptible to price movements of both the dollar and the assets. Baki’s model innovates over these challenges.