State of Digital Assets, Africa: August 2022

Web3 adoption is surely progressing on the continent — albeit slowly. We will move faster if African governments would be somewhat open-minded and identify the power of Web3 innovations to leapfrog Africa into the future economically.

Take decentralized finance (DeFi), for instance. It feels like one of those things built for folks in emerging markets — including Africa. It can unlock access to affordable capital to plug some of the continent’s capital shortfalls.

DeFi could play a part. Its borderless nature means that geography isn’t a significant factor, if at all. Also, many DeFi loan rates are in the single digits — compared to the double-digit rates on offer in many African countries.  

There are examples of this happening elsewhere in the world. In February, delt.ai, a Mexican small business lender, revealed that it had used a DeFi protocol to offer credit lines totaling $40 million to its clients. As with most things in their early stages, there are wrinkles to iron out with DeFi lending — and they will straighten out.

Remarkably, we have willing innovators on the continent. There is Goldfinch, a decentralized credit protocol where lending companies access debt pools. In 2021, Goldfinch extended a $5 million credit facility to Uganda-based small business lender Tugende.

There’s also Pngme, which partnered with United States-based Masa Finance in June to drive the adoption of DeFi credit services in Africa. Pngme is a credit and lending API provider for financial firms.

Kenya-based capital marketplace Pezesha is the latest adopter of DeFi as a source of debt capital with its latest funding, which saw participation from Cardano blockchain builder IOG.

Part of the next steps in tapping into the enormous power of DeFi would be for governments across the continent to soften their stance on cryptocurrency.

And speaking of African governments becoming open-minded, South Africa is setting an example.

On August 15, the South African Reserve Bank (SARB) issued a guidance note to local banks, encouraging them to do business with crypto companies.

The Bank made it clear that denying Web3 companies banking services “pose a threat to financial integrity ... as it could potentially create opacity in the affected persons’ or entities’ financial conduct, and it eliminates the possibility to treat [criminal] risks.”

In simple words, SARB is saying that when you deny someone access to banking services, it becomes more difficult to trace their money to know if they’re committing crimes.

The SARB is also working on a regulatory framework for crypto. And regardless of your ideals on decentralization, you’ll want to make room for regulation if you’re pro-adoption. There are fewer more efficient ways to legitimize crypto and its accompanying innovations than through regulation.

It’s great to see a central bank finally acknowledging that they are the bigger loser when they lock out crypto companies from banking services. Hopefully, countries like Nigeria and Kenya are taking note.

African governments must realize that technology is slippery; it’s inexorable. The best way to deal with innovations is typically to understand them and find ways to participate. Bans are rarely successful. People will always find alternatives that circumvent governmental oversight, which is good news for privacy lovers.

Here are some of the biggest Web3 stories out of Africa in August:

• Following the SARB's note to South African banks, Binance launched a deposit and withdrawal gateway for the rand.
• The Cardano builder, Input Output Global, has invested in Kenya-based credit infrastructure for African small businesses. (discussed above)
• Algorand foundation, the non-profit that promotes the adoption of the Algorand blockchain, partnered with Boston University in the U.S. to use blockchain to help smallholder farmers in Africa access machinery.
• Zimbabwe’s central bank has come up with a  roadmap for the development of its central bank digital currency (CBDC). It’s yet to be known if it will be built on blockchain.
• Because Ghana’s central bank said, in August, that its e-cedi CBDC won’t be built on blockchain.
• Meanwhile, the Central African Republic’s top court has ruled that the Sango Coin project is “unconstitutional.” That means buying the country’s natural resources or citizenship with the cryptocurrency shouldn’t be allowed.
• Finally, Instagram announced earlier in August that African creators will now be able to showcase their NFT creations on the image- and video-sharing platform.

That’s it for the first edition of the “State of crypto in Africa.”