The Blockchain Space in Africa - Part 2
How Decentralised Finance can improve financial inclusion, saving, lending and provide a hedge against currency devaluation in Africa. Everything we hate about our banking, DeFi will fix.
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What is Decentralised Finance ( DeFi )
DeFi is an open and global financial system built for the internet age – an alternative to a system that's opaque, tightly controlled, and held together by decades-old infrastructure and processes. It gives you control and visibility over your money. It gives you exposure to global markets and alternatives to your local currency or banking options. DeFi products open up financial services to anyone with an internet connection and they're largely owned and maintained by their users. So far tens of billions of dollars worth of crypto has flowed through DeFi applications and it's growing every day - ethereum.org
The key tenets of DeFi vs CeFi ( centralised/traditional finance ) are highlighted below.
Everything that’s wrong with the Centralised Financial systems in Africa, DeFi will make it right. Hidden charges, governments fixing exchange rates, days to make transfers, inflation, corruption to access forex, proof of residence, long queues, outdated & user-unfriendly systems are some of the problems. A former multi-trillionaire from Zimbabwe would understand this better.
We have everything we need in Africa to adopt DeFi.
Young tech-savvy population
We are the only continent that’s going to have growth in the population of young people.
brookings.edu Internet penetration
GSMA Mobile Economy 2020 Report Smart-phone penetration
Large financially excluded population
Growing adoption of crypto
People looking to hedge against inflation via stable currencies.
DeFi for Savings
A guy from Zimbabwe, South Africa or Nigeria can get the same yields from savings that a guy from the USA or France is getting.
Xend Finance
“Africa is one of the most important continents, representing the future and emergence of DeFi and blockchain capabilities. We are very excited about the mainnet launch of Xend Finance, with a team we backed early on that has a strong foothold in Africa and have been strong advocates for what Binance Smart Chain can accomplish. With their platform, they are able to bring stable currency and DeFi investment opportunities to those who normally wouldn’t have them.” - Changpeng Zhao (CEO and Founder of Binance, the world’s largest cryptocurrency exchange by trading volumes)
Xend finance is disrupting individual savings and the $2 trillion dollar credit union industry by decentralising it and;
making your typical African village savings club location agnostic
maximising returns by investing savings in global Defi lending protocols
protecting your savings from currency devaluation (stable digital currencies)
access to Defi insurance to protect your savings
Users spawn a savings group/Credit Union and they select predefined rules that govern their credit union. These rules centre on issues such as contribution amount, the period and defaulting penalties just like your normal savings group. The rules are saved in a smart contract.
Smart contracts are lines of codes that self-execute when a predetermined set of rules is met. Through the blockchain, these contracts do not require a trusted third party to be executed resuting in automation of transactions. Think of these as digital contracts.
Xend Finance is a Binance Labs incubatee and has raised around $2 million since its launch in 2019.
Revix
Revix was founded in 2018 and has raised over $5 million in total funding from investors including Sabvest a Johannesburg Stock Exchange-listed investment holding company. It has offices in Cape Town, South Africa.
In June 2021 Revix launched a USDC Vault to allow people to save and earn interest in a stable currency. Savings will be loaned via lending platforms. Yields from the USDC Vault beat buying treasury bills and saving in USD accounts at your bank.
The underlying asset of the USDC Vault is a stable currency that is at par with the USD.
Performance
From a Revix factsheet, here is how the USDC Vault performs against purchasing treasury bills and holding a USD savings account. Data from July 2020.
USDC Vault performed better.
Building Trust
Revix recently conducted a ‘proof of funds’ independent audit that was conducted by a reputable South African Audit firm to verify the existence of invested funds and to also verify if they were invested in the said cryptocurrencies. Whether in a regulated or unregulated environment, its imperative for startups to be transparent and to build trust with the general public.
Risk & Regulation
DeFi will solve many problems highlighted above. It stands to African governments to support these solutions rather than ban them. It’s also important for startups to build trust and avoid throwing the whole industry into disrepute. I will touch more on the risk and regulation of DeFi in the upcoming posts.
If we ignore the potential of blockchain in building African solutions, the future will ignore us.
Wrapping up
Thank you for making it this far. Subscribe and follow me on Twitter as well. I will touch more on blockchain but next week I have something on the African Education Technology sector.
