The advent of Blockchain has always held remarkable potentials for the world and Africa is determined to take a big piece of this pie through DeFi.
Africa appears to be one of the regions that have shown undeniable effort in the integration of this blockchain to its financial ecosystem, despite all its constraints ranging from poor infrastructure to indecision of regulators.
This has become quite glaring owing to statistics showing the distribution among owners of cryptocurrency in Africa.
Africa overview: Ownership of cryptocurrency
Source: Digital 2020 Global digital overview
It is needless to say that financial inclusion has always been one of the topics at the forefront of the economic scene in sub-Saharan Africa, this is why the concept of Decentralised Finance (DeFi) appeals to the African populace.
Traditional banking vs DeFi
Not since the boom days of the ICO craze in 2017 has a trend captured the discourse of the crypto community. This is with good cause too.
Cryptocurrencies which happen to be one of the most pronounced derivatives of blockchain have come to be known as one of the tools that can be used to interface between the traditional finance and the digital one in a decentralised way. This is what gives DeFi it’s relevance.
So what exactly is DeFi
Hardcore crypto enthusiasts have probably seen countless definitions of this term by now, but let’s shed more light on it for the average Joe shall we? DeFi is the ecosystem of financial applications being built with blockchain technology. Simply put, it is the idea of creating more open-source, permissionless financial services in a decentralised permissionless system. The system aims to bring services from traditional banks into digital form through concepts like lending, staking/flash staking, yield farming to mention but a few, using blockchain. DeFi protocols are usually built on Ethereum blockchain and involve the use of smart contracts and other decentralised applications (Dapps) like Dapptricity for example, as a way to promote open finance.
Seeing that the term gained attention that spread like wildfire, this has obviously led to a momentary overhype. So far, we have seen activities of unscrupulous people who have tried to take undue advantage of this attention and dampen the true innovative effect of DeFi. These have come in various forms ranging from raising Liquidity offerings —being the latest forms of ICO’s— for worthless Erc20 tokens with the promise of a DeFi solution, to outright exit scamming. It is on this premise that some sceptics have argued that the life span of DeFi might be short-lived. While it is agreeable that there might be too much euphoria around some Defi at the moment, it is difficult to see that its creation will not bring about true innovation in the long run.
What this means for Africa as a growing hub for digital money to the unbanked
As of 2017, Sub-Saharan Africa had a mobile penetration of 44%, accounting for 444 Million unique mobile subscribers and expecting to reach 634 Million by 2025. In 2018 metrics, accounts for 10% of the world’s mobile subscriber base.
Also, a World Bank report in 2014 showed only 34% of adults in Sub-Saharan Africa had a bank account and in 2017, it could be surmised that high demand for crypto in Africa led to crypto prices increasing by up to 40% above global averages. In 2018 digital payment options such as StellarLumens/Flutewave/M-Pesa were used by more than 20 Million customers in sub-Saharan Africa.
All these and more point to the fact that DeFi products already have a use case in operation in Africa, not a promise of something that will be developed at some point and whether or not this will gain a strong foothold in Africa is something only time can tell.