Sub-Saharan Africa: A Land Of DeFi Opportunity

Avalanche

Africa contains some of the most well-developed crypto markets of any region, with Nigeria and Kenya ranking 11th and 19th on Chainalysis' Global Crypto Adoption Index. As a new wave of finance rises, Sub-Saharan Africa has emerged as a beacon of potential. Could this landscape marked by high inflation and fragmented currencies be the birthplace of the next wave of Avalanche DeFi users?

Let's dive into the Sub-Saharan FX market and explore products on Avalanche that could redefine its economic landscape.

Areas of Mass Adoption

Retail. Small retail payments in Sub-Saharan Africa are powering crypto adoption, with the region conducting the world's highest proportion (80%) of crypto retail payments under $1,000.

Peer-to-Peer Exchanges. Sub-Saharan Africa has seen the heaviest adoption of peer-to-peer (P2P) exchanges, accounting for 6% of all crypto transaction volume – more than doubling that of Central & Southern Asia and Oceania.

Remittances. Remittances sent to Nigeria account for 38% of all remittance flows to Sub-Saharan Africa. In 2023, $54 billion in remittances were sent to Sub-Saharan Africa, driven by growth in Mozambique (48.5%), Rwanda (16.8%), and Ethiopia (16%).

BTC and Stablecoins. Bitcoin accounts for 9.3% of transaction volume, the most of any region worldwide, while Stablecoin adoption grows steadily. In 2022, Avalanche added support for Bitcoin on its cross-chain bridge letting users mint and redeem BTC.b with near-instant transaction speed, cheaper costs, and less volatility than WBTC.

Most of this growth can be attributed to three main trends: inflation, a largely unbanked population, and fragmented fiat.

Inflation

Inflation is an overarching economic trend affecting everyday people and their fiat currencies. In 2022, Sub-Saharan currencies had an inflation rate of 9.4%. People in Sub-Saharan Africa have watched their purchasing power disappear. Naturally, many have looked for alternative areas to store savings, including cryptocurrency.

With Sub-Saharan inflation at its second-highest level since 1995, it makes sense that people would flock to Bitcoin, an asset with an inflation rate of just 1.7%. Since Bitcoin is typically people's entry into decentralized money, it would be logical to see attention shift toward the opportunities of DeFi and stablecoins going forward.

Unbanked Population

As of 2021, some 45% of adults in Sub-Saharan Africa don't have a bank account, which is much lower than it was a decade prior and the second-highest unbanked rate in the world. Consistent with this reality is the lack of debit and credit card usage in Africa.

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Without debit and credit cards, cash transactions are king. Another growing alternative is mobile money accounts.

As internet quality and availability spread throughout Sub-Saharan Africa, mobile money accounts have soared. In 2021, 33% of adults had a mobile money account, the highest rate of any region globally and over three times the global average. A digital financial system in Sub-Saharan Africa is being created, paving the way for wider crypto usage.

Fragmented Fiat

Despite mobile money apps like M-Pesa and Momo gaining massive adoption, their usage is fragmented by region. It's hard to integrate all 42 African currencies into a single payments app, and to get hundreds of millions of people to use the same apps. Here, blockchain networks come in handy.

As people become accustomed to using digital forms of money, the demand for a unified hub of on-chain fiat is likely to increase.

Cryptocurrency transfers via peer-to-peer and over-the-counter (OTC) markets are more common in Nigeria than centralized exchanges. In fact, up to half of the $56.7 billion worth of crypto received by Nigerians between July 2022 and June 2023 was sent via P2P or OTC.

Emerging DeFi Opportunities

Stablecoin Transactions

Stablecoin transactions have become popular in Sub-Saharan Africa. In this region where the Bitcoin transaction volume is the highest in the world, stablecoin volume is even higher.

Enter Canza Finance, which aims to provide a permissionless, on-chain suite of DeFi products using tokenized African fiat currencies. Canza launched Baki, a stablecoin platform on Avalanche, to support several fiat currencies across Africa by allowing for slippage-free swaps. The launch of Baki natively on Avalanche is the first move to bring forex trading to emerging markets.

Improving Fiat-to-Crypto Services

To expand crypto usage, fiat on- and off-ramps need to become more accessible, especially in unbanked areas. These regions present a unique opportunity to onboard users from OTC and P2P markets directly into crypto, transforming DeFi services into alternative banking solutions.

Fonbnk allows users to swap between fiat, phone airtime/data, and crypto in a single app without needing a bank transfer or local exchange partner. This creates easier on-ramping within emerging markets.

Cutting Costs for Small Businesses

One of the most common problems for African commerce is the frequent need to swap between local currencies and USD. As of 2021, roughly 23% of consumer goods in Africa were imported, and companies are often required to pay in the exporting country's currency.

This prerequisite not only adds sell pressure to the Naira but can be expensive to swap relatively small local currencies in the broader FX market due to their illiquidity. These necessary currency conversions eat into business profitability. It isn’t uncommon for $1M swaps between USD and small currencies like CFA to result in 50% slippage. Enter minted stablecoins, which can make transaction costs and slippage between African currencies negligible.

Circle launched native support for its dollar-pegged USDC stablecoin on Avalanche, allowing users to mint and redeem USDC directly on Avalanche. With its Cross-Chain Transfer Protocol, users can easily transfer USDC from one blockchain to another, leveraging Avalanche as the CCTP Hub chain with low fees and fast finality.

Closing Thoughts

DeFi is poised to improve the Sub-Saharan financial landscape, which is characterized by high inflation, illiquid and fragmented currencies, and a preference for OTC and P2P markets. The region's leadership in Bitcoin adoption could pave the way for a future where FX and cryptocurrency are closely intertwined, positioning Sub-Saharan Africa as a potential leader in crypto adoption. With its minimal costs, lightning speed, and ease of use, Avalanche is well-suited to materially benefit the people and businesses of this global market.

Provided for informational purposes only, without representation, warranty or guarantee of any kind. None of this is as an endorsement by Ava Labs, Inc., the Avalanche Foundation Limited or any of their respective subsidiaries or affiliates, nor is any of this investment or financial advice. Please review this Notice and conduct your own research to properly evaluate the risks and benefits of any project.

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