Africa’s Cryptocurrency Market Fondness for Stablecoins and Aspiring for Success Amidst the Absence
Africa's Cryptocurrency Market Seeking Success with Stablecoins Despite Challenges
Original author: LianGuaiTRICK MCCORRY Original translation: Deep Tide TechFlow
I participated in a trip organized by Borderless Africa, forming a small team with Yoseph Ayele, Songyi Lee, Jeff Coleman, Ye Zhang, Kartik Talwar, and Jacob Willemsma.
The trip took place between Kenya and Nigeria and lasted about 9 days.
In each country, we engaged in the following activities:
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Q&A and roundtable discussions;
Local-led small group discussions;
Developer education workshops.
In addition to these activities, we also had the opportunity to meet with founders and well-known contributors.
This article represents my personal views and insights gained from these conversations. The key points include:
USDT and Binance P2P are widely popular
Desire to earn money based on abilities rather than geographical location
What will the future be like?
Disclaimer: Each activity invited locals to learn about Ethereum and Layer 2 protocols. The audience who attended these activities is likely to have a strong interest in cryptocurrencies. Although it may not represent the general population today, as the popularity of cryptocurrencies continues to expand, it may become mainstream in the future.
USDT and Binance P2P are widely popular
I asked the same set of questions at each activity:
Who receives wages in cryptocurrency?
Who receives wages in local currency?
Who prefers to be paid in Bitcoin/Ethereum?
Who prefers stablecoins?
Who actively uses Binance’s P2P marketplace?
In all the activities, the answers from almost all participants were quite consistent:
They have received wages in cryptocurrency before.
They prefer to be paid in stablecoins, especially USDT.
They use Binance’s P2P marketplace to convert stablecoins into local currency (and vice versa).
They are not very interested in holding local cryptocurrencies such as Bitcoin or Ethereum. Additionally, participants prefer to trade on networks like TRON or Binance Smart Chain.
The reason is that there are almost no fees, and the confirmation time is “quick”.
Binance is very popular
Although competitors like Onboard are emerging, almost all participants still rely on Binance as their preferred trading platform.
Someone explained to me that Binance entered Africa around 2018 and established Binance Labs. At that time, there was potential interest but no intention to expand. Over time, Binance realized that Africans wanted to have access to stablecoins, so Africa became an important market for the company. I have seen some locals wearing Binance clothes, but they have never worked for the company.
For me, the rise of USDT seems coincidental. In 2018, there were no competitors in the stablecoin market, and Africa seemed to follow the broader market trend at that time. USDT surpassed Bitcoin to become the most liquid and highest trading volume asset. I wish I had asked more about why they preferred USDT over USDC at that time.
Cryptocurrencies represent a convenient way to obtain stablecoins
The rise of stablecoins is not to be underestimated. From the perspective of Africans, stablecoins represent the most important innovation.
It conveniently allows Africans to access the US dollar:
Africans can bypass the local black market.
Africans no longer have to deal with the realities and dangers associated with the black market.
Africans can exchange according to the broader market exchange rate.
More importantly, there is no need to hide dollars under the mattress anymore, everything is digital. Of course, achieving the widespread use of stablecoins is not easy.
Some readers might think, “Well, if I can represent the US dollar as an asset on the blockchain, then the problem is solved!”
This is the first step to solving the problem. The broader challenge is to create an online marketplace that can facilitate a liquid market between stablecoins and local currencies. This market must be able to handle large-scale exchanges and minimize price slippage.
Why is this a real challenge? There are approximately 42 currencies in African countries. We need to cultivate a liquid market that can facilitate exchanges between all local currencies and stablecoins. This requires the collective effort of many local participants to achieve.
Fortunately, the cryptocurrency ecosystem is excellent at allowing participants to collaborate and provide liquidity for assets, and it can provide liquidity when it is truly needed.
So far, this has worked well in Kenya and Nigeria. I don’t have data to confirm if it applies to all 42 currencies in Africa.
Why choose stablecoins? Why not cryptocurrencies?
It may come as a surprise to many, but the local currencies of African countries depreciate against the US dollar very quickly. Some currencies, like Zimbabwe’s currency, have failed due to hyperinflation.
For example, since 2008:
The Nigerian Naira has depreciated by 7/8 against the US Dollar.
The Kenyan Shilling has depreciated by 50% against the US Dollar.
The depreciation of the Kenyan Shilling is significant because during the same period from 2008 to 2023, Kenya’s GDP has doubled. Despite the economic growth, the currency continues to depreciate. People’s confidence in the economy has increased, but not in the local currency.
There is no doubt that large populations in Kenya and Nigeria still live in absolute poverty.
For Westerners, especially the British, the concept of poverty refers to living in apartments that receive social security (welfare) payments. Families indeed struggle to meet their basic needs, but they have a roof over their heads and access to healthcare. If we consider the homeless, there are approximately 271,000 people in the UK, accounting for 0.4% of the total population (around 67 million people).
It is estimated that 60% of Nairobi’s population lives in slums. In addition, the World Bank estimates that approximately 50% of the populations in Nigeria and Kenya live in slums.
In the slums, entire families may live in a single room (“studio”). Outside their door is a narrow corridor that connects them to the main road. As we have witnessed, sewage flows through these narrow corridors like an obstacle-filled race track. Many people live on less than $1 a day with little to no social welfare.
This is why the following statement is disconnected from reality for Africans, especially those living in slums:
“True victory lies in helping people understand why Bitcoin is the best long-term savings asset.”
I don’t like to criticize the above comment, but it is disconnected from the realities of the world and the challenges faced by the locals.
I believe that the locals would be willing to have long-term savings goals, but they urgently need to address their immediate expenses. For example, if they are unable to pay their bills for any reason, the landlord may pay $10 to a group of young people to threaten the tenant to pay the rent.
Surprisingly, there are still landlords in the slums.
I don’t believe stablecoins can help people living in slums. The solution is to create better market conditions for the locals, so they can accumulate wealth, build better infrastructure, and escape from slums. I can understand individuals seeking online work and receiving payment through cryptocurrency systems, but it is not a ready-made solution for many people living in these conditions.
In other words, the cryptocurrency system is not relevant to about 50% of the population in Nigeria or Kenya, except in exceptional cases.
Africans who use stablecoins do not live in slums. I imagine they have achieved some form of financial stability and are able to pay for their immediate expenses.
Over time, the purchasing power of the US dollar is diminishing. We should keep all our savings in native crypto assets. For them, the cryptocurrency meme is not significant because it is a foreign concept.
The situation in Africa is quite the opposite. The purchasing power of the US dollar only rises relative to their own local currency. Holding US dollars is a safer choice compared to holding their own country’s crypto assets.
For Africans, the US dollar is very stable, which is why stablecoins have found market adaptability among them.
The population statistics of the conference include:
Aspiring for success in a background of discrimination and mistrust
The following questions and answers are from a gathering in Nigeria.
Who has doubts about online payment providers like LianGuaiyLianGuail?
Everyone in the audience raised their hands and laughed at each other.
In Africa (especially Nigeria), due to IP addresses being seen as suspicious by online service providers, they are often locked out of services. Some of us are also locked out of our own accounts.
The end result is that Africans are excluded from the services provided by global fintech companies, which we take for granted in the West.
Who has doubts about KYC?
We were told that about 70% of Nigerians do not have passports.
The Nigerian government has introduced a program called the National Identification Number (NIN) for identification and KYC purposes, but it has been plagued by issues and delays.
On the other hand, the Central Bank of Nigeria operates an independent identity verification process called the Bank Verification Number (BVN). It serves as the unique identifier for users in all banking services. Only 25% of the Nigerian population (57 million people) have registered for this number.
In Nigeria, identity is still a challenge. This will affect companies’ ability to meet compliance requirements before sending funds to Nigerians. Whether it is cryptocurrency or other means, this identity issue needs to be resolved within a regulatory framework.
Who has missed opportunities because of distrust in you?
No one laughed this time. Everyone raised their hands, which made people think.
If readers can only get one point, I believe this is why blockchain technology, especially Rollup as a technology stack, is so important to our colleagues in Africa. It reduces the power dynamics between users and operators, allowing parties who do not trust each other but want to transact with each other to do so securely.
In other words, it allows users to:
Lock funds in the operator’s service,
Interact with the service,
And ultimately extract funds from the service without trusting the service operator.
We can define, measure, and reduce trust in financial interactions, which is what makes the field of cryptography so special. I have always referred to it as the field of trust engineering.
I hope that one day the technology stack can bring scalable benefits to our colleagues.
Let’s transact on their platforms, pay for their services, and most importantly, not worry about who they are or where they live.
What is one thing we should tell Westerners about Nigerians?
A participant and others made in-depth speeches on this issue. I summarized the following key points:
“Nigerians are particularly eager for opportunities. They are motivated and driven. Design the right incentive program, and Nigerians will join. Nigerians have learned everything they know from the internet. Give them a Nokia 3310 phone, and they will use it as a tool to go somewhere.
They want to escape the local environment, work online, and join the global workforce. They see blockchain as a great equalizer. It enables them to be rewarded based on their abilities rather than their location.
In Africa, less funding is needed for project success. In the US/Europe, for every $1 spent, you get 1 point, but in Africa, you get 1000 points.”
“If there are Nigerians in the project, there is money to be made. If there are no Nigerians, be careful.” – Local Kenyan
I chuckled, but it does show their thirst for success.
Please take a moment to imagine:
To learn Web3, you leave your family and friends for 16 weeks, travel thousands of kilometers, and live with 40 other people (bunk beds).
Hoping for a life-changing opportunity.
This opportunity is to work online, earn income based on your abilities, and not be discriminated against because of your geographical location.
This is the Web3 Bridge.
The Web3 Bridge is an education project that has been running for free since 2019.
The project attracts Web2 developers and people who aspire to become programmers, who want to learn how to enter the Web3 industry.
We met a woman who left her husband and three children at home to participate in this project. I imagine that there are many other people in that room facing similar challenges, the courage to leave loved ones for a long time should not be underestimated.
The courses and topics covered are also impressive. It starts with basic concepts such as what is blockchain, then moves on to implementing your first Solidity (or Cairo) smart contract, and finally learning full-stack technologies to implement Web3 applications.
Again, the entire project is free to participate in, whether in person or online. We understand that the continued existence of Web3 Bridge depends on the founder’s funding and personal investment (time and money).
Currently, the physical facilities include several houses, but founder Ayo told us about his dream. He wants to buy nearby land and open a larger campus. With a larger physical space, he can increase the scale of students and teach hundreds of developers at once.
I sincerely hope that his vision can be realized, and the crypto community should consider how to support Web3 Bridge.
What will the future be like?
During my nine-day visit to Kenya and Nigeria, I gained valuable insights that led me to some important conclusions about the future – about their workforce, the role that cryptocurrencies can play, and whether we (the West) can support their growth.
Africa has unique advantages in achieving success
In my opinion:
Africans share the same time zone as Europeans,
They can speak European languages fluently, especially English and French,
They have a strong desire for success and a thirst for wealth creation.
Africans are in a favorable position in the online competition.
In the digital space, if you need workers in a specific time zone and they can communicate in the same language, it may not matter whether the workers are in Europe or Africa.
For me, the overall goal of helping Africans succeed is:
Providing better cryptocurrency infrastructure to provide reliable channels for hiring and paying Africans,
Reducing key differences between online communities of Africans and Europeans,
Enabling African developers to leverage cryptocurrencies as a software stack and eliminating the role of trust service operators.
In the long run: Africans and Europeans should become indistinguishable in the digital field.
Only in this way can Africans rely mainly on their own abilities rather than geographical location to generate income.
Africans’ Understanding of Cryptocurrency
Thanks to the internet and online communities, Africans are not isolated from the Ethereum community. We have encountered the following teams and individuals:
The team building the Arbitrum project,
Participants in the ETHGlobal hackathon who won rewards,
Learning how to implement Cairo smart contracts on StarkNet,
Understanding the retrospective funding of Optimism,
Eager to learn zero-knowledge proofs.
Africans do not need our Western countries to visit them and preach why they should care about Ethereum or the broader cryptocurrency ecosystem.
They have a large NFT community.
Africans have already shown interest in cryptocurrency and the number of enthusiasts is steadily growing.
How Can We Help Africa?
Africans do not need our help in understanding how to use cryptocurrency. If anything, we need their help to showcase use cases.
As outlined in this article, how Africans conveniently use cryptocurrency to obtain US dollars helps validate all the technologies we are building. This provides undeniable evidence that cryptocurrencies have product-market fit and many people rely on it.
On the other hand, we need a better understanding of the challenges Africans face before participating in the online economy and starting their own cryptocurrency projects. Some challenges include:
Lack of government support.
Kenya does not have cryptocurrency laws, but the government recently seized WorldCoin’s hardware, claiming it failed to disclose its true intentions. Nigeria has banned banks from participating, but individuals can use it.
Almost no venture capital exists.
Angel investments are feasible but very rare. Identity issues make legal compliance difficult and may hinder fundraising.
No time to create.
The desire for success makes Africans highly focused on building the next product. They do not have leisure time to simply tinker with technology for fun, which may affect their ability to come up with innovative new ideas.
There are misconceptions among Westerners about the abilities and real needs of Africans. Africans can showcase their abilities and value, but it requires all of us to amplify it.
Funding Plans for Africa
A solution that has been repeatedly proposed is the need for a funding plan focused on Africa. Regarding funding plans, I would like to offer a few suggestions that are relevant to any plan (not just those focused on Africa):
Funding should be given to projects and individuals who need support to make progress.
Funding should be given to individuals who have ideas that can benefit from experimenting with time and better understanding research direction.
Funding can reduce the risk of the pre-seed stage for venture capital firms.
Funding should not be seen as a long-term source of funding, as it is easy to continue funding projects that should have failed.
Funding should only be given when the recipient has clear and unequivocal proof of work.
Funding can be used to cultivate an environment, connect developers, and develop a community where knowledge can be shared.
Any funding program aimed at working in Africa or any geographical location needs local leaders to operate it. Funding managers can be compensated to review and authorize funding. This can be a full-time role.
Most people, even outstanding local leaders, do not have experience in operating or participating in funding programs. Like any system, it is best to start small and build gradually over time. It is not advisable to entrust a very large fund pool to a brand-new funding program. Funding managers should have time to earn their reputation for managing funds and demonstrate the impact of funding.
Funding cannot solve local problems, especially in Africa. Funds are limited and can easily be exhausted. Caution should be exercised in the use of funds. Funding should be reserved for the most promising groups and individuals to drive their projects. It is “free” money, but it should not be widely available.
For me, Uniswap is one of the most successful cases. Founder Hayden received a $50,000 grant from the Ethereum Foundation to pay for audit fees. This was enough to cover the audit fees, drive progress, and achieve the current tech giant, Uniswap.
Driving progress does not require a large amount of funding. Less is more.
Finally, there are two issues that hinder the success of any funding program.
If Africans cannot comply with KYC/AML rules, they may not be able to receive funding.
A local venture capital network needs to emerge that can provide funding for any successful cases in the future.
Both of these issues are structural and infrastructure issues that go beyond the scope of cryptocurrencies. Particularly the venture capital network, you need former founders who are willing to invest and help a new generation of founders build large sustainable companies.
One thing that Africa lacks but is abundant in the West is on-site education.
In the West, there are many seminars, summer and winter schools where you can attend and learn the core technology driving cryptocurrencies. What’s more, many educational activities are free.
Unfortunately, many Africans face restrictions when participating in activities related to cryptocurrency.
Many Africans lack passports, and even if they have passports, the requirements for visas and the potential burden of travel expenses pose significant challenges.
They cannot come to us in person.
As an experiment, Ye Zhang and I held developer workshops in Kenya and Nigeria.
To our surprise, many software developers attended, and the number of attendees was also unexpected. They raised many good technical questions. Africa has a large number of technically skilled developers who want to learn about Ethereum’s core infrastructure and novel topics such as zero-knowledge proofs.
So far, they have relied solely on the Internet for learning, but face-to-face communication with world experts is the best. This not only provides a learning perspective but also inspires ideas for pursuing a topic, as experts often have a passion for their field that is infectious.
This brings me to the next step: we don’t really need a conference to sell and market new Web3 projects to Africans. People are eager to share knowledge and learn.
Our biggest contribution to Africans is to organize and conduct an on-site educational program. Like a summer school, invite experts to teach technical subjects.
The above article has several key points:
Cryptocurrency payments have become a convenient method for obtaining US dollars.
Due to early expansion and promotion of peer-to-peer markets, Binance is popular in Africa.
Africans want to earn income based on their abilities rather than geographical location, and they have the perseverance to pursue it.
The long-term goal should be to reduce the disparity between Europeans and Africans in the digital field.
Africans face many challenges, including lack of regulatory support, inability to travel, difficulty in complying with KYC/AML regulations, almost no risk investment network, and no time to try new ideas.
More importantly, almost all Nigerians admit that they have missed opportunities because people do not trust them.
The educational program of the Web3 Bridge is doing important work, and the next step is for Western countries to personally assist in conducting summer schools.
One impact of our visit is helping the community build connections. Many participants do not know each other, especially developers. It sounds like some local community leaders will try to continue organizing more activities. With more visits, hopefully, we can help local leaders build larger communities.
There are two final topics I would like to discuss.
Africans love life. Although we have only been to Nigeria and Kenya, we have also met Africans from Uganda, Ghana, and other countries. They joke happily, such as Nigerians being dramatic, or going to Ghana when they need to relax.
The locals are very willing to teach me some interesting words, such as Mubaba, Alagba, and m’souLianGuai, which are all compliments for men and women. I seize every opportunity to say these words, and most of the time they laugh, especially the Kenyans. They even told me that East Africans have round foreheads, while West Africans have flat foreheads.
As a programmer, it is easy to focus on broader systems and try to evaluate how to fix them for the benefit of everyone. However, we must never forget that the core of this system is people. Taking the time to understand their customs, humor, and fully appreciate what they have given up to be able to enter the same room as the rest of us is always worth it.
What is Africa?
One striking aspect of Africa is its immense cultural richness and how it influences Africans’ view of the continent.
In West Africa, there is a similar Schengen agreement that allows visa-free travel between several countries. However, traveling from East Africa to West Africa (and vice versa) is not common and is difficult. This requires visas, is economically costly, and takes time. For example, the flight time from Lagos to Nairobi is about 5 hours, and round-trip tickets can cost over $600.
I noticed that East Africans and West Africans mutually recognize each other as an important part of the African identity. On the other hand, they do not consider South Africa or North Africa to meet the same standards as “Africa.” South Africa is considered more European in style, while North Africa has more Islamic influence.
This sentiment is reflected in the fact that none of the people I have asked have been to Algeria, nor have they expressed any desire to go there. This is interesting because my stepfather grew up in Algeria and strongly considers himself African. I do not have a good insight into this. I imagine it has to do with cultural differences and Africa’s colonial history.