How Cryptocurrency is Helping Empower Africa's Financial Future
How Cryptocurrency is helping empower Africa’s Financial Future
This week we talk about the legacy payments market in Africa and the large market opportunity for companies, such as Yellow Card, to upgrade the African financial system and deliver financial inclusivity through the use of stablecoins and other digital assets.
A Look at how Innovative Blockchain Solutions are Addressing Global Financial Challenges
Double digit inflation, high remittance fees, and archaic legacy payment systems have placed an immense burden on people across the African continent. Rapid currency devaluation coupled with remittance fees nearing the double-digit mark in Sub-Saharan Africa have left many turning to cryptocurrency for an answer.
Simply put, moving money in Africa is complex and expensive. Current payment solutions provide only fragmented coverage of the continent, often with little crossover between networks, and charge sizable fees on even small payments (which make up the bulk of intra-African payments). And African financial markets have been historically turbulent, citizens often having to worry about the stability of their local currency or government. Altogether, this makes Africa ideally suited for the benefits of digital monies, commodities and assets… which are cheap, fast and easy to move and don’t rely on central governments (aside from Central Bank Digital Currencies, CBDCs, described below).
An Overview of Cryptocurrency
At their core, crypto “tokens” are just digital representations of the ownership of something. The process of tokenization, or creating digital tokens for something, is simply about providing a digital proof of ownership for an underlying asset of some type. What’s unique about tokens, as compared to legacy forms of proof of ownership like a share certificate or PPM/LPA for a fund stake, is that they are composable, digital software products. And as such, they have more functionality and flexibility than existing proof of ownership structures.
At Blockchain Coinvestors, we classify crypto tokens into eight broad categories as described below. The first four categories, denoted in gray, represent tokenized ownership positions backed by various real-world monies, commodities and assets. In essence, these are upgrades to the technology associated with the traditional, existing stores of value we already use worldwide, such as dollars, gold and equities. And the last four categories represent various incentive and reward mechanisms used to drive new, often open-source, software products built by developers on blockchain networks.
We won’t get into the weeds here, but we are already seeing the former being utilized to upgrade the functionality and flexibility of the existing global financial system, especially in emerging markets like Africa, which we focus on today.
To learn more about our token taxonomy and your options for investing in early stage tokens, please check out our recent webinar.
5 Ways Cryptocurrency Is Improving Financial Systems in Developing Countries
Increased financial accessibility & inclusion
Increased capital efficiency & transparency
Reduced fees & faster settlement
Protection against inflation & instability
Expanding access to US Dollars
Cryptocurrency Case Study: Yellow Card
Yellow Card is the only licensed Pan-African cryptocurrency exchange to date and is rapidly gaining popularity across the continent for its user-friendly experience and seamless mobile app. The company is facilitating payments and delivering financial inclusion by enabling anyone in Africa, which is dominated by mobile devices, to benefit from the use of stablecoins and cryptocurrencies.
Founded in 2019 by entrepreneurs Chris Maurice and Justin Poiroux, Yellow Card is live in over 16 African countries and has already processed more than $1.75B in transactions on the continent. We invested in the team’s $40M Series B round in March, led by Polychain Capital.
Some of the financial problems Yellow Card and similar companies help alleviate:
High fees & inefficient transfers
Currency devaluation & instability
Ineffective cross-border solutions
Limited access to US dollars
Yellow Card’s mobile application and easy onboarding process allow customers to deposit their local fiat currency into the app and transact within minutes. Yellow Card offers customers cryptocurrencies, such as BTC, as stores of value to protect wealth and stablecoins, like USDT, to facilitate low-cost, efficient cross-border payments and protection against currency devaluation.
According to the IMF, Africa’s population will double from its current 1.3B to more than 2.6B by 2050, while western populations are on a steady decline. And by 2050, one in three youths globally (between the ages of 15 and 35) will be African. As such, Africa represents a massive and growing opportunity for companies like Yellow Card, who can deliver cheaper, faster and easier payments on mobile devices through the use of stablecoins and digital stores of value.
By focusing on the African continent and working with local governments to navigate the nuances of intra-African payments, Yellow Card has become the only licensed exchange on the continent. This makes them well positioned to lead the underbanked African market, which has been embracing cryptocurrencies rapidly. And having surpassed $1.75B in transactions in March of this year, Yellow Card is already delivering on their mission of financial inclusion throughout Africa.
To learn more about Yellow Card and the team’s unique founding story, check out their recent feature in CNBC here.
Blockchain Coinvestors View on Cryptocurrency Globally
The trends we’re seeing in Africa are representative of the global shift to digital monies, commodities and assets. While progress is fragmented, the adoption of stablecoin technology and digital tokens in payments and remittances, which likely represents the most immediate and salient use case of blockchain technology, has taken off around the world.
In 2022, more than $7T was settled using stablecoins, as compared to only $2.2T settled on the well-known Mastercard network. Some experts even predict that in the next few years, stablecoin volumes will overtake the top 4 credit card networks combined. And as the world moves to put in place clear regulations for digital assets, this trend will only grow.
Author
Christopher Nelson
Head of Digital Asset Research