While there are a growing number of potential blockchain applications in the digital age, few are as promising or fast-growing as decentralised finance (DeFi). This is borne out by the numbers, with the total value of assets transacted through DeFi systems having grown from just $2.2 billion (R32 billion) in March 2020 to more than $68 billion (R1 trillion) today. This represents growth of 31,000% in just 12 months, with further expansion forecast for the near-term.
But what is decentralised finance, and could the continent of Africa emerge as the future of this technology in the future?
What is DeFi?
In simple terms, De-Fi is a contemporary system by which various financial products and services are made available on a public, decentralised internet andblockchain network.
This creates a scenario where such products and services become more accessible and affordable for end users, minimising transaction fees and charges while negating the traditional middleman role fulfilled by banks or brokerage sites.
Unlike a bank or similar financial institution, users don’t need to provide government-issued ID or proof of address to utilise De-Fi. This is because the underlying blockchain technology connects buyers, sellers, lenders and borrowers directly in real-time, levelling the financial playing field and negating the traditional dominance showcased by huge fiscal institutions.
This also explains why trading brokerage platforms such as the MetaTrader 4 are so inherently popular, as this type of accessible and decentralised entity breaks down traditional barriers to entry and is capable of creating a new generation of financial traders.
Is Africa the Future of Decentralised Finance?
Many countries are competing to lead the De-Fi revolution, although the evidence suggests that Africa could be well-placed to achieve this objective.
But why is this the case? Well, the traditional banking system has failed to reach the majority of citizens across the continent, with penetration levels remaining well below 40% in 2020. What’s more, it’s projected that the number of adults with bank accounts in Africa will peak at 456 million by 2022, with this equating to a paltry 38% of the continent’s population.
This could change over time, of course, especially given Africa’s increased focus on innovation and the fact that the average age of the continent’s population is just 35%.
However, this issue is creating a need and demand for reform in Africa, with various startups responding to this by investing in De-Fi technology and quickly establishing the region as a hotbed of growth and innovation.
Of course, Africa is also emerging as a wider haven for technological advancement and innovation, especially in countries such as Nigeria. Here, an estimated 85 independent technology hubs are located, many of which are focused on developing Defi solutions that can connect more people to financial services throughout the continent.
One of the most prominent startups in this respect is the Nigerian firm Xend Finance, which is currently using tokenization to create a stablecoin for national savers as a way of negating the local currency’s devaluation and a fundamental lack of bank accessibility.
The Last Word
Another massive issue in Africa lies in the form of governance, with corruption and a lack of accountability only serving to exacerbate inequalities in countries continent-wide.
De-Fi has the potential to tackle this issue head-on, by creating far greater transparency and establishing an immutable ledger of financial records that can track Africa’s hidden billions and immense natural resources far more accurately.
Over time, this could establish Africa as a more developed economy that benefits from a more balanced distribution of wealth, with De-Fi at the heart of such an ambitious drive.
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