Chainalysis, a currency analysis agency, recently released a crypto market research report called (Sub-Saharan Africa), which pointed out that the use of cryptocurrencies has rapidly changed the financial ecology of sub-Saharan Africa, and stablecoins have become the key to breaking the local foreign exchange crisis. At the same time, the adoption rate of DeFi is also the highest in the world, especially helping Nigeria receive cryptocurrency worth up to 59 billion US dollars. As for South Africa, Africa's largest economy, the local market is developing strongly with the help of a large number of institutional investments and encryption regulations.
Chainalysis: Cryptocurrency is rapidly changing Africa’s financial ecosystem
The report pointed out that although sub-Saharan Africa’s cryptocurrency trading volume only accounts for 2.7% of the world’s, it still showed steady growth between July 2023 and June 2024. The value of on-chain transactions in the region reached $125 billion, an increase of $7.5 billion from last year, demonstrating the growing importance of cryptocurrencies locally.
According to Chainalysis' Global Cryptocurrency Adoption Index, Nigeria ranks second in the world, with Ethiopia (26th), Kenya (28th) and South Africa (30th) also ranking high. Cryptocurrencies are used in a wide range of situations in these countries, from commercial payments to combating inflation, to more frequent small transfers, all showing that cryptocurrencies have been embedded in local economic activities.
Sub-Saharan Africa leads the world in DeFi adoption
It’s worth noting that sub-Saharan Africa has the highest adoption rate of decentralized finance (DeFi) globally, likely in part due to the region’s growing demand for accessible financial services. World Bank data shows that only 49% of adults in the region had a bank account in 2021, making cryptocurrency and DeFi an important alternative to traditional banking services.
Stablecoins become a key player
In countries where local currencies fluctuate, stablecoins have become an important economic tool. US dollar-pegged stablecoins such as USDT and USDC are gradually becoming popular in many African countries, especially for use in business and personal life. Stablecoins provide stability for local cross-border payments and economic and trade. The chart shows that stablecoins currently account for approximately 43% of total cryptocurrency trading volume in sub-Saharan Africa.
And the average cost of sending $200 from sub-Saharan Africa using stablecoins is about 60% lower compared to traditional remittance methods offered using fiat currencies.
Foreign exchange crisis accelerates stablecoin demand
Africa’s foreign exchange crisis is one of the main reasons for accelerating the popularity of stablecoins. According to Chainalysis’s conclusion from interviews with local exchanges, it is pointed out that about 70% of African countries face foreign exchange shortages, and local companies have difficulty obtaining the dollars they need. Especially in Nigeria, the depreciation of the local legal currency Naira (NGN) has prompted companies and Individuals are turning to stablecoins as an alternative.
The chart shows that small to medium-sized stablecoin inflows, which refer to transactions of less than $1 million, generally follow the depreciation of the naira. When the naira depreciates, stablecoin inflows under $1 million increase, especially when the currency depreciates significantly. This phenomenon is more obvious.
Ethiopia, the second largest country in Africa with a population of 123 million, has become the country with the fastest growing stablecoin retail transfers, with an annual growth rate of an astonishing 180%. However, in July 2023, the Ethiopian government relaxed currency restrictions in order to obtain a US$10.7 billion loan from the International Monetary Fund and the World Bank, causing the legal currency birr (ETB) to depreciate by 30%, further exacerbating the local crisis. Demand for stablecoins.
Stable currency helps local businesses and is a good helper for cross-border payments
The report stated that for many African businesses, stablecoins are a good helper for their cross-border payments. Using USDT and USDC, they can easily be exchanged for hard dollars elsewhere. It also helped the following local businesses, such as:
Small importers who purchase goods from overseas
Large multinational companies importing materials from Europe
African fintech companies rely on stablecoins to manage large amounts of local fiat currencies
Hedging risk companies
And stablecoins are facilitating transactions that have been stalled by currency shortages. Stablecoins have continued to grow on local exchanges starting in October 2023, with month-on-month growth of more than 50%.
The report stated that while the usage of stablecoins is rapidly expanding, the regulatory environment is also gradually developing. However, the South African Monetary Authority (FSCA) has clarified supervision by classifying crypto assets as financial products, but there is still no specific regulation for stablecoins. He also added that various exchanges in Africa are currently working closely with banks and regulatory agencies to help them use stablecoins safely and effectively.
Nigeria becomes hub of crypto activity, stablecoins account for 40% of crypto inflows
Nigeria has grown strongly as one of the global leaders in cryptocurrency. The chart below shows that Nigeria received $59 billion worth of cryptocurrencies between July 2023 and June 2024. Local crypto trading activity is driven primarily by smaller, professional-scale transactions, with approximately 85% of transfers received being worth less than $1 million.
Stablecoins have also become an important player in Nigeria. The chart shows that Nigeria accounts for 40% of stablecoin inflows in sub-Saharan Africa, totaling $20 billion.
Inflation drives stablecoin usage
The fiat currency, the naira, plummeted to historical lows in February 2024 due to inflation. Like other African countries, inflation led to a series of effects such as the devaluation of the local fiat currency, which in turn drove the use of stablecoins.
The chart below uses the transfer size of less than 1 million yuan as a benchmark. It can be seen that Nigeria's stablecoin trading volume in the first quarter of 2024 is close to 3 billion US dollars. It is obvious that stablecoins are becoming the preferred medium for small and medium-sized transactions and are being widely used.
(Chainalysis: Inflationary pressures are accelerating the adoption of cryptocurrencies in Central and South Africa)
DeFi services are also growing rapidly in Nigeria, and the value of cryptocurrencies received through DeFi has exceeded US$30 billion.
South African Crypto Market Gains Momentum with Increased Institutional Activity
The report stated that South Africa, as Africa's largest economy, has received a value of $26 billion in cryptocurrency in the past year, especially the growth of institutional investment, making South Africa one of the most important crypto markets south of the Sahara. It was also added that as South Africa’s financial regulators incorporate crypto assets into the existing legal framework, the local crypto market is developing strongly. The trading pair between the Centralized Exchange (CEX) and the South African Rand (ZAR) is also quite prosperous, with hundreds of millions worth of transactions per month.
Sub-Saharan Africa’s crypto-economy has huge potential
In summary, Sub-Saharan Africa only accounts for a small portion of global cryptocurrency trading, but has huge potential for development. With crypto activity growing in countries such as Nigeria and South Africa, the region is gradually becoming an important center for global cryptocurrency and fintech innovation, and the popularity of stablecoins and DeFi is an important factor driving this trend.
This article Sub-Saharan Africa is an important driver of the crypto market, Chainalysis: DeFi and stablecoins are key players first appeared on Chain News ABMedia.
