Sub-Saharan Africa Emerges as a Key Driver in the Cryptocurrency Market, Chainalysis: DeFi and Stablecoins Play Crucial Roles

The cryptocurrency analysis firm Chainalysis recently released a research report titled "Sub-Saharan Africa," indicating that the use of cryptocurrencies has rapidly transformed the financial ecosystem in Sub-Saharan Africa. Stablecoins have become a key player in overcoming local foreign exchange crises, with DeFi adoption rates leading globally. This has particularly facilitated Nigeria in receiving cryptocurrency values of up to $59 billion. In South Africa, the largest economy in Africa, the market has shown strong growth momentum due to significant institutional investments and supportive cryptocurrency regulations.

Chainalysis: Cryptocurrencies Rapidly Changing the Financial Ecosystem in Africa

The report indicates that although cryptocurrency trading volume in Sub-Saharan Africa only accounts for 2.7% of the global total, it has shown steady growth from July 2023 to June 2024. The region's on-chain transaction value reached $125 billion, an increase of $7.5 billion from the previous year, demonstrating the increasing importance of cryptocurrencies in the local economy.

According to Chainalysis' Global Cryptocurrency Adoption Index, Nigeria ranks second globally, with Ethiopia at 26th, Kenya at 28th, and South Africa at 30th. The widespread use of cryptocurrencies in these countries, from commercial payments to inflation hedging and more frequent small transfers, indicates that cryptocurrencies have become embedded in the local economic activities.

Sub-Saharan Africa Leads Global DeFi Adoption

Notably, Sub-Saharan Africa leads the world in decentralized finance (DeFi) adoption, possibly due to the increasing demand for accessible financial services in the region. World Bank data shows that in 2021, only 49% of adults in the region had bank accounts, making cryptocurrencies and DeFi important alternatives to traditional banking services.

Stablecoins Play a Key Role

In countries where local currencies are highly volatile, stablecoins have become essential economic tools. USD-pegged stablecoins like USDT and USDC are gradually gaining popularity in many African countries, especially for use in corporate and personal transactions. Stablecoins provide stability for cross-border payments and trade in the region. The chart shows that stablecoins currently account for approximately 43% of the total cryptocurrency trading volume in Sub-Saharan Africa.

Compared to traditional remittance methods using fiat currency, using stablecoins to remit $200 from Sub-Saharan Africa can reduce the average cost by about 60%.

Forex Crisis Accelerates Demand for Stablecoins

The forex crisis in Africa is a major driver for the rapid adoption of stablecoins. According to conclusions drawn from interviews with local exchanges by Chainalysis, about 70% of countries in Africa face forex shortages, making it difficult for local businesses to access the required USD. Particularly in Nigeria, the devaluation of the local currency, the Naira (NGN), has led businesses and individuals to turn to stablecoins as an alternative.

The chart illustrates the inflow of small to medium-sized stablecoin transactions, referring to transactions below $1 million, which typically fluctuate with the devaluation of the Naira. When the Naira devalues, the inflow of stablecoins below $1 million increases, especially during significant currency devaluations.

As the second most populous country in Africa with 123 million people, Ethiopia has seen the fastest growth in retail stablecoin transfers, with a staggering 180% annual growth rate. However, in July 2023, the Ethiopian government eased currency restrictions in order to secure a $10.7 billion loan from the International Monetary Fund and the World Bank, leading to a 30% devaluation of the Ethiopian Birr (ETB) and further increasing the demand for stablecoins in the region.

Stablecoins Aid Local Businesses, Facilitating Cross-Border Payments

The report states that for many African businesses, stablecoins are essential for their cross-border payments, as they can easily convert USDT and USDC into hard USD elsewhere. It has also helped various local enterprises, such as:

1. Small importers purchasing goods from overseas
2. Large multinational corporations importing materials from Europe
3. African fintech companies managing significant amounts of local currency with stablecoins
4. Risk hedging enterprises

Stablecoins are facilitating transactions that have been stagnant due to currency shortages. Since October 2023, stablecoin trading on local exchanges has continued to grow, with a month-on-month increase of over 50%.

The report notes that as stablecoin adoption rapidly expands, regulatory environments are also evolving. However, the South African Financial Sector Conduct Authority (FSCA) has classified cryptocurrencies as financial products but has not yet established specific regulations for stablecoins. Additionally, African exchanges are closely collaborating with banks and regulatory bodies to help them use stablecoins safely and effectively.

Nigeria Emerges as Cryptocurrency Hub, with Stablecoins Accounting for 40% of Crypto Inflows

Nigeria has emerged as one of the global leaders in cryptocurrency development. The chart below shows that from July 2023 to June 2024, Nigeria received cryptocurrency inflows worth $59 billion. Cryptocurrency activities in the country are mainly driven by smaller, professionally managed transactions, with about 85% of the transfer value received being below $1 million.

Stablecoins have also become crucial in Nigeria, as the chart indicates that Nigeria accounts for 40% of stablecoin inflows in Sub-Saharan Africa, totaling $20 billion.

Inflation Drives the Use of Stablecoins

The Nigerian Naira plummeted to historic lows in February 2024 due to inflation, similar to other African countries. Inflation has led to currency devaluation, driving the increased use of stablecoins in the region.

The chart below, based on transfers below $1 million, shows that Nigeria's stablecoin transaction volume in the first quarter of 2024 was close to $3 billion, indicating that stablecoins are becoming the preferred medium for small and medium-sized transactions and are widely used.

Chainalysis: Inflation Pressure Accelerates Cryptocurrency Adoption in Central and Southern Africa

DeFi services are also rapidly growing in Nigeria, with over $30 billion worth of cryptocurrency received through DeFi.

South Africa's Cryptocurrency Market Shows Strong Momentum, Increased Institutional Activity

The report states that South Africa, as the largest economy in Africa, has seen cryptocurrency inflows of $26 billion in the past year, with institutional investments driving its importance as one of the most significant cryptocurrency markets south of the Sahara. With the South African financial regulatory authority incorporating cryptocurrencies into existing legal frameworks, the local cryptocurrency market is gaining momentum. Trading pairs of centralized exchanges (CEX) with the South African Rand (ZAR) are thriving, with monthly trade values in the hundreds of millions.

The Cryptocurrency Economic Potential in Sub-Saharan Africa is Immense

In conclusion, although Sub-Saharan Africa accounts for a small portion of global cryptocurrency trading, its potential for development is immense. With the growth of cryptocurrency activities in countries like Nigeria and South Africa, the region is gradually becoming an important center for global cryptocurrency and fintech innovation, with the widespread adoption of stablecoins and DeFi serving as key drivers of this trend.