Source: Medium

Studies and reports have clearly shown that cryptocurrencies are gaining widespread popularity especially in emerging markets like Africa as they ensure financial inclusion in the continent and even the globe at large.

For developed countries, adoption of cryptocurrencies mainly lies in the adventurous nature of the people in taking high risks to invest in assets as volatile as crypto. However, for third world countries like most African countries, the high interest in cryptocurrencies can mainly be attributed to the fact that crypto can be a tool to be used in fighting inflation and also a better option for cross-border transactions (I carried out a survey and wrote an article on it).

Stablecoins fall under this category as they serve both the purpose of helping Africans fight inflation and also as a means for remittances. No wonder, a paragraph from the “State of Web3.0 in Africa” report by Emurgo Africa states “first-generation cryptocurrencies display significant volatility, which restricts their use as a medium of exchange and a unit of account. Stablecoins and central bank digital currencies were created particularly to address this issue. They therefore possess a number of benefits.” Not leaving out the certainty that the scarcity of foreign currencies like USD (which now seem like the holy grail of currencies for Africans) has led to even more demand for stablecoins pegged to them.

Source: Rest of World

Unsurprisingly, there has been a significant increase in the use of stablecoins in African countries mainly due to their perceived stability. Known stablecoins today are pegged to USD (e.g, USDT, USDC, Pax Dollar, DAI, Frax, TrueUSD, etc), Euro (e.g, Euro Coin, Agair, Stasis Euro, etc) or GBP (e.g, GBPT, also known as Poundtoken, Binance GBP, etc). So, having stablecoins pegged to African currencies wouldn’t be such a bad idea right?

Emerging economies creating their own stablecoins can prove invaluable as it can help address the issue of currency volatility, thereby stabilizing local currencies. Not to be one of those “crypto can bank the unbanked” evangelists, but stablecoins can really play a role in banking the unbanked.

Even Joao Reginatto, VP of Product at Circle (the company responsible for developing the popular stablecoin, USDC), believes that every country needs digitization of its own national currency as “the world cannot run on just dollar stablecoins.” BTW, I don’t think he meant CBDCs here.

While it may seem a brilliant idea that African countries get their own stablecoins, the fact that it might not be sustainable (at least not yet) also has to be considered.

Will Africans adopt a stablecoin pegged to their declining currency having tested foreign currencies?

Is the regulatory framework of most African countries friendly to digital currencies not created by the central bank? I mean, this is basically a threat to financial institutions and governments.

We might be able to tell from these case studies of different African stablecoins that have been launched and how they fared. I guess a look at these will give us a picture of whether or not African countries are ready to have their own stablecoins.

CASE STUDY #1

With all the T’s crossed and i’s dotted, KuBitX embarked on a journey, in April 2019, to create the first known African stablecoin called Naira Stablecoin (NGNX). Like home-made Naija jollof, NGNX was created by Africans for their home, Africa. Created on the Stellar blockchain and pegged 1:1 to the Nigerian Naira, KuBitX partnered with Interswitch to create this. Like you’d imagine, this kind of news made headlines in 2019 as people anticipated to see how it would fare. But what seemed like a “smart move” didn’t, or should I say, hasn’t really made it to becoming an African household name.

Maybe or maybe not the reason for it, but the parent company, KuBitX ceased operations in 2021, reportedly due to lack of technical knowledge on how to run a startup and lack of management skills by the founders. From my research, however, Obiex exchange still allows trading of NGNX as at the time of writing. But please indicate in the comment section if you have heard of this stablecoin before now? Adoption rate is very low.

CASE STUDY #2

Sometime between June 2019 and August 2019, another Africa stablecoin was developed but this time pegged 1:1 to South Africa Rand. This stablecoin, called Digital Rand (DZAR), was built on the Ethereum blockchain. This is not to be confused with the CBDC that the country’s central bank is testing on and looking to launch. By 2020, Africa’s next first stablecoin was no longer active. Poof! Reasons? Not clear.

CASE STUDY #3

Still not giving up on the mission of creating Africa’s first stablecoin, popular Ghana-based cross-border payment platform, Bitsika took the baton. In collaboration with Linovo Capital (a crypto startup investment firm), Bitsika launched Africa Stable Coin (ABCD) in December 2019. This stablecoin is pegged 1:1 to…no, not Ghana Cedis as expected, but to the Nigerian Naira.

When asked why the peg to naira, Bitsika founder, Atsu Davo said that Nigeria, amongst all other African countries, has seen the most significant rate in adoption of Bitcoin and other cryptocurrencies, so it felt wise to start with the country first before branching out to other African currencies. It’s interesting because Binance, in 2020, added Naira as a currency to be tradeable on its P2P platform, making it the first and currently, the only African currency that can be traded there. Are they seeing something Nigerians aren’t seeing?

Now, back to Bitsika and ABCD. Even years after launch, many African crypto inclined people still don’t know that this stablecoin exists.

Here’s a screenshot of someone’s response when I asked.

Note: this person is well involved in the crypto space.

My guess? 85% of Africans, or permit me to narrow it down, 85% of Nigerians who are involved in the crypto space haven’t heard of it and even the few who might have, haven’t used it.

Brings me again to the very first question I posed in this article, can Africa stablecoin ever be sustainable like Naija jollof or maybe Ghana jollof? 😅

CASE STUDY #4

With more resilience, Emmanuel Evarist and his team went on to build another Africa stablecoin that would hopefully go mainstream in 2022. Also pegged to Nigerian naira, this one’s called NGNC. It was developed by LINK, Africa cross-border payment infrastructure and parent company to other products as well. NGNC is supported on popular blockchains like Polygon (as an ERC-20 token), Solana (as an SPL token) and Stellar blockchain. It is pegged 1:1 to naira. Not to worry, this one’s still active (for now?) but the real question is, how far will it be adopted? I believe not up to 50% of Africans who are involved in the crypto space are aware of NGNC too but let’s blame it on the fact that it’s still a new stablecoin, hence the cause.

What can be done to incite Africans involvement in Africa stablecoin?

My Thoughts:

For Africa stablecoins to go mainstream, firstly, Africans' hope in their legal tenders have to be renewed and the government has a part to play in this.

I mean, how do you explain N1200/$1 from N900/$1 in just a few days? “Uhhhmm…sorry, but I’m not really interested in a stablecoin pegged to naira. Ooops! Did I just say that out loud?”

Closing Remark:

This article is meant for educational and informational purposes, NOT meant to give any financial advice. This piece was created to shed light on the need for Africa native stablecoins and also the reasons why they hardly get massively adopted by their target audience - Africans.

As usual, I’d love to hear your thoughts on this.