African Exchanges: Lessons from Experts
Our summary from our first virtual roundtable with exchange founders and senior leaders from across Africa (including Francophone Africa, W. Africa, Southern Africa & more)
We had our first Emerging Onchain roundtable in July (an intimate virtual event bringing together African crypto founders and thought leaders), focused on ‘Exchanges in Africa’.
TLDR
Regulatory clarity is the biggest issue for African exchanges, with more collaborative approaches with governments currently being taken
It is not enough to just work with government, you also need to engage key business leaders (who can be allies) and educate top officials in law enforcement and the financial sector
On/offramps will be increasingly key and there is still room for innovation
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Regulation & government
This year numerous African countries have taken a friendlier and more collaborative approach to the crypto industry. For example:
🇨🇫 Central African Republic: tokenisation of land & natural resources
🇰🇪 Kenya: plans to tax exchanges, plans to tax bitcoin & NFT transactions, partnership with Venom Foundation
🇳🇦 Namibia: passage of crypto & digital asset regulatory framework
🇳🇬 Nigeria: passage of National Blockchain Policy,
🇿🇦 South Africa: licences for crypto firms
🇺🇬 Uganda: encouraging crypto firms to join gov’s regulatory sandbox
In one African country, an interesting approach to regulatory engagement was taken. Rather than simply focusing on education, crypto players took the time to understand the key government priorities and concerns for the country (not just those linked to crypto). They then built solutions for these problems using crypto along with creating a dashboard for regulators to see all the transactions, token emissions, burn, and real-time verification.
We have seen early attempts at this in Nigeria, where participants of the compulsory 1-year programme for all Nigerian graduates (known as the National Youth Service Corps) will have their certificates issued and validated using blockchain technology. This announcement came a few months after the passing of Nigeria’s National Blockchain Policy, which listed examples of how the government could use the technology.
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Key players beyond government
They also identified non-crypto business leaders with strong political connections and showed them how crypto could address their business challenges. These business-leaders proved to be important allies and advocated the benefits of crypto to the government.
The key point here is not just to say that crypto has general utility but to show it and carry the government and key business leaders along on that journey, ideally by addressing the key concerns of the government and business officials using crypto.
But, roundtable members mentioned situations where even when government officials were seemingly pro-crypto, if an individual was defrauded in a peer-to-peer (P2P) transaction, customers would go straight to the police or banks and the exchange would be blamed for the situation. Exchanges could find their bank accounts frozen, which may lead to their entire customer's accounts being frozen. Fundamentally, the education of politicians is not enough, we also need to include senior officials in the offices of law enforcement and the financial sector as a whole in these conversations.
On revenue
We also discussed revenue generation for African exchanges, with OTC desks being an important driver of African exchanges’ income. The challenges with OTC desks are:
it’s hard to build products on top of this;
there is very limited differentiation and product loyalty;
meaning it’s really a race to the bottom in terms of the costs shaving off an exchange’s potential income.
Roundtable members discussed the importance of payment rails (i.e. on/offramps) as a source of revenue generation. Most exchanges do offer on/offramps which are fundamental in enabling Africans to access the crypto ecosystem. There is still significant room for innovation in African on/offramps.
Whilst I, Maya, may be slightly biased (as it’s the product I have built, it will forever be my 👶🏽), I love Onboard because it is one of the few truly non-custodial peer-to-peer on/offramps which especially in the aftermath of FTX is even more important. Don’t forget that on/offramps are a huge business in and of themselves, with the success of Moonpay (which now serves Nigeria) as an example; this has also proven to be key for any crypto projects’ true expansion into Africa.