Africa's Crypto Revolution: Leapfrogging into the Future

welcome to bankless where we explore the frontier of Internet money and internet finance and today on this episode of our zoozalu series we are exploring some New Frontiers New Frontiers and new technologies all of which are poised to completely revolutionize the world and change everything about the operating system that Society is currently running speaking of operating systems that are about to change that guide Society Bank location today we are exploring the frontier of crypto in Africa perhaps the first continent that is poised to Leap

Frog its way into a new operating system that we call web3 that we call crypto what can crypto do for Africa what can Africa do for crypto the conversation of crypto in Africa is extremely rich and should get anyone in crypto looking for real adoption real utility very excited developing countries have the ability to LeapFrog technology for example landlines never made it to Africa the entire continent just skipped to cell phones and the same thing is playing out in crypto the banks

never win to service Africans but nonetheless Africans are finding utility and access using bankless Technologies using ethereum there are two conversations here in this episode one is about crypto adoption in Africa and why Africa is such a primed continent to accept and adopt crypto protocols and then another about an African networks date project going deep down into the reasons for why a network state in the first place and tying it to the Deep cultural bonds that tie all

Africans together no matter where they live in the greater Globe both of these conversations gave me goosebumps simply out of excitement and satisfaction of the adoption of crypto protocols in the way that they were always meant to be to uplift individuals and coordinate communities we're first going to hear from Joseph ayele who's working on building a borderless Africa using web3 of course he started a venture fund to invest in African web3 development and adoption because he thinks and also gives the arguments for why web3 will be will see

its first billion users Out of Africa the needs that Africa has as a whole are things that web3 provides Financial stability and access of course but also identity services and credit facilities Yosef does a great job painting this picture of Africa's trajectory to LeapFrog its way to becoming a dominant player in the web 3 landscape after Yosef we have eche and mole one of the founders of aphropolitan a very ambitious Network state project looking to build an Afrocentric digital Nation this conversation spans both crypto and

network States and adds its own spin onto the Balaji and idea of a network State one with apropolitan hubs that exist wherever the African diaspora finds itself both of these guests are amazingly articulate and relentlessly optimist like two things that makes my job so fun and enjoyable as a conversation moderator and these were probably two of my favorite episodes that I recorded at Zeus Alice so that's why I'm sure that you're going to enjoy it as well so let's get right into this conversation of crypto in Africa but first a moment to talk about some of these fantastic sponsors that make the show possible Kraken Pro has easily

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assets and start building your first app with arbitrum experience web 3 development the way it was meant to be secure fast cheap and friction free Bank location I'm here with Yosef Ayala yeah yes beautiful you got it and we're going to talk about crypto in Africa and why why there's such a large opportunity for the web3 industry the crypto industry in Africa Joseph welcome to bankless thanks so much for having me first off how has your Zello experience been uh it's been amazing amazing humans great connections I thought I came here to do work but then spent a lot of time just building

really good relationships and having a good time what did you come to zuzalo to do uh to meet folks who are interested in the African continent I came here for edcon as well so I gave a talk there share my thesis on the continent and also to be part of some of the network State discussions and really understand where people are thinking about you said the word thesis which means I'm interested you have a thesis on a continent yes uh what does it mean to have a thesis on a continent just a framework and a way for the rest of the

world to connect with the African continent I feel like there's a lot of crypto activities happening in the African ecosystems but most of the ethereum community as well as just the broader crypto communities just don't understand uh what's happening there many people haven't traveled there a lot of African Builders don't get to come to places like this so being a bridge and helping provide a framework yeah there's I'm assuming just a very large divide between Africa crypto and the rest of the crypto industry yeah um I think there's also a very large divide between

East and West in crypto yes but even that that divide co-mingles a lot yeah like the the Chinese uh which part of crypto which is very large yeah does mingle a lot I mean there's been a large Chinese cohort of people here azuzalu would you say like the African side of crypto is even more cut off between way more cut off way more way more cut off because the biggest like barrier for a lot of African Builders is that it's hard for them to travel to uh where Global crypto communities are and where

main events are so like the number one issue is just visas the west and many Eastern countries just don't give Africans visas I was organizing a whole side event to run Africa at Defcon in Colombia and basically everyone who is supposed to come participate in it couldn't make it because they couldn't get a visa to Colombia or couldn't get a visa to Transit through the US so that's just one of the biggest barriers that creates the physical divide yeah so the cross-pollination of just the it just doesn't happen exactly so uh I think there's going to be two parts of this conversation it's it's what can crypto

do for Africa and and then maybe we'll talk about what Africa can do for crypto yes I will talk about the cross-pollination here awesome uh but let's start with that let's start with uh why does Africa need crypto so much like why is Africa primed to be a cryptocontinent because centralized entities have failed us that's the main point like um a lot of centralized government centralized Banks institutions are either not effective or non-existent so that's where I think uh decentralization makes the most sense is it acts as the

layer of Trust on which so many economic social political uh and financial institutions can be built on and when you go to places where there's you know some years are way more developed but a whole lot of areas are just so uh not developed so far I think the core infrastructures of crypto from money and payments and uh trust and coordination all those things make so much more sense there would you say that another way of saying that is uh institutions have not just provided structure in Africa and

that's what you mean by like centralization is there's just not trusted centralized places of organization yes that has provided like social scaffolding for the African continent let me give you just a few examples so uh there are 14 African countries there were were colonized by France when the French were kind of leaving in the 1960s they instituted this currency called the CFA this stands for colonies of Africa French colonies of Africa and that's back to Evo spec to the Frank and now speak to the euro what

that means is 50 of all the income those countries get goes to the French treasury directly so you don't own your money it goes to the French treasury is it fair to say that that was a tool of like maintaining colonialization exactly yeah even though so like France like you wanted to get out of the continent physically but they were like we'll leave our currency and maintain yes maintain value attraction that way correct and also uh they don't like the the French government created some boundaries if your interest rates and

how much money you can print and all of that so those governments you can say that they don't control their own currency their own monetary policy so here in the Western World we talk about sovereignty from governments in those countries the government don't have sovereignty over their own states and their own Mercury policies so that's one use case where you know for example the Central African Republic recently made Bitcoin Illegal Tender that's not because they're Bitcoin Maxis or whatever it's just it's out of desperation they have no control over

their own monetary policy therefore it's easier to say hey why don't we just jump into a whole new monetary policy that in early Global right so the idea is like okay if we're going to use somebody else's money perhaps we should use one that is based on the internet and not benefiting some particular power elsewhere and let's just use the the one that's found on the internet well you will you will use Bitcoin because its monetary policy is going to be better than the French monetary policy exactly and so like it's it's maybe they they still don't the African countries don't have control over the monetary policy

but at least it's not the French it's Bitcoin and Bitcoin is has all the properties of Bitcoin and enjoy now that's not to say that that's the ultimate goal and answer I think some level of sovereignty is amazing right uh but it's kind of an example of where some of those countries is just 14 countries out of 54 uh are basically struggling to get sovereignty over themselves another sort of macro example is that there are 54 African countries only 40 countries print their own money in their own countries so they're

outsourced that to European printing press and they pay six percent of the total money supply as printing fees and transportation costs so just imagine a ship charges that uh there are three companies in Europe in France in the UK and Germany that basically act as the printing press for the Fiat they charge a service for active for access to the printing press of course so they get inflation and they get to charge fees yes foreign I can see why uh there's demand for

something else yeah and even at a very practical very those are like examples at a macro level just at a human level like uh the internet has been a big game changer for many people when I was growing up in Ethiopia um the internet opened the world to me I learned most of my English online it it you know opened up a lot of access to information and connectivity which is amazing but the internet is still variegated to Africans that was gated that was many years ago and still get it because if you don't have a means to

transact and pay and receive money then you cannot access the best of the internet if you cannot set up a PayPal account and use that to receive money for the work that you do then how can you say you're actually accessing the best of the internet so even remote workers in many African countries are using crypto as a means to get paid for the work that they do so what you're saying is that the the internet is a massively democratizing force that has been fitted the world as a whole including Africa but then there's this more that as the internet matured it

evolved and adapted and became what you're calling permissioned as in like parts of the internet or paywalled by uh whatever you would do like subscribe you subscribe to Bankers use a credit card we do accept crypto but also you can also subscribe anything that you would subscribe pay for on Amazon or pay for any sort of credit card yes you're saying that that was not available to most of Africa because most of Africans can't they're not connected on the payment rails and today is still the case right so you might even have the level of connectivity but for example in Nigeria banks have a limit of 20 a month

that you can spend internationally with your bank card so even though you have the connectivity the lack of foreign currency creates this really low ceilings for people to actually participate online and in digital world so as much as as great as the internet is it simply just means less for Africa and that's because again it goes back to centralized institutions even in Tech you know centralized technology institutions are still gated and some of it is just structural right so how those

countries economies are structured or the relationship between that economy and Global economies um we pay five to ten billion dollars a year on Swift fees alone right that's that's a massive cost if I'm trying to send you money from one country to the next country the money goes through Europe the US blah blah takes makes a big route around the world and comes next door and then I pay like around 10 of what I'm sending you and just fees routing fees to get it all around so

that's so inefficient it it's blocking any type of development and progress when you're basically relying on global institutions that are not designed for your needs interesting so a bank transfer in Africa that goes to a different African country routes through like Europe banking rails yes and a bunch of middlemen up there charge a bunch of fees and then down to a different African country that's very very proximate to the originator but it just goes through Europe first and most transactions are low in numbers so the

percentage volume high low and low volumes lower numbers so the percentage that you pay for the transaction costs a flat fee yeah it's so high as a result of it okay so these are all money and fee and banking system yes use cases yes which makes total sense to me does it does it end there no or where where does this go next so Africa has 1.4 billion people 500 million don't even have any form of ID okay so that's that's a big friction

point right to participate in anything in the world so that trust identity reputation those are really critical areas where I believe uh blockchain Technologies can have a real impact and that's actually when I talk to different African governments those are areas they're really interested in how do we create shared consensus based truth what is true who owns this land who owns that land knowing like uh having a verifiable form of property rights that's one of

the biggest areas where you go to truth is consensus based then we're always in negotiation what's truth is that creates a lot of friction right to actually build you know really sophisticated economies on top of those I would imagine some of these problems are symbiotic with each other it's weird to call problem symbiotic but like in the negative Direction yeah as in like perhaps it's harder to produce a financial system and banking rails in Africa because there's no identity yes and then also there's it's harder to produce identity when like such a core

part of identity is like your bank account yes and your nation state ID yes and you're saying like there's neither in in Africa well I want to say this nothing exists right there's less it's just there's a lot less of it it's not sophisticated it's not fully developed right so for example when you look at payments some African countries have way more advanced payment systems than the US you go to Kenya for example we have m-pesa there which is a mobile money uh company it works so well everywhere including remote Villages does it need

internet when you have internet it can get sophisticated basically your phone number is your bank account it's your means of paying salaries or receiving income it's your kyc it works so well you know in that country it's heavily centralized but it's functional but when you're trying to do business across borders then that's what it becomes challenging when you're trying to get any form of credit then that's where you reach a ceiling um because those layers of trust and reputation and

um and even credit scoring are not as effective or not as efficient so you see some things that are way more developed but a whole lot of things that are not as developed right okay so I have so I have so many more questions but but I first want to make sure that does it end there or so we have Banking and money yeah we have identity yep uh the other for the use cases that we need to talk about about like what's okay oh boy it keeps on going no no I mean so the other area is actually the art creative spaces so there's a like African art and

African cultures all over the world you see it in music you see it in art you see it and food you know the world is consuming African creatives but very little value is captured by the people who are creating that right so I'm seeing so many artists getting into the nft world um and even experimenting with that Medium that wouldn't be possible in traditional art of just painting something you know so uh that's one that's one movement that's happening okay so I think the the picture that

you're painting is that there are there are no good monies there are a few good monies in Africa yes and the crypto monies that we've invented as Troublesome and chaotic as they are yeah still present very valid options for for Africans yes uh not only that but stable coins I'm sure are very very relevant they're massive right it's easier to access table coins in so many countries than accessing Fiat dollars especially US dollar stable coins sure to give you an example where I come from Ethiopia uh there's the bank rate and it is unofficial rate of course yeah 100 yeah

there's 100 premium 100 premium twice so call it the corruption rate or the free market rate right that's that's what I call it so there's the control bank rate right and that's because um and there's a lot more money being transacted outside of the bank rate than you know outside of it than within the system right right that's because um you know there's so many layers it's hard to kind of go through every aspect of it but it's systemic and I don't know if there's a pathway for the governments

to find a way out of that right right so uh basically people are transacting outside of that system if I'm running a small shop and I need to buy inventory let's say I'm selling shirts and I have to import a whole lot of shirts from India how do I pay the thousand dollars to actually order that um this is hard to go through the you know the existing process yeah I'm gonna try to use MoneyGram or Western Union right but I'm going to pay ridiculous fees long processes and all of that I might as well just buy US dollar stable

coins send it to person over there instant settlement and then I get my items shipped over to me that's how a lot of people are using it right okay so the money conversation is is a double whammy because it's not it's not not just a better money or stronger money Alternatives it's also the lower fees yes right and so like that that makes it a very competitive banking system and access and access yes Global Information is access permissionless access yes um and then and then there's I'm sure as soon as you have like established bank

account on ethereum with your wallet and your money then like you can start engaging in a more sophisticated Financial tools that we call defy yes I'm sure that is a much more powerful set of financial tools than what the Africans can discover locally yes and that's just the money and finance thing yes that is like that's where so much demand for web3 utility products and services comes from and then also identity on top of that as well yes interesting the broad area of trust trust so basically wherever you need Trust here there's so many things that

we take for granted right like um you uh get into a hotel room or you buy a piece of land or you order something online you know something is going to be delivered you kind of like assume that's already gonna happen right in a place where there's not a lot of trust infrastructures you're always asking is what the person said actually going to come true right if I have this thing is it actually mine right right so all the different things of trust that you kind of take for granted

um they're either non-existent or are very weak in many African countries yeah if any bankless listeners just had the term settlement assurances coming to their head points for you uh supplement insurance is like core part of like what we believe is makes crypto so powerful is the thing that you think is yours actually yours that's like the beautiful thing about crypto is extremely high settlement Insurance yes uh and so it sounds like not just like money and settlement insurance is benefit for Africa but just like identity as like this is also your identity too and other

people not just yourself but other people can also rely on this which is important infrastructure yes um I want to ask about just like the culture of users who use these tools in the the United States and in the privileged land where we have like General abundance like we have the crypto is like a casino for us yeah uh it's like absolutely sadly uh I mean it is one of these things that makes these things powerful and you proves all the use case but it's that we have the luxury of using this as a casino and I'm wondering what what is

the the culture or the disposition of uh African users who use crypto not as a casino but because they actually really need it and is legitimately a better tool like how would you describe just like the how people engage with these things down there so uh start reality is the casino still exists it's everywhere it's like you see a lot of that in Africa as well okay now we're in a bear Market which is actually good because there's not a ton of like blind uh speculation that's happening but the other side the real use cases one is US

dollar stable coins so that's something that a lot of people use for cross-border payments for uh inflation and currency devaluation hedging um I would assume inflation across Africa is terrible it's very high yeah um and the other side is also I'm hearing of fintex traditional fintech startups who are actually becoming the Key Banking infrastructures in the continent so you're fighting startups providing better Financial Services than Banks do but that's a separate

conversation um they're using crypto at the back end they want to admit it but they're using Crypts at the back end why don't they admit it because uh it creates a lot of uh crypto issues crypto yeah exactly like you don't want a lot of attention but when I talk to a number of exchanges they're telling me that the biggest clients are fintechs not retail users which is fascinating so they're using it for the treasurer management again if you cannot access US Dollars and the currency that you're holding is being devalued over time you want to put it in

other asset classes and crypto stable coins make a lot of sense as a Treasurer management it's just a smart thing to do and it's more available to you in a permissionless way than knocking on the doors of a bank yeah the one thing that makes me just so happy and optimistic about this story is that individual visual applicants are choosing to use crypto tools by their own merits and accepting them and you know becoming bankless getting all their their bank accounts but I actually think that that part of the story is also very really cool and optimistic too fintechs adopting crypto for the same reasons because it also provides them as businesses better foundations yes to

provide financial services so even if the individual African is not adopting crypto tools the fintech layer of Africa is also improving because of crypto exactly to do the rest the the rest of the mile exactly exactly and I'd expect to see a lot more of that another area that I'm seeing some action in and I'm super excited about is the credit space now for you and I and many people here you know if you've got salary or whatever it's easier for you to access some level of credit even if you have crypto you can borrow money from Ave or

compound or whatever right um but if you're just like you know a small business and most of African companies are small businesses um and you don't have a real asset that you can use collateral Banks won't lend to you Banks so here's a sad reality Banks lend two Bankers right because it's Bankers that have stable jobs that Bankers think is solid which is kind of weird and twisted right yeah so if you're if you don't have something that's valuable that you can collateralize then you go to uncoletalized borrowing right do you

know how much money you pay what's have a guess have a guess of what how much interest are on average on a year yeah higher than 20 percent keep going 40 okay so uh uh in Kenyan uh uh and Nigeria for example a bunch of fintechs they are charging 10 to 30 a month a month a month oh my numbers weren't a year no 10 to 30 a month because the risk is so high well yes uh

perceived risk some actual risks some perceived risk so some fintechs that I've talked to where the default rate is less than 10 percent the steel charging super high because that's the current going market rate is it just uh why why is that the growing market rate is it just a very inefficient Market with no liquidity so we're like this is a big part of it but the main issue is also just how to press risk oh yeah right okay how to price risk and also as a borrower I can borrow x amount money from you and then if I

cannot pay then I go to somewhere else for that money and then pay you back you get into these Cycles so one one person can cause 100 people's worth of Destruction exactly uh so one interesting area of application that I'm seeing is there's some fintechs that are getting access of user data from mobile money for example which huge mass adoption there and putting that on chain and helping you build on-chain credit credit reporting which helps you access on chain liquidity so it's actually

onboarding a whole lot of people into crypto without them even realizing it and helping you build on-chain reputation and track record which now multiple fintechs can use as a single source of Truth as opposed to each one kind of determining you know what your credit worthiness does that make sense yeah 100 and when I was previously talking about oh yeah so you you have your ethereum wallet or your Bitcoin wallet and you're using stable coins and that's all great because you get better money and cheaper fees uh and then I was

talking about D5 it's like oh and also like D5 is better like they can use uniswap to swap tokens maybe they are but I think maybe the bigger story is this credit access to credit is the bigger part of the finance for world forever let me put in this way um you talked about casinos earlier right right my view is that in the Western and many Eastern worlds cryptra is a nice to have let's for the masses it's just a nice to have right because you already have so many things working for you right and that's where we things are a nuisance not a critical problem exactly yeah there exists they provide

services governments provide services even though we don't like them right so for for the like 10 or 15 of us crypto is so much more valuable is important but it's hard to go above that unless you start adding real utility that is way better than the current system right and the friction is low and that's what we keep talking about in this world um when you go to many African countries the the existing apparatus the the current Paradigm is just not working right so that's where you can reach

beyond the 5 10 15 of adoption rates of a whole population you can go a lot higher than that right when you start building applications that actually meet people's needs um so that I think that's where the real opportunities to me is in Africa crypto can be a plan a not a plan B plan C or not a backstop it's exactly the First Choice it's not a backup plan right it is the plan yeah well so this thesis resonates obviously and I think anyone who's been in crypto long enough understands that like this is why we do this like this is why we're here the

opportunity is aliens yes um the also if the opportunity is so good what's the The Venture landscape what's the the business landscape look like I would imagine this would be interesting for more than a few VCS out there yeah what's that like so um in February I led a trip with vitalik and Aya for a month across four countries who runs the EF and a number of other uh ethereum communities and we just held very low key events um didn't make a big splash um and we had about you know a few hundred Founders and Builders Kim came

up to various of those events is a vitalik known as well known in Africa as he is in Argentina uh I don't know about how well we went we went to cafes and restaurants where uh you know people were trying to pay for our meals or come by and say hi you know like you know it was it was it was amazing but also I think uh people are quite respectful sure you know so he wasn't getting overloaded but people recognized him and that was a really interesting Miss test uh so yeah you know here is well known and yeah we met

a whole lot of Builders who are basically at the stage of building the core infrastructures I think that's still very much needed so bomb ramps and off-ramps exchanges uh credit tools lending pools and means for people to basically uh create advances on their salaries but we met a whole lot of people trying to build new stable coins either real world asset back stable coins or a basket of currencies because that's where the energy is at that's where the demand is at um and there's so many other builders