Can IOST DeFi Create a Free Financial Market for Africa?
With the introduction of cryptocurrency, Africa saw an outlet to express financial freedom. Although it may be hard for many developed nations to understand the frenzy about cryptocurrency in Africa, it is a messiah of some sort. Imagine a situation where making payments outside your country is literally impossible? That is the situation of most African Nations. A continent with 54 countries and intra-country transactions is still difficult to process. So, in all fairness, cryptocurrency brought about the expression of financial freedom to Africa. What more can the DeFi market bring to Africa? One would be tempted to ask. Well, from the standpoint of IOST DeFi, there is still a lot more that the African Financial market needs.
The DeFi market is currently valued at $8billion USD. Although it draws its inspiration from the same source as cryptocurrency, there is a differentiating factor. Coined from the term “decentralized finance,” DeFi stands for different financial applications in the blockchain or cryptocurrency that aim to disrupt the financial sector. DeFi creates a means of expanding blockchain applications to more complex financial use cases. So, instead of simply eradicating the use of intermediaries which cost you more money and time in simple transactions, DeFi aims to expand it to other use cases in the Financial sector. In a centralised financial transaction such as taking a loan, insurance, raising funds or even betting, the middlemen have a cut in each transaction. There are numerous paperwork and costs attached. But if just like a bitcoin transaction between a pizza man and his customer, there is no need to go through a third-party. Simply make the transaction through the blockchain in a trusted and seamless manner.
Why DeFi for IOST?
IOST had begun laying the groundwork for its DeFi ecosystem way back in 2019 with the aim of utilising the potentials of Blockchain to provide financial access to people all over the world. As highlighted in its H2 road map, IOST aims to be a leader in the DeFi space. To achieve its aim, the company has already started building its way to the top with multiple strategic partnerships, participating with projects from centralised exchanges, stable coins, financial derivatives, on-chain projects and more. Asides the Decentralized Finance (DeFi) Market, IOST is also interested in building awareness and access in technology study, development and mass adoption. With its unique Proof of Believability (PoB) consensus mechanism, IOST is capable of operating high levels of scalability and decentralization. This means that developers and businesses building on the IOST blockchain can be assured of optimal performance.
The Situation of the African Financial Market
According to the world bank organisation, there are 350 million unbanked in Africa, accounting for 17% of the global total. The African financial system doesn’t also make it easier for people to get banked or trust the financial system. Also, compared to other regions of the world, Africa’s total asset is relatively low. Since its financial system is heavily based on banks and the stock market, it continues to be small in absolute and relative terms. Due to the small size of its financial systems, there is a high cost of financial service provision and intermediation. The African market is faced with a lot of challenges that the Blockchain and DeFi market seem qualified to tackle.
Heavy Reliance on Brick and Mortar
The government of Dubai aims to go paperless in 2021 and hopes to build a smart country. However, for Africa, almost all it’s sectors are heavily reliant on paperwork and brick and mortar services. For a simple task such as opening a bank account, a lot of documentation processes have to go into it and these factors dissuade a lot of people from utilizing the system.
Distrust for the Financial System
There is a huge distrust for the financial system and this contributes to the long list of unbanked people in Africa. Also, people on the low-income spectrum have a deep district of getting exploited by the financial sector. This fear can be blamed on poor marketing campaigns and terrible governmental policies that are usually not in favor of the masses.
Lack of Financial Infrastructure
The African financial market has poor infrastructure. First, it doesn’t encourage investors who aim to pump funds into the continent. This is because their interest after investing is usually affected by inflation. Also, there is the factor that intra-country transactions are difficult because there are little or no financial tools to encourage transactions between African countries. This also affects remittance into Africa as channels for making remittance have expensive intermediaries. The infrastructure for other financial services such as insurance is poor and not a lot of Africans are insured.
Other factors lay constraints on the African Financial market including interference from politicians with terrible policies. There is also a need for an increase in consumer financial education and protection.
The Role of DeFi in Africa’s Finance
A decentralised financial system is governed by smart contracts, the transactions are nearly instantaneous and free. This is something that isn’t guaranteed by the traditional financial systems. Also, one of the main advantages of DeFi is its borderless nature. There is no need for brick and mortar services or paperwork, all that is needed is a smartphone and access to the internet. At the click of the button, banking and investment services are brought closer to the masses using security tokens. There is also tokenization of assets which is a DeFi service that will revolutionise the trade and liquidation of digital assets across the globe. IOST DeFi aims to provide stablecoins to shield consumers from the volatile nature of cryptocurrency. There is also the tokenization of real-world assets such as art which can be traded on the blockchain while users are protected from cyberattacks which are a common feature of centralized platforms.
Conclusion
According to its road map, the IOST DeFi market is set for transforming the Africa market if applied. Its decentralized exchanges are ready to help investors and users gain access to a platform that assures them of security, unlike its central counterpart. IOST is also moving into lending with ProDeFi with an aim of creating a solution leveraged on the blockchain that reduces the risks and disadvantages of lending in the traditional system. With the IOST DeFi solutions, cross border transactions, banking the unbanked, getting financial assistance including loans and findings will be easier in Africa.
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