Decentralized Finance Could Solve Liquidity Issues in Africa
Forex liquidity and currency swaps are difficult to access in Africa, limiting the use of USD-based services in import-dependent economies. However, decentralized finance (DeFi) could provide a solution to this problem by leveraging cryptocurrencies and blockchain networks, according to Pascal Ntsama IV, CEO of Canza Finance.
Baki: Canza’s Solution for Decentralized Foreign Exchange
Canza Finance has developed a new DeFi technology called Baki, which aims to address the challenge of limited access to foreign exchange for African currencies. Baki enables slippage-free swaps at central bank rates, allowing businesses to participate in intra-African and FX trades at reduced costs.
Addressing Currency Slippage and Inflation
One of the main issues when exchanging local African fiat currencies is that funds exit Africa, causing inflation in the dollar value and increased costs due to currency slippages. Baki solves this problem by enabling traders to swap currencies without loss, trading at official central bank prices.
The Potential of DeFi in Africa
The DeFi industry in Africa is projected to experience significant growth, with an annual growth rate of 21.99% and over half a million users expected by 2027. However, experts believe these projections may need revision as blockchain products gain grassroots penetration.
Working with Current Regulatory Climate
Ntsama stated that Baki is designed to work within the current regulatory climate, leveraging existing user behaviors to address blockchain technology challenges. He believes that positive shifts in regulation would lead to more industrial and institutional adoption of Baki.
Risks and Benefits of Baki
In a conventional FX swap, the agent assumes local currency risk until they can recycle the position, which requires pricing that risk for the buyer. Baki reduces these risks by swapping similar currencies at the official rate, allowing the agent to swap again with minimal slippage when entering USD positions.
Users and liquidity providers on Baki earn yield from the 80 basis points fee charged on every currency swap. This yield is divided between liquidity providers, Canza Finance tokenholders, and Canza Finance itself.
Hot Take: The Potential of DeFi in Africa
Decentralized finance has the potential to revolutionize financial services in Africa by addressing liquidity issues and providing cost-effective solutions for cross-border payments. With Baki, Canza Finance aims to enable slippage-free swaps at central bank rates, allowing businesses to participate in intra-African and FX trades without loss. As the DeFi industry continues to grow in Africa, it is crucial for regulatory frameworks to adapt and support these innovations. By leveraging existing user behaviors and working within the current regulatory climate, Baki has the potential to drive industrial and institutional adoption of DeFi technologies in African economies.
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