Africa: the stablecoin conversion problem
Stablecoins promise low-cost transfers in Africa, but the reality is different. Expenses reach 3%, higher than other regions. Analysis of stablecoin conversion difficulties in Africa. Learn more!
Table of content
Challenges with Stablecoin Conversion in Africa
Africa initially saw the huge potential for reducing cross-border transfer costs using stablecoins. However, according to Borderless.xyz, in January, the median difference in converting stablecoins to fiat in this region reached nearly 300 basis points — about 3%, which is significantly higher than in Latin America, where this figure was 1.3%, and Asia, where it was only 0.07%.
History and Context
Stablecoins are cryptocurrencies pegged to the value of major currencies such as the US dollar. They promise exchange rate stability and low fees, making them attractive in regions with currency volatility.
Technical Issues
The challenges of high spread in Africa are associated with several factors: insufficient infrastructure for easy conversion of cryptocurrencies, a small number of market participants, and a high level of mistrust among providers.
Comparison with Other Regions
Comparing with Latin America and Asia, one can notice that these regions have more developed infrastructure and a greater number of market participants, which helps reduce fees. The main conclusion is that the current situation in Africa requires better network solutions and attracting new participants.
Potential and Risks
Africa, with its unique demographics and economic conditions, has significant potential for stablecoin application. However, the risks are associated with technologies and regulations that remain underdeveloped, creating barriers to widespread adoption.
Conclusion
In general, for Africa to fully exploit the brilliant opportunities offered by stablecoins, it is necessary to clear technological barriers, strengthen legal support, and promote market integration.
- Strength: High potential for fee reduction.
- Risk: Insufficient infrastructure and high volatility.
- Opportunity: Increasing provider participation and infrastructural solutions.
- Threat: Regulatory barriers and market mistrust.
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