Are Stablecoins The Future of Web3 in Africa?
July 31 2024
by Behice Uzun
This article includes highlights from "Are Stablecoins The Future of Web3 in Africa?" a fireside chat featuring Emem Rita Usanga from Tech Nigeria Advocates and Bayo Sodimu, Head of Engineering at Mento Labs, during Africa Tech Summit London, 2024.
Tell us about Mento Labs
Mento Labs is the team behind the Mento Platform, a stablecoin platform designed to launch and operate decentralized digital assets. We have implemented safeguards, such as circuit breakers similar to those in traditional stock markets, built on-chain in a decentralized manner, to enable our partners to launch stablecoins safely.
Given the significant inflation in African currencies over the last 12 to 18 months, particularly in Nigeria, Ghana, and Egypt, do you think stablecoins could mitigate the uncertainty and instability of domestic macroeconomics?
Stablecoins have a potential to mitigate these issues by providing an alternative to the typical fiat currency. The reason many people on the African continent are using stablecoins is precisely because of currency devaluation and high inflation. At Mento Labs, we built one of the first stablecoins pegged to the US Dollar on Mento Platform, cUSD. We found that users in some countries were using it to access USD for their savings, helping them avoid currency devaluation and maintain the value of their savings. So, while currency devaluation happens, stablecoins can offer some protection for savings.
The African Continental Free Trade Area (AfCFTA) is worth discussing here. Given the challenges of trading between countries due to currency differences, do you see this as an opportunity for stablecoin use cases?
Absolutely! The tools and building blocks are there, but the knowledge might not be. The Mento Platform provides a highly efficient AMM infrastructure (automated market making), Mento Asset Exchange, which enables users to easily swap between local currencies. For instance, users can exchange Kenyan Shilling stablecoin for a West African Franc stablecoin using the Mento protocol. This feature facilitates cross-asset exchange, making it simple for partners to integrate and use Mento Platform for diverse financial needs. The more partners that integrate with Mento, the easier it becomes to achieve smooth cross-asset exchanges. However, it’s about whether users know enough about these tools and how to integrate them. We provide the base layer, but it takes third parties operating in different countries to integrate our solutions and gain access. So, we are still faced with the challenge of integration into existing systems.
Assuming that African users have a limited understanding of stablecoins and Web3 concepts, how do you see engagement on the continent to initiate these conversations and educate users?
Many Web3 contributors focus on building innovations rather than education and speaking to regulators and policymakers. While this has led to great innovation, it’s been hard for others to integrate and use what’s been built. Despite this, innovations like using stablecoins for local loans, remittances, and streaming funds have emerged. We regularly publish case studies with our partners to demonstrate various stablecoin use cases and prove that these technologies make a difference. For example, blockchain technology allows for salaries to be paid out every second, rather than monthly, and visible on the blockchain, providing transparency and flexibility. We are seeing so many potential use cases for blockchain to revolutionize other aspects of daily life in Africa. However, it is crucial to effectively communicate these innovations.
Web3 terms can be technical and complex. How do we simplify these for the average user?
Education is tough because the technology itself is complex. Teams like ours need to simplify and make our innovations easy to understand. Our information is not targeted at end consumers, so third parties that integrate our software need to make it easier for their users. Additionally, the accessibility and user experience of these systems need improvement. For instance, using a crypto wallet involves understanding recovery seed phrases and addresses, which can be daunting. Companies are innovating to create simpler solutions, resembling existing systems to reduce the need for education.
It’s clear that we need to understand user psychology before innovating on the technology.
The future of Web3 in Africa will differ from Western countries. In Western countries, financial systems already work well, but in emerging markets, stablecoins can fill gaps where financial services are lacking or non-existent. Users in these markets might use stablecoins for local loans or basic purchases. On the Celo network, there have been great innovations in this direction to address user needs, such as SocialConnect that maps social identifiers such as Twitter or Facebook accounts and phone numbers to blockchain wallet addresses in order to simplify transactions and allowing gas fees to be paid in stablecoins, making the system more user-friendly. This means that if a user has Mento cKES in their Valora or MiniPay wallet, they can easily send it to a friend in their address book without needing to know their wallet address or acquire another currency for gas fees. The transaction fees are also extremely low, making it accessible for those who can't afford high transaction fees, such as $5 for a $10 transfer.
How do you see the future of Web3 and blockchain in Africa evolving, especially regarding user adoption and education?
User adoption and education will require simplifying complex concepts and improving user experience. At Mento Labs, we provide the infrastructure, and third parties can integrate and simplify it for users. Innovations like social identifiers and paying gas fees in stablecoins help, but broader education efforts are needed. When users see familiar systems and don't need to understand technical details, adoption will increase. It's about making these technologies accessible and easy to use, which is crucial for widespread adoption on the continent.
To watch the recording of the fireside chat 👇
Are Stablecoins The Future of Web3 in Africa? Fireside Chat at Africa Tech Summit London 2024
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