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DeFi could solve Africa’s foreign exchange problems, neobank CEO says

DeFi could solve Africa’s foreign exchange problems, neobank CEO says

The CEO and co-founder of neobank Canza Finance claims that utilizing Baki for foreign exchange trades in Africa creates a hub for African businesses to participate in intra-African and FX trades at a reduced cost.

neobank is a type of direct bank that operates exclusively using online banking without traditional physical branch networks that challenge traditional banks.

The range of services provided by neobanks is not as broad as that of their traditional counterparts. Unlike incumbent banks, a large portion of the income of neobanks is mainly made up of transaction fees received when customers pay with their debit card.

Neobanks are fintech companies that offer both standard banking services entirely online and non-traditional ones (peer-to-peer payments, financial advisory robots, cryptocurrency transactions, and crowdfunding platforms to raise funds for certain financial projects or their intangible equivalents that are directly related to the project).

Forex liquidity and currency swaps are hard to access for many in Africa, which limits the use of United States dollar-based services in the continent’s import-dependent economies.

This creates a vacuum that decentralized finance (DeFi) could solve, leveraging cryptocurrencies, blockchain networks and services, according to the CEO of Canza Finance, Pascal Ntsama IV.

Ntsama said the neo-bank’s new DeFi technology, Baki, aims to address this challenge by providing a decentralized FX exchange for African currencies, enabling slippage-free swaps at central bank rates.

When exchanging naira for cedis, funds exit Africa, causing inflation in the dollar value and increased costs due to currency slippages.

Baki addresses this by enabling traders to swap currencies without loss, trading at official central bank prices.

DeFi in Africa is projected to show an annual growth rate of 21.99% and reach over half a million users by 2027.

However, industry experts have argued for revisions to these projections as grassroots penetration of blockchain products continues to record new highs.

Ntsama said that in a conventional FX swap, the Agent assumes local currency risk until they can recycle the position, necessitating the pricing of that risk for the buyer.

Baki reduces these risks by swapping similar currencies at the official rate, enabling the agent to swap again with minimal slippage when entering USD positions.

According to Ntsama, users and entities providing liquidity for Baki earn yield from the 80bps fee charged on every currency swap in the system.

This yield is split with 50% to the Liquidity Providers, 25% to Canza Finance native tokenholders and 25% to Canza Finance as an entity.

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