The impact of DeFi on Nigeria's economy

Aug 19, 2020

Hey DEFI WORLD community,

decentralized finance will have a huge impact globally, especially in countries that suffer from high inflation.

Nigeria currently has a yearly inflation rate of up to 15%, which brings up the need for a better monetary system.

A new technology. Open. Transparent. Efficient. Inclusive.

Today you will read about the potential impact of DeFi Nigeria’s economy. How will DeFi change the lives of millions of people there?

Read on to find out.

Guest Article: Oluwakorede Daramola, COO at Standage Ltd.

NIGERIA

Nigeria currently has a population of over 200 million of whom a majority are youths, Nigeria boast of being the largest economy in Africa, hence a lot of potential exists to be tapped into from the largest Nation in West Africa.

FINANCE IN NIGERIA

Inflation rates are skyrocketing at an average rate of 15% per year, this means that if you have 5,000 Naira to buy a product that cost 5,000naira in January but you do not make the purchase by the time you go back to the store to purchase it around December that same year you would need 5,750naira to purchase that same item (because its cost price would have increased by 15% of 5,000 Naira).

A good idea would be to save your money in the bank in exchange for some interest, but is this really a good idea? Sadly, I do not think this is, why? you may ask, well, with inflation rates sitting between 12.5% - 15%pa and banks giving interest rates of between 2.5% - 6%pa this eventually puts you at a loss. A wiser investment would be to buy treasury bills or government bonds, before the covid 19 pandemic interest rates on T bills and Government bonds was pegged around 7%-15%pa but due to the covid 19 pandemic this has fallen to an all time low of about 3%pa and currently sits at around 3.5%pa.The Naira also seems to be depreciating really fast against the dollar, pre -covid NGN was exchanged at around 360/1$, fast forward to today its so difficult for most Nigerians to obtain USD through official channels (Banks), instead majority have to source for FX (foreign exchange) via the Black market (BDC- Bureau de change operators), current rate stands at around 480/1$. With these kinds of situations Nigerians are in a dire need of an alternative and what better way to solve these than to embrace DeFi

PRE- DEFI IN NIGERIA

Prior to the DeFi rave there was an increased interest in ICO projects in 2017, a lot of Nigerians invested in different ICO projects of which just a few did very well as a majority of them turned out to be scams. This experience led to a decreased interest in cryptocurrency related projects in 2018 as most people began calling Cryptocurrency a scam. Fast forward to 2020 and it seems a lot of investor confidence in cryptocurrency and blockchain related projects seems to be on the rise. Nigeria has seen growing interest in cryptocurrency in a rather short while and I can say with all certainty that this interest will keep going up. The chart below shows how popular cryptocurrency is in Nigeria;

TRADITIONAL FINANCE AND DEFI

Traditional finance systems have had some successes but they are still very inefficient, non transparent, selective and centralized. Today a lot of DeFi projects are being built on the ethereum, tron, harmony one and polkadot blockchains (to mention a few). Ethereum seems to however be the most widely used blockchain platform, this doesn't come as a surprise as ethereum was instrumental to the ICO rave of 2017. The ethereum blockchain is also the Major go to platform for all things DeFi and this has led to a exceedingly great interest that have reflected in its historically high gas fees of 2020. Report shows that gas fees on the ethereum network in 2020 are at an all time high thanks to various Ponzi schemes that have put a lot of pressure on the ethereum blockchain. These ponzis seem to be somewhat popular amongst Nigerians and seem to be a bad entry point for newbies in the cryptocurrency space. Some of these platforms include Forsage, Million.money, xoxo.network, Acereturns, Fast matrix etc.

DeFi

DeFi (Decentralized finance) is the new rave of the moment in the cryptocurrency industry,It allows for community governed tokens, staking rewards, Yield farming and a whole lot of opportunities. Early adopters who started out trading cryptocurrencies the ride wasn’t all too rosy but it seems DeFi is here to enable us put all of our bad experiences behind us. A would give a list of some of the benefits of DeFi and how Nigerians can make use of this new financial instrument as a hedge against rising inflation;

1. Nigerians can convert their Naira into a stable coin (USDC, USDT, DAI, BUSD), this can then be used to add liquidity to a liquidity pool where a percentage of the fees collected are shared between liquidity provides

2. Nigerians can also invest in DeFi based cryptocurrencies like MantraDao, Aave protocol, compound finance, Yield farming, Ferrum Network, these platforms provide yearly staking rewards that range between 20%-80%pa.

A very good platform to keep learning about DeFi is DeFi World, follow them on twitter and subscribe to their newsletters.

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