Transcript
Speaker: Welcome to the Policy Layer, where we talk about the real decisions shaping crypto, tech, and the future of trust. I am Silvia Sanchez, your host from the Avalanche Policy Coalition. We aim to bridge the gap between the builders of Web3 and the people that are shaping the rules. On our podcast, you'll hear from policymakers, developers, academics, and others working at the edge of tech and regulation.
Speaker: We ask the questions that everyone's actually wondering and we keep it easy to follow. This is The Policy Layer.
Speaker: Alright, hi everybody and welcome back to The Policy Layer. We love talking about blockchain and digital assets and also featuring what's happening around the world. And I'm really excited about this one because we're heading over to Africa and it's kind of hard to wrap it in just one episode, but this will just be kind of like an overview. Because Africa is often talked about as a place where digital assets have have found a strong adoption, especially when it comes to payments and remittances. But adoption is only one side of the story. The next phase we have is about infrastructure, the rails that institutions can use, the assets that can move across them, the regulation, and whether local markets can connect to global capital without simply copying and pasting somebody else's financial system.
Speaker: And for today's episode, we are joined by Jana Pache, whose work spans financial market innovation, digital money and regulatory strategy, and Kofi Genfi, founder and CEO of Volta Digital Assets, where he's building infrastructure for stablecoins and tokenized assets.
Speaker: So we have these two masterminds who are going share a bit more about where African digital assets are today, what is being built underneath, and what a credible, globally connected market could look like over the next few years. So thank you both for joining me today. Pleasure to be here.
Speaker: Thanks for having us. Awesome. So I'm just going to go and like ask questions in general. So feel free to to jump in. It's not like one is going to be directed to one or the other. But just to get started and to give like our audience a bit of context, when people talk about digital assets, they usually start with adoption. But is that still the most useful way to understand what's happening?
Speaker: What about infrastructure and liquidity? like What have you seen around that? I think, you know, And I will get to to answering the question in terms of infrastructure um at at at the end of this. But I think we need to you know take a step back when we consider what is the potential for digital assets in Africa. um or in um you know any emerging markets, really, and which is it's a very different context and environment to, I think, what we're seeing in the UK, the EU, and the US s at the moment, where often the conversation is more about
Speaker: What problem are we trying to solve with these things? Are they a solution in search of a problem? You know, we can see the benefits of tokenization, but we've already got fairly efficient financial markets. So what is going to be the big thing that unlocks investment in bringing the next stage of tokenized financial markets into existence? Whereas in an early conversation that Kofi and I had, you know i got very excited because that some of the things that he's using, um digital assets and stable coins in use cases and real world applications are very much about solving existing market access challenges and problems and and using them to unlock um access to capital for investment and for investment or to unlock you know routes to payment for investment as well.
Speaker: um And so this is kind of flipping the typical narrative that we have in its head. These are not, and you know, solutions in search for problem. These are, you know, assets that can be dropped into real world problems and situations today to create solutions. And so therefore, I'd kind of reframe your question around what do we need in terms of infrastructure to how can this become useful infrastructure for the future and that can add genuine economic value to the jurisdictions that are, you know, suffering from these market access challenges right now.
Speaker: I love that and I think that's a really good way too to set the scene for us, Jana. And I think the more interesting story now is what gets built after adoption. So maybe we can shift the gears a bit into DeFi. and So what is the impact of DeFi on the African digital asset market? Do you consider that Africa is ready for the pace of innovation in decentralized finance as well? Okay, so I'm going to come in at this point.
Speaker: a So that's a very interesting question. And it's a question that we've had on so many levels from the market's perspective, from the regulator perspective, from in general, just like vantage going around.
Speaker: and So DeFi is typically very unstructured, unstructured in the sense that innovations are not really, typically, regulations are the first thing that comes to mind when they're thinking about it. They're thinking about like, I have a need and I want to you know get it done. But the the good thing about it is that, funny enough, Africa is one of the most unstructured markets in the world, whereby it requires a lot of structure. So um we see a lot of DeFi apps which have some quite a volume from the African market, but it's typically with like very basic stuff, like very basic swaps, not too like complex derivatives or stuff like that, because at the same time, there's also lot of like risk aversion in terms of like losing capital and all those things.
Speaker: So, standardly, that's what I would say is the interface with DeFi. On the regulation side of things, I think the very nature of DeFi makes it hard to be regulated. We just have to have that as a foundation. and It's meant to be technology that is allows finance in a very borderless way. So as of now, most of the regulators didn't really add a lot of DeFi frameworks into their laws. They have given some room for it to maybe sandbox in or to like, and we know if you have some innovative product, you can bring it on or something of that sort. but
Speaker: in the standard categories, they don't seem to exist across the markets. But we do see a trend whereby more and more people are getting used to the DeFi protocols, especially the more established ones, but most of them are just for like basic swaps. So I'll give an example. Say somebody has USDC on F.
Speaker: or maybe USDT on F and they want to move it to Solana, they would probably use a swap to be able to do that so that did they can get more liquidity on chain.
Speaker: Or maybe they have USDT and they want to convert convert to USDT, then they use a swap to be able to do so. So those are some of the basic ones. But we we are seeing much more complex ones now popping up. And then over time, maybe the adoption go.
Speaker: Thanks. And building on that, since you both work at this intersection, which is highly complex because on the one hand you have financial market design and seeking how to regulate it, which is very, I think it's easier said than done. But also when you're merging this new form of digital money, something that I think is worth and distinguishing is an asset that is active to an asset that has that institutional credibility. And we have this combination of of ingredients, and we have legal certainty, market integrity, and a bunch of principles that we can build around. But I'd like to hear from you, what do you consider separates a digital asset that is merely active from one that can be institutionally credible?
Speaker: So that's a very multifaceted question. I'm just going to jump in. and I know Jana will have a lot to say about this. But ah I think this the setup or the makeup of what a digital asset is is very important in the first place. So one, digital assets that are, should I say, established in markets whereby there's more trust is very important.
Speaker: So case in point, if you have something like a USDC, it's more trusted than if somebody just launched some stablecoin in their garage or something that. So I think one of the things, the key parameters is...
Speaker: m ah how well the digital assets meet the requirements for what to be called a globally accepted internationally standardized digital assets. So who are the custodians? How are they keeping the reserve management? How is their
Speaker: attestation report regularly shared? How is their they are stuck looking like, are they on the credible chain? So are they on some funny chain? you know Is it something that some of the key devs in some of the major digital asset chains will you know like put thumbs up for? Is it something credible? So that's that's that's like what I would say is what is generally around engineering for that. And then another thing is just market access, like penetration. howage Which of these assets have more market penetration? Because it's a network effects game, right? If your counterparty is willing to accept that version of digital assets, you're more willing to use or trade in it. So those are some of the key things that I'll say for now. Thanks, Kofi. Any other comments, Jana?
Speaker: Yeah, I think that's an interesting question around, you know, what's the what's the difference between a digital assets that's merely active and one that's, you know, widely accepted institutionally? um And it's an especially interesting question, i think, in the context of the kind of, you know, African market access,
Speaker: use cases that we might be considering, and you know, such as the the use of stable coins to enable settlement trades involving assets in one market, investors in another, where there are not normally, you know, direct or economically um feasible assets.
Speaker: um settlement corridors, basically, due to the constraints of the correspondent banking system today. um And obviously, there's the there's a need for certainty on on both sides of of the fence. There's a need for certainty in the investor's jurisdiction that the um the trade will settle, that the digital asset, whether it's you know a stable coin that's being used for settlement purposes, um is going to maintain value, et cetera. And that stablecoin may also be issued and regulated in a third jurisdiction or, but you know, not be regulated at all, as technically many are not today. um And then there's also a need from the jurisdiction in which the the, you know, the digital asset that's being traded sits as well, um you know, is to what extent is this
Speaker: regulated to how is it um how is it entrenched in the legal the local legal framework. is ah you know Is a tokenized bond that's issued in Kenya, for example, legally equivalent to its non-tokenized equivalent? It does represent different rights and different ownership structure. There's lots and lots of questions there. And a lot of these, once we get into the detail, is not about the technology, which is pretty easy to solve. It's about actually being able to have the kind of global principles and frameworks in place so that different jurisdictions can come up with
Speaker: comparable, not identical, but comparable regimes, and also so that a regulator in one jurisdiction can look at another regime and have some certainty and sufficient lines of communication to other regulators, especially in this kind of nascent stage of the market, to be able to talk through some of these issues, especially, you know, when there's live activity going on.
Speaker: Right. And I think that raises something that I would like to avoid treating as one big continental story because the regulatory picture across Africa is heterogeneous. You have so many different jurisdictions and from the outside, people can often make the mistake of talking about Africa as if it were one a big digital asset market when it's so diverse. Like you have so much diversity of cultures, of languages. Well, of course, you're going to see some diversity in the regulation and even more so,
Speaker: on the regulatory approach to to digital assets. So where does that framing sort of break down? Are there markets that you would maybe group together from a policy or infrastructure perspective that they share these um these principles, these common themes, and maybe others that you absolutely would not? Like, I think what I would just want to and do with this question is avoiding the lazy, oh, Africa is adopting crypto narrative when it is so much more nuanced than that. So just at a glance, um how would you maybe group these markets or not? So i go I'll go first on this. And then maybe Kofi could come in on the more practical perspective. I think, you know, you've really hit the nail on the head there. And we were actually talking about this this morning, that every jurisdiction has its own, you know, um specific market nuances. um It has its own relationship to banking and fintech. ah You know, you have some jurisdictions that are more, that are better serviced by existing banking infrastructure. You have others and that are very heavily mobile money dominated. um Sometimes that's a good thing. Sometimes it also creates policy challenges. And, you know, when you're bringing digital assets into the mix, like um you can't just look at the whole continent and say, this is this is how digital assets will work in Africa as ah an entire continent. There are 54 individual countries, individual economies. Some are very commodities rich, commodities heavy. Having a focus on tokenized commodities could actually strengthen their direct access to markets and their ability to have better economic sovereignty over you know their resources and things like that. Others um others are more plugged into the global financial um centers and are more of a kind of conduit for trading and infrastructure and things like that. um And so therefore play ah you know a different role, have different priorities. um
Speaker: some on the I think you know most could probably benefit from the um the use of stablecoins and tokenized money to um solve some of the challenges that currently exist through the correspondent banking system. and One of my favorite stories, which I will repeat very quickly, is this is told to me by a friend who is ah the deputy former deputy governor of the Central Bank of Kenya a couple of years ago.
Speaker: that the correspondent banking routes currently follow the old colonial infrastructure. So basically, if you're in Senegal and you want to make a payment to supplier in Nairobi, that payment is going to flow from Dakar to Paris to New York for the dollar leg, back to London, and then down to Nairobi. And it could take up to two weeks with bank holidays, with the number of layers of cost and inefficiency that are attached to it. So there's a genuine opportunity to break down some of the barriers for trade between individual African nations by bypassing that banking infrastructure and, you know, tokenization, stable coins, the trading of tokenized assets can offer a genuine solution to that digital trade as well. You know, crypto and digital assets are more than just crypto and stable coins, for example. And so, yeah, I think there's multiple opportunities and different ones for different jurisdictions. Yeah, I don't even know how I'm going to talk that, but essentially, she's hit the nail right on the head. Africa is so diverse, it's ridiculous. And you see challenges in one region and you don't see things in the other, you see one, you know.
Speaker: But then the key thing with the digital asset side, which I find very interesting, is there's been a lot of piggybacking from the regulators. So I wear two hats on a typical day. The first is me being CEO of VASP, which is licensed in Africa.
Speaker: And then i also serve on the... board of directors chamber of digital assets and blockchain innovations. We are based out of Accra, but we do a lot of policy work across the continent.
Speaker: So in wearing that hat, one thing that we've realized is that they piggyback a lot of times. So for instance, ah we were part of the team that helped to write the laws in Ghana.
Speaker: Kenya reached out to us and said, oh, we like what you did. How can you advise us on maybe point one or point two? How do you guys approach custodianship? How do you approach asset tokenization? How did you approach this? The South African Chamber reached out. Just last week, the president of the Chamber is in Nigeria.
Speaker: And they are also meeting with the SEC there. They are also meeting some of the representatives there. Because what what we ah have seen happen on a very practical side is On the stablecoin layer, we are trading amongst ourselves. So people are selling stablecoins in Ghana and Togo.
Speaker: They are selling stablecoins here in South Africa. South Africa is selling some in Ghana. So there's already inter-currency trade happening on the stablecoin layer. A lot of volume.
Speaker: I bet you see it in the billions of dollars already. So, already that's already a proxy to show that that need is there. And digital assets are naturally just filling that. The added layer now is now we have more tokenized assets.
Speaker: where you have yield products, where you have tokenized cocoa, tokenized gold, tokenized whatever it is, right? And I think that's the whole idea of the AFTACT, which is the Africa Continental Free Trade Agreement, whereby you already want to facilitate that. And blockchain says as just like a natural technical solution to help to, you know,
Speaker: smoothing those roads. So just as Jana said, we are tired of having to go all the way to London or wherever it is, just to trade amongst ourselves. And there are even several conversations of local stable coins.
Speaker: and there being a switch so that local stablecoins in Africa can switch amongst themselves without even going out. So the first layer now is the USD stablecoins, which is good. it still allows for global trade.
Speaker: It allows for very fast Africa trade, but now taking it to the next level of using local stablecoins to be able to do that. So there's a lot of learning. Some of the countries have even gone to the extent of doing regulatory passporting.
Speaker: So between Ghana and, I think, Rwanda, if you have a license in Ghana, you go to Rwanda, like, have a Ghanaian license. They'll be like, welcome to our financial system. So they are literally bridging the gaps with passporting, with rule sharing. with There's a lot of collaboration happening, so much collaboration.
Speaker: And I think it's very good because we have similar problems even though they're not the same. And I think that mix of fragmentation along with that, that passporting and sort of that a connection, because it becomes especially interesting when the assets themselves are global, when we're dealing with this borderless technology applied in different borders. And both of you mentioned stable coins, and it's basically super evident by now that stable coins have become one of the most clear use cases for digital assets across the world, across African markets. And I would like us to get out of the, oh, stable coins are payments simplicity, which they are, but people are using them for so many more things like cross-border commerce, remittances.
Speaker: um And from the many applications of use of stable coins in the use cases, is there perhaps that a is there perhaps a use case that policymakers tend to understand better than than others, especially when it comes to explaining and showing how you can use the technology and seeking to regulate it? So I think the first most applicable thing is is access to the dollar.
Speaker: Like, let's not be a bit around the bush, by far. um I think there was a podcast whereby they interviewed the CEO of Tether, and he actually he said it to himself that his product has worked best outside of the U.S., not in the U.S., right? Because the access to dollar in order to facilitate global robot trade is insatiable. Let me just put it that way, right? So that has been one of, like, I would say maybe literally about 90 or 80%, probably even more, maybe like 95% of the goldfish all has to do with stables in some kind of way.
Speaker: And... Fundamentally, that is one of the things that even brought it on a lot of regulators' radar. Because what happened was like people like Chain Analysis and all these other entities who do a lot of blockchain, disability, and analytics were going to the regulators and telling them, they're like, hey, bro, listen, you have $10 billion going into your economy. They should know what's is happening. And they're like, ah, we do? Oh, wow, let's see. Let's look into it.
Speaker: Absolutely. like And it's is' exciting times like because it's it's it's so revolutionary, but it's happening so, for lack of a better word, so naturally, because it's just a solution that works. So I'll say the first big fragment is stables before it gets to the other assets, which is ah Bitcoin and F and all these things. That has to do more with like blockchain natives, but for any commercial business, use stables. Yeah, I think, you know, adding to that, it's obviously there's this huge opportunity that I think, you know, some central banks and regulators do see in terms of the cross-border side of things, improving cross-border trade. capabilities and remittances as well. and You know, anything that decreases the cost of remittances instead of some of the sometimes really significant overheads is great. And dollar stable coins are 98% of the market at the moment. They are what exists. They are, to all intents and purposes, the rails for these two use cases right now um and for digital asset settlements as well. So you tokenize money market funds, and you know, other products as well.
Speaker: The thing is, you know, if you are if you are an African central bank, you still want, you know, control of your local economy. You want your monetary sovereignty. You want the ability to, you know, set interest rates, determine monetary policy, have genuine impact on your economy through the levers that a central bank has at its disposal.
Speaker: And if you have all these dollars pouring in and being held by people instead of local currency balances, then you no longer have that capability. So you're losing economic sovereignty. And this has massive knock-on impacts um across the entire economy and and is, you know, on an ongoing basis, a bad thing. so you know but but central banks, you know in many cases, might be facing a double conundrum. The first is you know i've they may have long had an issue with dollarization or with currency outflows or things like that.
Speaker: This is not new to stable coins. Stable coins just give you a way of doing that faster, more efficient and potentially under the radar. um And so the challenge is designing policy frameworks and regulatory regimes that encourage the good outcomes from stable coins right now, while also um incentivizing um some of that you know inflow or the majority of that inflow to be converted to local currency holdings and and for the local currency not to be you know overtaken by dollars. um And that's challenging, but it's not impossible. um It does require you know addressing economic fundamentals as well. That's always been the fundamental issue with dollarization, that you have to give people a local currency that they actually want to hold and transact with.
Speaker: um But it's just really amplified by the ease of which stable coins can be used. and So I think that's really an increasing area of focus for central banks and regulators right now.
Speaker: and Definitely. And there's a lot of work yet to be done in that area. But just zooming out of stable coins and going into digital assets in general now... they are presented as a way to connect African markets more directly to global capital, access to U.S. dollars, as you said, but also um putting that into a more tangible perspective, what has to be true for that promise to become economically meaningful? Like, what would it take for tokenized local assets to become a large market in Africa to go to that and to that influx? um Okay. Okay.
Speaker: I think this is when I'll take off my policy hat and re-wear my company hat. So for us, ah I think we think that is like one of like the key markets to explore, which is African yield has always been a black box.
Speaker: It's very hard to get access to African yield and harder to get money out of African yield, right? So, apart from stable coins, one of the main incentives for anybody to pack money or put money in any form of tokenized asset is because he wants the load of some form,
Speaker: some sort of form, especially when it has to be real-world assets. So um that's one of the things that internally we are working on. are building regulated yield bearing assets.
Speaker: a Sneak peek, which, as he said out loud in public, it to be called YGHS, which is called Yield GHS, Yield Ghana City.
Speaker: And the idea that is that this is focused on the Ghanaian market. You're going to have once for African markets later, but the whole idea is this. It's going to give people, should I say, some kind of access to yield from the Ghanaian market.
Speaker: We're going to start from very secure government baghorns and other, you know, them government-backed securities, which are extremely secure. And then later we start adding corporate bonds and all high-quality ones, of course, and have proper, should I say, custodians and the like. But we envision that happening a lot.
Speaker: and And we see a lot of like asset tokenizers also coming on board. Gold tokenization is a big thing. Coco tokenization. You know, Africa is like a bedrock of raw materials, right? And minerals. So we see a lot of efforts to try and do that. Actually, in Ghana, we have an institution called the Ghana Gold Board. And they are entirely responsible for purchasing gold on the local market and selling it internationally.
Speaker: They even have a tokenization mandate that's part of their stuff. So that's the next big shift. I like to call the blockchain the great leveler.
Speaker: um look at what WhatsApp did to call. I'd say need to switch to like 10, well routing stations before I can call somebody in Antarctica.
Speaker: Now he needs is just a WhatsApp and I just hit him. So it's the same thing, the great leveler in the sense that now if we can get all these tokenized assets on board, we can freely trade among ourselves and freely trade with the rest of the world.
Speaker: So we are extremely excited about that aspect of things and we see a huge wave of companies creating quality yield products, real world asset products that can be issued worldwide.
Speaker: That's super exciting stuff, Kofi, what you've been working on and all of that, a that that regime and like that that model. And I think that's something that I'd like us to conclude with because and it's kind of like trying to fit in so many different countries, so many different aspects into just a 30-minute podcast. We can't do justice to it. But instead of this question, it's more on the general level, but it's also about what Africa can teach other markets. Because I think that, and I say that somebody,
Speaker: also from a developing country. I'm from Colombia and there's often like that sort of, I think like a certain idealization of other markets when there's also a lot of richness, I think, in other areas around the world. So I'd like to to hear from both of you. What can African digital finance teach markets elsewhere? What do you think is worth worth highlighting, especially for people that are not so familiar with the policy and digital asset space in Africa? Yeah.
Speaker: I think that the... if I think it's, ah you know, and ah I don't think I'm overstating this too much, but I think there's a genuine opportunity um in African and Asian um and latter markets um to, you know, to correct many of the imbalances and issues and inefficiency of the financial system that have evolved over decades and really don't serve the global south south particularly well at the moment.
Speaker: um And I think, you know, digital assets, digital finance, tokenization of the technologies that can enable that to happen by creating more direct, transparent, verifiable, um connected and you know integrated with other frontier technologies like AI, Internet of Things, et cetera, by leveraging all of this together to create you know more transparent assets that can be more directly traded to breaking down the barriers to trading and to opening up new trade routes and market access, um I think there's a genuine opportunity, particularly in this time of geopolitical turmoil, to create something new that serves those markets better and that the rest of the world will be able to learn from. Because again, you know, we've always seen that the greatest innovation happens when there's actually a market need. And
Speaker: Again, you know, UK, the US, the EU, fairly efficient markets already, working pretty well for everyone right now. The case is always, do we need to do this? You know, you're walking into conversations with policymakers. The conversation is always about, you know, this is expensive, this is big. Do we really need to invest in this infrastructure? Whereas the business case is far clearer. in markets that have not have traditionally not been well served by the financial architecture that we have today. So, yeah, I think the opportunity is huge. Yeah, and I'm going to piggyback off what you just said.
Speaker: Big, big, big, big opportunity. ah That one-size-fits-all approach, it's got to go. This is the end of that. And I think where we are going with digital assets is what allows us to do. it Especially in African markets whereby, to be honest, right?
Speaker: You know, like, typically you go for like a normal blockchain conference. and they will have a room whereby they are trying to find guys to find utility for what they've created. So they are coming up with all these funny ideas and trying to see. In Africa, don't even waste your time. Like, if it doesn't utility, nobody will fill that room.
Speaker: It's a utility-driven market. Does it make sense? Does it work? We use it. If it does not make sense, even if it works, we don't care. We are not interested in what works and what doesn't work or how fancy the technology is. It's how usable is it for daily lives, especially with the ones with very high volume.
Speaker: Obviously, you can get like a community of people who you know, maybe meme-created and all of these kind of things, but and they don't have any systemic importance. The ones that have systemic importance, it has to go where they need.
Speaker: So it's very utility-driven. And that's one of the things you like about in this market, because if you see something unregulated imploding in the African market, that means you are only seeing one-tenth of the activity that is happening.
Speaker: Like it's is incredible. ah what in Some of the things I see on the daily basis, I go, ah, how? I didn't do this you know So and we are very, very excited. and And one other thing I think generally people like about the tech is, as you mentioned,
Speaker: the traditional financial system was not built for Africa. It wasn't. It was built for the West and it just adjusted and said, oh Africa, this here's your module. You can fit in and then try and see whether it works.
Speaker: But with this one, it allows us to craft something that works for us in the long term. It's not perfect now, but it allows. and Fundamentally, the technology is based on open source principles. And the good thing with open source principles is it doesn't really focus on profit maximization.
Speaker: So it focuses on access, to ease of use, how better the tech is. you know So with that democratization mindset in mind, it works so well for this part of the world.
Speaker: well Amazing. I think that's a really good way to basically and seal this all in because and as both of you mentioned, there's still a lot of work to be done, but it it comes down to does it make sense? Is it useful? Is there an actual need for it? And I think that a really big takeaway from the conversation is this huge opportunity that there is in Africa with all its heterogeneity and different jurisdictions.
Speaker: there is big opportunity indeed. So Jana, Kofi, thank you both so much for for joining me. um And thanks again to our to our listeners for spending time with us. And till next time.
Speaker: We hope you enjoyed this episode of The Policy Layer. If you want to learn more, check out avalanchepolicy.com for free educational resources. And also follow us on social media at avalanchepolicy to stay updated.
