South Africa’s Role in Crypto Adoption
While Africa is often seen as the cradle of crypto adoption, South Africa stands out as one of the leading countries in the region regarding crypto adoption and regulation. A new report published by the local financial regulator highlights bright prospects for the South African DeFi sector.
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The Goal of the Study
On Feb. 20, 2025, the Financial Sector Conduct Authority released a study called Market Study on Decentralized Finance (DeFi) in South Africa. The study is based on a survey of crypto asset service providers and aims to assist local regulators in understanding the role of DeFi in South Africa.
With South Africa becoming one of the world’s leading countries in the DeFi sector during the 2020s, clearer regulation is needed, especially concerning the relationship between banks and crypto asset service providers. The estimated annual revenue of the South African DeFi sector is $2.8 million, predominantly driven by retail clients (71%) and small to medium-sized enterprises. Key growth factors identified include financial inclusion, low transaction costs, and transparency.
However, the growing DeFi sector also introduces new risks such as price manipulation, smart contract security breaches, platform failures, and fraud. The study suggests that regulations should address these risks to better protect users. Respondents believe that improving regulation and enhancing financial literacy are essential for user protection.
The Numbers
More than a third of respondents believe that the South African DeFi sector’s Total Value Locked (TVL) exceeds $27 million, which, while modest globally, remains significant regionally. The sector is projected to reach $180 million by 2028.
The study also identifies top use cases for DeFi in South Africa:
– Payments (more than 50%)
– Lending and Borrowing (47.6%)
– Decentralized Exchanges (33%)
– Stablecoins (14.2%)
These uses indicate that DeFi is providing banking and remittance opportunities while facilitating tokenization for traditional finance.
Respondents highlight several market drivers including:
– Increased mainstream investor adoption (62%)
– Emerging DeFi protocols (43%)
– The unbanked population (33%)
– Crypto classified as financial products (29%)
Overall, the report primarily focuses on the DeFi sector, providing regulators with insights to navigate this evolving landscape.
South Africa as a Significant Nascent Crypto Hub
Sub-Saharan Africa is witnessing rapid growth in the crypto sector, fulfilling the demand for financial inclusion. As one of the top economies on the continent, South Africa has evolved into a crucial crypto hub.
The government has implemented crypto-friendly laws, notably in October 2022, when the Financial Sector Conduct Authority declared crypto a financial product, legalizing its use, though not granting it legal tender status. This regulatory climate has positioned South Africa as a significant emerging hub in the global crypto landscape.
Local crypto service providers are regulated under the Financial Intelligence Centre Act, with mandatory anti-money laundering (AML) rules. A Travel Rule for crypto assets will take effect in April 2025 to oversee cross-border transactions.
According to Chainanalysis, the South African crypto market was valued at $26 billion in 2023. Recent trends show increased interest from institutional investors seeking custody solutions in DeFi. Notably, the circulation of stablecoins has surpassed that of Bitcoin in South Africa, reflecting the broader African trend of using crypto for everyday transactions. Experts believe that the upcoming elections in May 2025 will not affect the positive regulatory environment for crypto.
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