In Africa, accessing Forex liquidity and currency swaps is challenging, which hampers the utilization of United States dollar-based services in the continent’s economies that heavily rely on imports. Pascal Ntsama IV, CEO of Canza Finance, believes that decentralized finance (DeFi) could be a solution to this problem by utilizing cryptocurrencies, blockchain networks, and services.
In a conversation with Cointelegraph, Ntsama, who is also the co-founder of Canza Finance — a neobank that facilitates decentralized cross-border payments for Africans — discussed how Canza’s new DeFi technology, Baki, is designed to tackle this issue. Baki aims to provide decentralized foreign exchange (FX) for African currencies, allowing for slippage-free swaps at central bank rates and creating a platform for businesses to engage in intra-African and FX trades at lower costs.
The challenge with exchanging local African fiat currencies is that funds often leave the continent, leading to inflation in dollar value and higher costs due to currency slippages. Baki addresses this issue by enabling traders to swap currencies without loss, trading at official central bank rates.
DeFi in Africa is expected to grow annually by 21.99% and reach over half a million users by 2027. However, some industry experts suggest revising these projections upwards as the grassroots adoption of blockchain products continues to surge. Regarding Baki’s applicability in countries like Nigeria, where blockchain technology is not yet widely adopted despite regulatory approval, Ntsama explained that Baki is designed to operate within the current regulatory framework, leveraging existing user behaviors to address issues using blockchain technology. He believes that more favorable regulations would lead to greater industrial and institutional adoption of Baki.
Ntsama explained that in a typical FX swap, the agent bears the local currency risk until they can offset the position, which requires pricing that risk into the transaction for the buyer. Baki mitigates these risks by enabling the swapping of similar currencies at the official rate, allowing the agent to re-enter U.S. dollar positions with minimal slippage.
Ntsama also noted that users and entities providing liquidity to Baki earn yields from the 80 basis points fee charged on each currency swap in the system. This yield is distributed with 50% going to liquidity providers, 25% to holders of Canza Finance’s native token, and the remaining 25% to Canza Finance itself.
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