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A

Welcome to Bankless, where we explore the frontier of Internet money and Internet finance. And today, on this episode of our Zuzalu series, we are exploring some new frontiers. New frontiers and new technologies, all of which are poised to completely revolutionize the world and change everything about the operating system that society is currently running. Speaking of operating systems that are about to change that guide society. Bankless nation. Today we are exploring the frontier of crypto in Africa, perhaps the first continent that is poised to leapfrog its way into a new operating system that we call web three, that we call crypto. What can crypto do for Africa? What can Africa do for crypto? The conversation of crypto in Africa is extremely rich and should get anyone in crypto looking for real adoption, real utility, very excited. Developing countries have the ability to leapfrog technology. For example, landlines never made it to Africa. The entire continent just skipped to cell phones. And the same thing is playing out in crypto. The banks never win to service Africans, but nonetheless, Africans are finding utility and access using bankless technologies, using ethereum. There are two conversations here in this episode. One is about crypto adoption in Africa and why Africa is such a primed continent to accept and adopt crypto protocols. And then another about an african network state project going deep down into the reasons for why a network state in the first place and tying it to the deep cultural bonds that tie all Africans together, no matter where they live in the greater globe. Both of these conversations gave me goosebumps, simply out of excitement and satisfaction of the adoption of crypto protocols in the way that they were always meant to be, to uplift individuals and coordinate communities. We're first going to hear from Josef Ayele, who's working on building a borderless Africa using web three. Of course, he started a venture fund to invest in african web three development and adoption, because he thinks, and also gives the arguments for why web three will see its first billion users out of Africa. The needs that Africa has as a whole are things that web three provides, financial stability and access, of course, but also identity services and credit facilities. Josef does a great job painting this picture of Africa's trajectory to leapfrog its way to becoming a dominant player in the web three landscape. After Josef, we have Ece Imole, one of the founders of Afropolitan, a very ambitious network state project looking to build an afrocentric digital nation. This conversation spans both crypto and network states and adds its own spin onto the balagian idea of a network state, one with afropolitan hubs that exists wherever the african diaspora finds itself. Both of these guests are amazingly articulate and relentlessly optimistic, two things that makes my job so fun and enjoyable as a conversation moderator. And these were probably two of my favorite episodes that I recorded at Zuzalu. So that's why I'm sure that you're going to enjoy it as well. So let's get right into this conversation of crypto in Africa. But first, a moment to talk about some of these fantastic sponsors that make the show possible.

B

Bangladesh nation. I'm here with Yosef Ayela. Yeah.

C

Yes.

B

Beautiful.

C

You got it.

B

And we're going to talk about crypto in Africa and why there's such a large opportunity for the web three industry. The crypto industry in Africa. Yosef, welcome to Bankless.

C

Thanks so much for having me.

B

First off, how has your Zalo experience been?

C

It's been amazing. Amazing humans, great connections. I thought I came here to do work, but then spent a lot of time just building really good relationships and having a good time.

B

What did you come to Zuzalu to do?

C

To meet folks who are interested in the african continent. I came here for Edcon as well, so I give a talk there, share my thesis on the continent, and also to be part of some of the network state discussions and really understand where people are thinking about.

B

You said the word thesis, which means I'm interested. You have a thesis on a continent? Yes. What does it mean to have a thesis on a continent?

C

Just a framework and a way for the rest of the world to connect with the african continent. I feel like there's a lot of crypto activities happening in the african ecosystems, but most of the Ethereum community, as well as just the broader crypto communities, just don't understand what's happening there. Many people haven't traveled there. A lot of african builders don't get to come to places like this. So being a bridge and helping provide a framework.

B

Yeah. There's, I'm assuming, just a very large divide between Africa, crypto, and the rest of the crypto industry. I think there's also a very large divide between east and west in crypto. Yes. But even that divide commingles a lot. Like the Chinese, which is part of crypto, which is very large, does mingle. There's been a large chinese cohort of people here. Azizalu, would you say the african side of crypto is even more cut off.

D

Between east and west?

C

Way more cut off.

B

Way more cut off.

C

Way more cut off. Because the biggest barrier for a lot of african builders is that it's hard for them to travel to where global crypto communities are and where main events are. So the number one issue is just visas. The west and many eastern countries just don't give Africans visas. I was organizing a whole site event around Africa at Defcon in Colombia, and basically everyone who was supposed to come participate in it couldn't make it because they couldn't get a visa to Colombia or couldn't get a visa to transit through the US. So that's just one of the biggest barriers that creates the physical divide.

B

Yeah. So the cross pollination of just the. It just doesn't happen.

C

Exactly.

B

So I think there's going to be two parts of this conversation. It's what can crypto do for Africa? And then maybe we'll talk about what Africa can do for crypto. Yes, I will talk about the cross pollination here.

C

Awesome.

B

But let's start with that. Let's start with why does Africa need crypto so much? Like, why is Africa primed to be a crypto continent?

C

Because centralized entities have failed us. That's the main point. Centralized government, centralized banks, institutions are either not effective or non existent. So that's where I think decentralization makes the most sense, is it acts as the layer of trust on which so many economic, social, political and financial institutions can be built on. And when you go to places where there's, you know, some areas are way more developed, but a whole lot of areas are just so not developed so far, I think the core infrastructures of crypto from money and payments and trust and coordination, all those things make so much more sense there.

B

Would you say that another way of saying that is institutions have not just provided structure in Africa, and that's what you mean by centralization, is there's not trusted, centralized places of organization that has provided social scaffolding for the african continent.

C

Let me give you just a few examples. So there are 14 african countries that were colonized by France. When the French were kind of leaving in the 1960s, they instituted this currency called the CFA. It stands for colonies of Africa, french colonies of Africa. And that spec to you was pegged to the franc and now spec to the euro. What that means is 50% of all the income those countries get goes to the french treasury directly. So you don't own your money, it goes to the french treasury.

B

Is it fair to say that that was a tool of colon, of, like, maintaining colonialization?

C

Exactly.

B

Even though, like, France, like, wanted to get out of the continent physically. But they were like, we'll leave our currency and maintain value attraction that way.

C

Correct. And also, they don't, like the french government created some boundaries of your interest rates and how much money you can print and all of that. So those governments, you can say that they don't control their own currency, their own monetary policy. So here in the western world, we talk about sovereignty from governments. In those countries, the governments don't have sovereignty over their own states and their own monetary policies. So that's one use case where, you know, for example, the Central African Republic recently made bitcoin a legal tender. That's not because they're bitcoin maxis or whatever, it's just, it's out of desperation. They have no control over their own monetary policy. Therefore it's easier to say, hey, why don't we just jump into a whole new monetary policy that's inherently global, right?

B

So the idea is like, okay, if we're going to use somebody else's money, perhaps we should use one that is based on the Internet and not benefiting some particular power elsewhere. And let's just use the, the one that's found on the Internet. Well, you will, you will use bitcoin because its monetary policy is going to be better than the french monetary policy.

C

Exactly.

B

And so, like, it's, it's a. Maybe they still don't, the african countries don't have control over the monetary policy, but at least it's not the French, it's bitcoin. And bitcoin has all the properties of bitcoin that we enjoy.

C

Now, that's not to say that that's the ultimate goal and answer. I think some level of sovereignty is amazing. Right. But it's kind of an example of where some of those countries, it's just 14 countries out of 54, are basically struggling to get sovereignty over themselves. Another sort of macro example is that there are 54 african countries. Only 40 countries print their own money in their own countries. So they outsource that to european printing press and they pay 6% of the total money supply as printing fees and transportation costs. So just imagine a ship who charges that there are three companies in Europe, in France, in the UK and Germany, that basically act as the printing press for the fiat.

B

They charge a service for access to the printing press, of course. So they get inflation and they get to charge fees. Yes, I can see why there's demand for something else.

C

Yeah. And even at a very practical, very. Those are like examples at a macro level, just at a human level, like the Internet has been a big game changer for many people. When I was growing up in Ethiopia. The Internet opened the world to me. I learned most of my English online. It opened up a lot of access to information and connectivity, which is amazing. But the Internet is still very gated to Africans. That was gated. That was many years ago and still gated because if you don't have a means to transact and pay and receive money, then you cannot access the best of the Internet. If you cannot set up a Paypal account and use that to receive money for the work that you do, then how can you say you're actually accessing the best of the Internet? So even remote workers in many african countries are using crypto as a means to get paid for the work that they do.

B

So what you're saying is that the Internet is a massively democratizing force that has benefited the world as a whole, including Africa. But then there's this more that as the Internet matured, it evolved and adapted, became what you're calling permissioned, as in like, parts of the Internet are paywalled by whatever you would do. Like subscribe. You subscribe to Bankist, gotta use a credit card. We do accept crypto, but also you can also subscribe to anything that you would subscribe, pay for on Amazon or pay for any sort of credit card.

C

Yes.

B

You're saying that that was not available to most of Africa, because most of Africans can't. They're not connected on the payment rails.

C

And today is still the case. So you might even have the level of connectivity. But for example, in Nigeria, banks have a limit of $20 a month that you can spend internationally with your bank card. So even though you have the connectivity, the lack of foreign currency creates these really low ceilings for people to actually participate online and in digital world.

B

So as much as great as the Internet is, it simply just means less for Africa.

C

And that's because, again, it goes back to centralized institutions. Even in tech, centralized technology institutions are still gated. And some of it is just structural, right? So how those countries economies are structured, or the relationship between that economy and global economies, we pay five to $10 billion a year on swift fees alone. That's a massive cost. If I'm trying to send you money from one country to the next country, the money goes through Europe, the US, blah, blah, makes a big route around the world and comes next door. And then I pay like around 10% of what I'm sending you in. Just fees, routing fees, routing fees to get it all around. So that's so inefficient. It's blocking any type of development and progress when you're basically relying on global institutions that are not designed for your needs.

B

Interesting. So a bank transfer in Africa that goes to a different african country route through, like, Europe banking rails.

C

Yes.

B

And a bunch of middlemen up there charge a bunch of fees and then down to a different african country that's very, very proximate to the originator, but it just goes through Europe first.

C

And most transactions are low in numbers. So the percentage.

B

Low and low in numbers.

C

High in volumes. High, low numbers. So the percentage that you pay for the transaction cost.

B

Flat fee.

C

Yeah, it's so high as a result of it.

B

Okay, so these are all money and fee and banking system use cases, which makes total sense to me. Does it end there or where does this go next?

C

So Africa has 1.4 billion people. 500 million don't even have any form of id. Okay, so that's. That's a big friction point to participate in anything in the world. So that trust, identity, reputation, those are really critical areas where I believe blockchain technologies can have a real impact. And that's actually when I talk to different african governments. Those are areas they're really interested in. How do we create shared, consensus based truth? What is true? Who owns this land? Who owns that land? Knowing, like, having a verifiable form of property rights, that's one of the biggest areas where you go to truth is consensus based. Then we're always in negotiation of what truth is. That creates a lot of friction to actually build really sophisticated economies on top of those.

B

I would imagine some of these problems are symbiotic with each other. It's weird to call problems symbiotic, but in the negative direction, as in perhaps it's harder to produce a financial system in banking rails in Africa because there's no identity. And then also it's harder to produce identity when such a core part of identity is your bank account, your nation state id. And you're saying, like, there's neither in Africa.

C

Well, I wouldn't say nothing exists.

B

Right? There's less.

C

It's just there's a lot less of it. It's not sophisticated. It's not fully developed. Right. So, for example, when you look at payments, some african countries have way more advanced payment systems than the US. You go to Kenya, for example. We have M pesa there, which is a mobile money company. It works so well everywhere, including remote villages. Doesn't need Internet. When you have Internet, it can get sophisticated. Basically, your phone number is your bank account, it's your means of paying salaries or receiving income. It's your KYC. It works so well in that country. It's heavily centralized, but it's functional. But when you're trying to do business cross borders, then that's where it becomes challenging. When you're trying to get any form of credit, then that's where you reach a ceiling, because those layers of trust and reputation and even credit scoring are not as effective and not as efficient. So you see some things that are way more developed, but a whole lot of things that are not as developed.

B

Right. Okay, so I have so many more questions, but I first want to make sure that does it end there or. So we have banking and money, we have identity. Are there other use cases that we need to talk about? About what's. Okay. Oh, boy. It keeps on going.

C

Yeah. No, I mean. So the other area is actually the art creative spaces. So there's like, african art. And african culture is all over the world. You see it in music, you see it in art, you see it in food. The world is consuming african creatives, but very little value is captured by the people who are creating that. Right. I'm seeing so many artists getting into the NFT world and even experimenting with that medium that wouldn't be possible in traditional art of just painting something. So that's one movement that's happening.

B

Okay, so I think the picture that you're painting is that there are no good monies. There are a few good monies in Africa. And the crypto monies that we've invented, as troublesome and chaotic as they are still present very valid options for Africans. Yes. Not only that, but stablecoins, I'm sure, are very, very relevant.

C

They're massive. It's easier to access stable coins in so many countries than accessing fiat dollars, especially us dollar. Stable coins. To give you an example, where I come from, Ethiopia, there's the bank rate, and then there's unofficial rate, of course.

B

Yeah.

C

There's 100% premium. 100% premium on bank rate twice. Call it the corruption rate or the free market rate. That's what I call it. So there's the controlled bank rate, and that's because. And there's a lot more money being transacted outside the bank rate than, you know, outside of it, than within the system. Right, right. That's because, you know, there's so many layers, it's hard to kind of go through every aspect of it, but it's systemic. And I don't know if there's a pathway for the governments to find a way out of that. So basically, people are transacting outside of that system. If I'm running a small shop and I need to buy inventory, let's say I'm selling shirts and I need to import a whole lot of shirts from India, how do I pay the actually order that? It's hard to go through the existing process. Yeah, I might try to use moneygram or Western Union, but I'm going to pay ridiculous fees, long processes and all of that. I might as well just buy used dollar stablecoins, send it to person over there, instant settlement, and then I get my items shipped over to me. That's how a lot of people are using it.

B

Right. Okay, so the money conversation is a double whammy because it's not just a better money or stronger money alternatives, it's also the lower fees.

C

Yes.

B

Right. And so, like, that makes it a very competitive banking system.

C

And access.

B

And access. Yes.

C

Global access.

B

Yeah, global interactive. Permissionless access.

C

Permissionless access, yes.

B

And then there's, I'm sure as soon as you have like established bank account on Ethereum with your wallet and your money, then, like, you can start engaging in more sophisticated financial tools that we call defi. Yes, I'm sure that is a much more powerful set of financial tools than what Africans can discover locally. And that's just the money and finance thing. That is like, that's where so much demand for web three utility products and services comes from. And then also identity on top of that as well. Yes. Interest.

C

The broad area of trust.

B

Trust.

C

So basically, wherever you need trust here, there's so many things that we take for granted. You get into a hotel room or you buy a piece of land or you order something online, you know something is going to be delivered. You kind of like assume that's already going to happen, right. In a place where there's not a lot of trust infrastructures, you're always asking, is what the person said actually going to come true? If I have this thing, is it actually mine? So all the different things of trust that you kind of take for granted, they're either non existent or are very weak in many african countries.

B

Yeah. If any bankless listeners just had the term settlement assurances come into their head points for you. Settlement insurance is core part of what we believe makes crypto so powerful. Is the thing that you think is yours actually yours? That's like, the beautiful thing about crypto is extremely high settlement assurances. And so it sounds like not just like money and settlement insurances is benefit for Africa, but just like identity as like, this is also your identity too. And other people, not just yourself, but other people, can also rely on that, which is important infrastructure. I want to ask about just like the culture of users who use these tools. In the United States, in the privileged land where we have general abundance.

E

Crypto.

B

Is like a casino for us, sadly. I mean, it is one of these things that makes these things powerful and proves all the use case. But we have the luxury of using this as a casino. And I'm wondering what is the culture or the disposition of african users who use crypto not as a casino, but because they actually really need it and it is legitimately a better tool. How would you describe just how people engage with these things down there?

C

So reality is the casino still exists. It's everywhere. You see a lot of that in Africa as well. Now we're in a bear market, which is actually good because there's not a ton of blind speculation that's happening. But the other side, the real use cases, one is us dollar stable coins. So that's something that a lot of people use for cross border payments, for inflation and currency devaluation, hedging, I would assume.

B

Inflation across Africa is terrible.

C

It's very high. Yeah. And the other side is also I'm hearing of fintechs, traditional fintech startups, who are actually becoming the key banking infrastructures on the continent. You're fighting startups, providing better financial services than banks do. But that's a separate conversation. They're using crypto at the back end. They want to admit it, but they're using crypto at the back end.

B

Why won't they admit it?

C

Because it creates a lot of crypto issues. Crypto, yeah, exactly. You don't want a lot of attention. But when I talk to a number of exchanges, they're telling me that the biggest clients are fintechs, not retail users, which is fascinating. So they're using it for the treasury management. Again, if you cannot access us dollars and the currency that you're holding is being devalued over time, you want to put it in other asset classes. And crypto stable coins make a lot of sense as a treasury management. It's just a smart thing to do, and it's more available to you in a permissionless way than knocking on the doors of a bank.

B

Yeah. The one thing that makes me just so happy and optimistic about this story is that individual Africans are choosing to use crypto tools by their own merits and adapting them and becoming bankless, getting all their bank accounts. I actually think that that part of the story is also very cool and optimistic, too. Fintechs adopting crypto for the same reasons, because it also provides them, as businesses, better foundations to provide financial services. So even if the individual African is not adopting crypto tools, the fintech layer of Africa is also improving because of crypto to do the rest of the mile.

C

Exactly, exactly. And I expect to see a lot more of that. Another area that I'm seeing some action in, and I'm super excited about is the credit space. Now, for you and I and many people here, you know, if you've got salary or whatever, it's easy for you to access some level of credit. Even if you have crypto, you can borrow money from Aave or compound or whatever, right? But if you're just like, you know, a small business, and most of african companies are small businesses, and you don't have a real asset that you can use as collateral, banks won't lend to you. Banks. So here's a sad reality. Banks lend to bankers because it's bankers that have stable jobs that bankers think is solid, which is kind of weird and twisted. Right. So if you don't have something that's valuable that you can collateralize, then you go to uncollateralized borrowing. Do you know how much money you pay? Have a guess. Have a guess of how much interests are on average on a year?

B

Yeah, higher than 20%.

C

Keep going.

B

40%.

C

Okay, so in Kenya and Nigeria, for example, a bunch of fintechs, they are charging ten to 30% a month.

B

A month?

C

A month.

B

Oh, my numbers were in a year? No, ten to 30%. A month.

C

A month.

B

Because the risk is so high.

C

Well, yes.

B

Or perceived risk.

C

Perceived risk as well. Some actual risk. Some perceived risk. So some fintechs that I've talked to where the default rate is less than 10%, they're still charging super high because that's the current going market rate.

B

Is it just, why is that the going market rate? Is it just a very inefficient market with no liquidity?

C

Liquidity is a big part of it, but the main issue is also just how to price risk. How to price risk. And also as a borrower, I can borrow x amount of money from you and then if I cannot pay it, then I go to someone else, borrow that money and then pay you back. You get into these cycles.

B

So one person can cause 100 people's worth of destruction.

C

Exactly. So one interesting area of application that I'm seeing is there's some fintechs that are getting access of user data from mobile money, for example, which huge mass adoption there, and putting that on chain and helping you build on chain credit reporting, which helps you access on chain liquidity. So it's actually onboarding a whole lot of people into crypto without them even realizing it. And helping you build on chain reputation and track record, which now multiple fintechs can use as a single source of truth, as opposed to each one kind of determining what your credit worthiness. Does that make sense?