Thread by @anradu

Crypto is a "story of emerging markets". @FT reporting that Sub-Saharan African (SSA) P2P trading has now overtaken that of North America. So why are emerging markets at the frontier? (1/14)

Reasons include 1) financial accessibility - 37% of Nigeria's population are unbanked. #chainanalysis reporting that Vietnam has the highest adoption worldwide - 2/3 of Vietnam's population are unbanked (2/14)

2) Unpredictable inflation - in Argentina cumulative inflation was >40% in the past 12 months. In Nigeria inflation was ~17% annualized in June. Shoe leather costs are high (3/14)

3) Capital controls. Last year Nigeria introduced foreign currency purchase limits and crypto exchanges offered avenues to circumvent the ban (4/14)

4) Volatility in fiat currencies - the Venezuelan Bolivar depreciated 10-20% a month in 2020. Depreciating 96% against the USD in 2020. Unstable national currencies undermine trust in the store of value (5/14)

5) Remittance costs. Currently, SSA remains one of the most expensive remittance corridors globally - with fees ranging 8-9%. The cost varys by country, depending on unique market conditions, with the global average around ~6%. This is prohibitively expensive (6/14)

Net net, these challenges mean that the opportunity cost to experiment is lower. Crypto provides a viable alternative for consumers in emerging markets, so long as they remain a feasible store of value and payment method (7/14)

Worth noting that <1% of global cross-border remittances are estimated to be crypto, and ~10% of remittance, digital. But 90% of remittances still begin in cash and end in cash. Regardless of crypto adoption, legacy remittance providers will remain relevant for some time (8/14)

And whilst, theoretically, crypto provides frictionless remittance, the issue of exchanging back to fiat (ramp on/off) remains, due to cash long-tail & centralized rails. Crypto EXCH such as @binance have had to nurture relationships with local banks, to allow ramp on/off (9/14)

As demand for crypto in emerging markets has risen, so has adoption of stablecoins such as @Ripple. Typically pegged to the dollar, they offer respite from crypto volatility but still come with bank-like risks (10/14)

For central banks, the increase in foreign-denominated stablecoins is a concern: 1) the loss of “seigniorage" 2) "dollarization" - weaker currencies will be substituted for USDT, undermining monetary polcy effectiveness. 3) disintermediation of national banks (11/14)

EMs are likely to be leaders in the issuance of central bank digital currencies (CBDCs) as well, or synthetic SBDCs - in partnership with tech companies whilst maintaining oversight. Nigeria is set to launch its own digital currency the "e-naira" later this year (12/14)

This leads me to El Salvador, which has made @Bitcoin legal tender - it is clear that emerging markets view crypto with far less scepticsm than high income economies. Consider that the US was the only high income economy in Chainanalysis' top 20 list by crypto adoption (13/14)

In Nigeria ~33% used or owned crypto in 2020, Vietnam ~44% vs. ~13% of Americans in 2020.
The P2P boom in EMs, is in many ways a breakthrough,as Mpesa was in Kenya before it. Excited to see the ecosystem develop alongside robust supportive government legal frameworks (14/14)

@StoneAtwine for his great perspectives