Digital Asset Adoption in Africa Set To Rise

Several emerging economies across Africa have the potential to become key hubs for digital assets, while the cost of compliance for crypto exchanges is rising due to increasing regulatory clarity, according to Ben Caselin, chief marketing officer of VALR, a Johannesburg-based crypto exchange.

Caselin described South Africa as a gateway to the rest of the continent, citing its strong rule of law and independent judiciary, which make it easy to establish a company there.

Caselin sees several African economies as promising for digital asset adoption.

In April, the Financial Sector Conduct Authority (FSCA) in South Africa granted new crypto asset service provider (CASP) licenses to VALR, which raised $55 million in equity funding from investors like Pantera Capital and Coinbase Ventures.

VALR has secured Category I and II CASP licenses from the FSCA.

According to Statista, revenue in South Africa’s cryptocurrency market is projected to reach $246 million in 2024, with a compound annual growth rate of 7.86%, pushing the total to $332.9 million by 2028.

On March 12, the FSCA approved 59 cryptocurrency platform licenses under current law, while 262 applications were still under review from a total of 355 applicants.

South Africa became the first African country to license crypto exchanges, having started exploring a distinct regulatory framework for crypto in 2021. By 2022, it aimed to finalize these regulations.

After years of collaboration with the regulator and local market participants, the FSCA has recently implemented a regulatory regime for Crypto Asset Service Providers, which includes on-site visits for compliance checks.

Caselin anticipates that this regime will evolve over the next few years, emphasizing the importance of clarity on capital controls and crypto assets. He added:

“While nowhere is perfect, South Africa’s regulatory regime is among the best, alongside Dubai. Arguably, South Africa provides more regulatory clarity than most countries in Asia, including Hong Kong and Singapore, and certainly more clarity than in the United States.”

However, regulation has significantly increased compliance costs for VALR.

Caselin noted that VALR has expanded its workforce substantially in recent months, with over 10% of employees now dedicated to compliance.

In July, Solana-based marketplace AgriDex facilitated a cross-border agricultural trade between a South African producer and a London importer.

The importer purchased over two hundred bottles of olive oil and several cases of wine, with the payment processed via the Solana blockchain.

This transaction incurred only a 0.15% fee for both parties, much lower than traditional payment methods.

Meanwhile, South Africa is also advancing in the regulation of artificial intelligence.

In August, the Department of Communications and Digital Technologies (DCDT) released a national policy framework, a critical step toward positioning the country as a leader in AI.

Once finalized, this framework will serve as the foundation for AI regulations and could lead to the development of an AI Act.

VALR, which Caselin said is the largest crypto exchange in South Africa by trade volume, derives about 70% of its trading volume from institutions and corporate clients.

The exchange serves over 1,100 corporate and professional investors and has more than 850,000 traders worldwide.

While continuing to expand its presence in Africa, VALR has also made strides in Asia.

Caselin noted that if current trends persist, VALR could double its user base by year’s end, reaching one million registered users.

“South Africa is one of the important digital assets hubs in the world, not only due to its proactive regulatory stance but also as one of the three most advanced economies in Africa in terms of productivity, infrastructure, and willingness to innovate,” Caselin concluded.

Sources:

https://cointelegraph.com/news/south-africa-digital-asset-hub-crypto-compliance-fsca

https://www.statista.com/outlook/dmo/fintech/digital-assets/cryptocurrencies/south-africa