Earlier this month, FTX founder Sam Bankman-Fried was found guilty of looting more than Sh120 billion from users on the firm’s cryptocurrency exchanges in one of the biggest financial scandals in recent history.
The scandal came to light with the implosion of crypto-currency exchange FTX that filed for bankruptcy in November last year, sending shock-waves throughout the volatile sector.
One year later, crypto-assets seem to have weathered the storm and experts believe that the volatility experienced in the sector in the recent past has put into sharp profile the need for robust regulation to keep pace with the fast-evolving industry.
In a guiding note released earlier this year, the International Monetary Fund (IMF) warned that while traditional financial institutions’ exposure to crypto-assets remained small, it grew rapidly in 2021 and 2022 in response to consumer demand.
“Crypto asset adoption can increase risks to public finances even without changing legal tender laws,” stated the IMF in its report.
According to the IMF, crypto assets can undermine tax revenue collection and compliance, with the decentralised nature of the medium making it hard to collect third-party information.
Still, economies in Africa, including Kenya which ranks among the top in the continent in the adoption of digital assets, continue to push towards wide-scale adoption.
In a recent statement, the Central Bank of Kenya (CBK) said it would lead efforts by other financial sector regulators to develop and adopt frameworks for digital assets to meet consumer demand and spur economic growth.
This comes six months after the CBK shelved plans to roll out a Central Bank Digital Currency (CBDC), and the move has been commended by industry players who urge a balanced approach to safeguard innovation in crypto assets.
“The crypto and blockchain sector has seen notable volatility, yet asset managers persistently invest,” said Emmanuel Ebanehita, Chief Marketing Officer of Fuse.io, a payment platform that deals with digital assets.
“Introducing a new asset class like crypto will naturally face challenges, evolving from technology and policy uncertainties to systemic and governance issues,” he explained.
“To navigate these challenges, service providers are bolstering infrastructure, improving digital literacy, and collaborating with governments.”
According to Ebanehita, the adoption of crypto assets is surging in Africa, particularly for retail transfers under $10,000, (Sh1.4 million) primarily driven by the demand for efficient remittances.
“This signifies Africa's growing need for seamless micro-transactions and cross-border payments,” he said.
“Our platform works to provide a superior payment ecosystem for African businesses with a low-cost, rapid, and secure infrastructure.”
Fuse has forged partnerships with more than 50 service providers working on Web3 products and services this year alone. “Looking through the lens of daily active addresses and transactions, we see substantial growth,” said Ebanehita.
“Daily active addresses on Fuse grew by more than 63 per cent to a daily average of around 44,000. Daily transactions showed a similar upward trend and grew by over 53 per cent in the past quarter to an average of approximately 98,400 daily transactions.”
Service providers are also investing in broadband networks and data centres to help address barriers of cost that hinder adoption in some developing economies.
There have also been efforts to introduce affordable solutions like pay-as-you-go and cloud services.
Industry players are also reaching out to governments and regulators for partnership and exchanging information which ensures that both the public and private sectors are reading from the same script in terms of assessing the risks and potential benefits of new applications.
“One of the fundamental practices is to encourage investment, streamline regulation, and set standards to promote industry best practices,” says Ebanehita.
“Another practice is to use soft law instruments such as guidelines and standards that can rapidly adapt to new business models.”