SA crypto players diversify portfolios with DeFi coins

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 12 Feb 2024
Most DeFi protocols and apps are built on Ethereum.
Most DeFi protocols and apps are built on Ethereum.

South African crypto-currency exchanges are increasingly introducing decentralised finance (DeFi) coins on their platforms.

This, as they see a heightened appetite from the local market to embrace DeFi coins, which are growing in popularity globally.

According to Kubera, a DeFi coin is much like a digital version of a fiat coin – it transfers value in the course of a financial transaction. It notes that DeFi coins are built on and often named for their unique, native blockchain networks.

Right now, it adds, most DeFi protocols and apps are built on Ethereum. Examples of DeFi coins include Aave, Chainlink, LDO, Uniswap, CRV and Synthetix, among dozens of others.

Last week, Luno added three new crypto-currencies to invest in that are prominent in DeFi.

The firm says DeFi has several use cases, the biggest to date being decentralised lending and borrowing.

It points out that collateral is used as a safeguard, much like in traditional financial services, to ensure lenders will be repaid if a borrower defaults on the loan.

However, it explains that transactions in DeFi are generally automated and enforced by smart contracts. As a result, they protect both lenders and borrowers before they lose out on money.

Connecting lenders and borrowers

In a statement, Luno, which is South Africa’s biggest crypto-currency app, says it has added Aave, which connects lenders and borrowers directly, without the need for intermediaries.

According to Luno, Aave is one of the largest crypto-currency lending platforms, with currently over $6 billion secured across supported blockchains.

It also added the Curve DeFi coin, which lets investors trade stablecoins and other cryptos for lower fees. The firm notes Curve has gained popularity as a liquidity provider for stablecoins like USD Coin and USDT.

Lastly, Luno introduced MakerDAO, which allows investors to temporarily lock up their crypto in return for Maker’s stablecoin called Dai.

It has attracted major investors, including Andreessen Horowitz, one of the world’s leading venture capital firms.

Christo de Wit, Luno country manager for South Africa, explains: “DeFi is an innovative, automated system that enables financial services like loans, savings, insurance or trading on public blockchains. By adding these new coins, which are prominent in the emerging world of DeFi, customers can learn more about DeFi, which has the potential to change finance.

“As crypto-currencies are more than just monetary coins and form the building blocks of a new decentralised digital economy, our customers are keen for opportunities to diversify their crypto portfolios in this innovative space.”

Luno explains that crypto-currencies reward participants in decentralised ecosystems for carrying out activities that keep the system running smoothly and securely.

These decentralised ecosystems enable and facilitate different industries, from financial services to gaming. It points out that DeFi is one of the more mature use cases for crypto technology.

According to the firm, the number of global DeFi users was estimated at roughly 4.8 million in 2022, and is set to exceed 22 million users by 2028 at current growth trends.

The total value locked in DeFi reached more than $52.71 billion last year, Luno states.

Critical bridge

Farzam Ehsani, co-founder and CEO of VALR, says the exchange offers over 75 tokens on its platform, including the most popular DeFi projects, such as Uniswap, Ondo and Aave, as well as the native tokens of the protocols or chains on which these DeFi applications are built; for example, Ethereum, Solana, Avalanche and Sui.

“While VALR itself is a centralised financial platform, we form a critical bridge between the traditional finance world where fiat currency and centralised intermediaries are used to move and store value, and the decentralised finance world, where crypto-currencies decentralised software protocols are used,” Ehsani says.

In time, he adds, VALR has plans to offer services such as a DeFi wallet, which users can utilise when interacting directly with DeFi protocols.

According to Ehsani, South Africa is a relatively advanced and sophisticated crypto market, with many active participants in the DeFi ecosystem. He points out that several DeFi projects were founded by South Africans; for example, Yearn Finance.

“We have seen significant uptake of trade in DeFi-related projects on our platform. As a result, we have been listing many of the up-and-coming and topical DeFi projects. We’ve listed more than 30 new projects in 2024 already. VALR regularly facilitates trades worth more than R500 million each day, which shows the level of activity in the local market and this is only growing.”

Inherent risks

Hannes Wessels, Binance GM of Southern Africa, believes in the power of DeFi solutions to enhance existing financial services.

“Binance not only offers a platform for trading a wide array of DeFi tokens but has also launched its blockchain, known as the BNB Smart Chain (BSC),” says Wessels.

“The BSC is a boon for DeFi developers. It offers interoperability and programmability, enabling the creation of smart contracts for digital tokens. With its ability to process transactions faster and at a lower cost than many other leading blockchains, BSC has become an attractive platform for DeFi projects.”

However, Wessels says it’s important to bear the inherent risks of DeFi in mind. “While DeFi holds immense promise, it's still a relatively new and rapidly evolving space, not yet weather-tested against all potential market fluctuations or system vulnerabilities. As such, Binance's role is not just to enable DeFi platforms but also to actively invest in safety and security measures and educate users on potential risks.”

At Ovex, COO Luc Varejes says the exchange also offer a range of DeFi tokens.

He explains that these tokens are very different to Bitcoin as most are governance tokens of DeFi protocol’s Decentralised Autonomous Organisation.

“This means that holders of the governance token will actually have a vote in the decisions of the protocol. People who participate in the ecosystem are rewarded with these DeFi tokens which hold value.

“We do see some demand for DeFi tokens on our platform. However, there is quite a big education gap in South Africa when it comes to the world of DeFi. There are much larger education barriers when it comes to DeFi as opposed to standard centralised finance. Most people do not fully understand DeFi protocols due to their complexity and although adoption is growing, there is still a long way to go,” Varejes concludes.