2022 has been a “cold” year for the crypto industry – crypto prices collapsed, Terra’s USD stablecoin crashed and last month, the FTX crypto exchange filed for bankruptcy. The resulting contagion affected crypto-lenders such as Genesis Trading, Gemini and Galaxy (and there is a possibility that other crypto trading venues may fail in the near-future).
To the outside observer, it is easy to conflate the FTX failure as a failure of crypto or more broadly blockchain/web3 (perhaps akin to attributing the dot com busts in 2000 as a failure of the internet). In my opinion, this is not the case, the FTX failure was a failure in governance, risk management & fiduciary duty. It was a failure resulting from centralisation and not a failure of blockchain technology.
How can this be avoided in the future? Distributed ledgers do need governance that is responsible and transparent e.g. proof-of-reserves. In particular, centralised exchanges (CEX) as compared to decentralised exchanges (DEX) do require some guardrails of sorts – e.g. periodic stress testing (liquidity risk & counterparty risk) and reporting. The hope is that regulators come forward with sustainable and not draconian measures as a result of knee-jerk reactions, and trading venues move more towards transparent governance and reporting.
One of the recurring questions in the wake of the FTX failure (together with the others from 2022) is whether crypto has any real-life utility. I wrote a post on crypto utility, financial inclusion and stablecoins where I cite real-life projects (Mandla Money, Stellar Aid Assist) that are using stablecoins to drive financial inclusion and/or deliver humanitarian aid – proving that crypto does indeed have utility apart from speculation.
Although much of 2022 has been crypto winter and dominated by bad press, I share the same sentiments with Pershing Square’s Bill Ackman that “crypto technology’s potential for beneficent societal impact may eventually compare with the impact of the telephone and internet on the economy and society.“
Is there any utility in crypto? This is a recurring question from crypto sceptics, who tend to argue that there is no utility outside of speculation. In this post, I give 2 examples in which crypto can be used to drive financial inclusion in emerging markets – particularly through the use of stablecoins (a cryptocurrency whose value is pegged to another asset class e.g. USD Coin (USDC) which is pegged to USD). Worldwide, there are 2 billion unbanked adults, and these fall into the financially excluded category. According to the South African National Treasury, financial inclusion is the provision and use of affordable and appropriate financial services by those segments of society where financial services are needed but not provided, or they are inadequately delivered.
Case 1 – Mandla Money SMS Wallet. Firstly, in September 2022, I gave a talk at the Apex Developer Conference (hosted by Ripple & XRP Ledger Foundation) in Las Vegas on how crypto-assets can drive financial inclusion in emerging markets (click here to watch). In my talk, I made reference to one of the innovative projects that I have been involved with – Mandla Money SMS Wallet – which is a digital wallet that allows users to receive, transact and store value using digital assets via SMS (text message), with no need for a smartphone or an internet connection. The Mandla Money SMS Wallet is built on top of the XRP Ledger (XRPL) which is a decentralized, public blockchain that is fast, energy efficient, and reliable. By making use of stablecoins issued on the XRPL, together with SMS technology which has been around for a while, anyone with a mobile device (including feature phones) has a means to access previously unavailable financial services.
Case 2 – Stellar Aid Assist. More recently (December 2022), Stellar Development Foundation announced the launch of Stellar Aid Assist which makes use of stablecoins to deliver digital aid at scale (e.g. in Ukraine). According to the Stellar team, cash-based interventions serve as a lifeline to millions worldwide in support of basic needs and Stellar Aid Assist – which is fast to deploy and rapidly scale to meet a moment of crisis – gets money into the hands of those who need it, quickly and at low cost.
Considering that there are 2 billion unbanked adults worldwide and that it is possible to send crypto-assets in low-tech environments (where there are no smartphones or internet access) using blockchains such as XRPL, Algorand & Stellar, it is clear that there is a real opportunity to drive financial inclusion in emerging markets through use of blockchain payment rails and stablecoins. So, is there any utility in crypto – I believe the answer is a resounding YES!