Many crypto-natives think of DeFi and big names like Uniswap and Aave come to mind. However, for the everyday person that knows nothing about crypto, those names mean nothing. Why is that? Mostly because DeFis main use cases in 2023 are still targeted at solving needs for the crypto-native. Use Uniswap to swap ETH for your favourite meme coin. Use Aave to take out a loan against your staked ETH to buy your favourite meme coin. Of course I am mostly kidding, but there is some truth here. DeFi is still quite far away from mass adoption. Or at least it feels that way. Being born and raised in North America, we can be quite ignorant to the financial problems that people in developing nations faced. In some places around the world people face:

• Governments and banks stealing their funds
• Inflationary pressure
• High FX conversion rates for illiquid currencies
• Expensive fees on cross-border payments

And for the above reasons, citizens and businesses in African countries are looking to DeFi and crypto more broadly to circumvent the challenges of their existing financial system.

Enter Canza Finance

The team at Canza Finance is building a suite of products that will bring DeFi to developing regions such as sub-saharan Africa and onboard millions of users into crypto.

Canza Finance solutions entail five different but interconnected areas encompassing Cryptocurrency Onramp and Offramps, Crossborder Settlements, Treasury, Decentralized Finance, Crypto Teller Machines, Agent-based banking, and IPFS Storage.

In the future, Canza will offer on-chain asset management solutions before eventually becoming a fully on-chain investment bank.

The Canza team has high ambitions and we could spend hours detailing every area of the business, but for the purpose of this article we are going to highlight Baki.

The Problem with African FX

Currently it is quite tough to operate an intra-African trade network for many reasons. Businesses in countries like Nigeria face a crucial obstacle stemming from restricted access to central bank rates. The Nigerian government has taken it as a matter of pride to artificially keep the &ldquoofficial" FX rate for the Naira low, and only offers this rate to exclusive investors and exporters. This restriction has led to the emergence of fragmented liquidity and parallel rate markets, where trading occurs at substantially higher rates than the central bank rate. Consequently, businesses seeking to engage in local currency transactions may encounter significant limitations in obtaining the necessary liquidity, potentially resulting in additional costs when settling larger transactions.

Introducing Baki

Baki V1 introduces an FX exchange that ensures unlimited liquidity for users. It does this by providing access to synthetic on-chain assets known as zTokens, which are pegged to African currencies. Baki will pioneer the implementation of on-chain African stable coins. Its primary objective is to alleviate the scarcity of US dollars in emerging markets, offering users the ability to enter dollar markets without slippage and at the most competitive rates available in the markets.

By developing a synthetic asset that can be freely traded at the central bank rate, Baki democratizes access to exclusive exchange rates. Additionally, Bakis architecture facilitates infinite liquidity, ensuring that a unit of zUSD can always be exchanged for an equivalent value in any supported currency. This directly addresses the challenges arising from the fragmented liquidity in existing models.

Finally, Baki offers another significant advantage by enabling assets to be natively quoted in local currencies on the blockchain. This opens up opportunities for exchanges to price assets directly in local currencies, eliminating the necessity for fiat-priced on-ramps or assets denominated in US dollars.

Baki in Action

While this all may sound good in theory, lets take a deeper dive into Baki's potential user base and the LP partners that will make all of this possible.

An American construction company is looking to purchase Nigerian Naira for a project. They can either approach and onboard with Jara Network or Baki. Jara Network is a Canza Finance business line which is a typical FX OTC desk (with lower fees than the competitor). This infrastructure will act as the means to onboard future users of Baki as they have a trusted anchor in the real world.

A company that is new to crypto can easily sell their fiat for a zToken (stablecoin currencies from around the world) and then become a Baki user. Furthermore, firms that have other access to crypto can simply use other stablecoins such as USDC to mint zTokens.

If they needed to buy $1m USD worth of Naira, they would deposit $1.5m of USDC to mint $1m ZUSD. They could then use Baki to trade zUSD for zNGN at 80 bps premium to central bank FX rates.

So who provides the liquidity on the other side of the trade?

Baki LPs

Canza agent partners act as LPs that can offer NGN to zNGN swaps. They hold large USDT/USDC positions and therefore have an incentive to mint zTokens.

Baki LPs enjoy access to two notable properties, which offer distinct advantages:
1) They implicitly take a short position on African currencies since these positions are essentially debt positions. This means they can benefit if African currencies devalue in comparison to the US dollar.
2) 50% of Baki transaction fees are distributed to minters as yield, paid in zUSD. Consequently, during periods of volatility in African currencies, there will be excess yield available.

Considering all factors equal, let's assume someone provides NGN to zNGN, with a spread of 75% between the official exchange rate (used as a reference price by Canza) and the parallel rate (at which all P2P liquidity is provided). In this case, the price for 1 zNGN should ideally be 1.75 NGN. However, since the minter earns yield on their position, they should offer it at 1.75 NGN minus the yield they earn to maintain a fair value. Assuming a yield of 30%, they should offer 1 zNGN for 1.45 NGN.

It's also important to consider the implicit short position they hold on African currencies. As a result, they should offer zNGN at a price lower than 1.45 NGN per zNGN. Consequently, given the markets high sensitivity to fees, any entity capable of offering zNGN below the standard parallel market price will be able to capture a significant portion of the market share for FX swaps that provide on/off ramps into zNGN instead of directly into USDT.

In Conclusion

Not all market participants are as privileged as the western world to have the access to robust financial markets and systems. In many emerging markets there are shortcomings that make it tough for consumers and businesses to predict the financial markets they reside in, making it tougher to interact with one another.

Cryptocurrency protocols such as Baki are providing solutions to these problems. DeFi in Africa has the ability to change the financial landscape as we know it, as builders in web3 find creative ways to reduce the friction of these markets and provide them with more autonomy over their financial decisions.

The banking giant recently filed a trademark application for a new generative AI tool known as IndexGPT with the US Patent and Trademark Office, indicating their intention to utilize it in various business areas such as advertising, business consulting, and finance-focused software solutions which also includes crypto based offerings.

The decision to develop IndexGPT aligns with the perspective of CEO Jamie Dimon, who has previously expressed a keen interest in AI. Dimon previously mentioned that the company already has more than 300 AI use cases in production, covering areas like risk assessment, marketing, customer experience, and fraud prevention.

While numerous technology giants are eagerly adopting generative AI tools across different sectors, Apple has taken a different approach by imposing restrictions on the use of ChatGPT and similar tools. This decision was prompted by concerns about the potential compromise of sensitive data. An internal document highlighted specific restriction by Apple on the usage of Copilot, an AI tool owned by GitHub that automates software code writing.
 

The ERC-6551 protocol has introduced token-bound accounts, enabling individual NFTs to function as a wallet of sorts. This innovation was discussed by Benny Giang, the co-founder of Future Primitive and the renowned CryptoKitties NFT collection.

The concept behind this development originated from a collaboration between Giang and streetwear designer Jeff Staple called Sapienz. They sought to reimagine the future of storytelling, streetwear, and fashion through profile pictures (PFPs).

By assigning each NFT its own smart contract account or wallet, which became ERC-6551, a breakthrough was achieved. According to Giang, all NFTs on the Ethereum mainnet, from CryptoKitties to the latest projects, now possess their own account addresses capable of holding various tokens.

Token-bound accounts endow NFTs with two significant properties. Firstly, they can own assets, including ETH, USDC, and other NFTs. Secondly, they can participate in social governance. As Giang explains, NFTs can become signers on multisig transactions, possess their own ENS sub-domains, and engage in voting on proposals.

Giang metaphorically describes this as granting NFTs a passport, providing users access to diverse functions like bank accounts and voting. Taking it a step further, Giang suggests that incorporating AI into NFTs could infuse them with personalities, allowing them to tweet and execute on-chain actions.

Ultimately, Giang views this as a natural progression for human interaction and digital interfaces, facilitating deeper engagement and interaction among users worldwide.

Binance has finally made its entry into the NFT lending space by introducing a new feature on its NFT marketplace. Users can now borrow cryptocurrencies by using NFTs as collateral.

Initially, the feature supports borrowing ETH against blue-chip NFTs such as Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), Azuki, and Doodles. The current interest rate for NFT loans stands at 7.91% per annum, and the loan-to-value ratio ranges from 40% to 60%. Notably, there are no gas fees or Ethereum transaction charges associated with these loans.

Binance launched its NFT marketplace in June 2021 and plans to add support for Ordinals (Bitcoin NFTs) in addition to the existing blockchain systems of Ethereum, Polygon, and BNB Chain.

This move follows the recent introduction of Blend, an NFT lending protocol by the NFT marketplace giant, Blur. Blend allows lenders to determine their own interest rates and loan-to-value ratios, showcasing its rapid growth and potential to revolutionize the lending landscape.

In other news, Binance also recently gained its first Southeast Asian license from Thailand as the team gets ready to launch a new Thai crypto exchange in late 2023.

Binance has finally made its entry into the NFT lending space by introducing a new feature on its NFT marketplace. Users can now borrow cryptocurrencies by using NFTs as collateral.

Initially, the feature supports borrowing ETH against blue-chip NFTs such as Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), Azuki, and Doodles. The current interest rate for NFT loans stands at 7.91% per annum, and the loan-to-value ratio ranges from 40% to 60%. Notably, there are no gas fees or Ethereum transaction charges associated with these loans.

Binance launched its NFT marketplace in June 2021 and plans to add support for Ordinals (Bitcoin NFTs) in addition to the existing blockchain systems of Ethereum, Polygon, and BNB Chain.

This move follows the recent introduction of Blend, an NFT lending protocol by the NFT marketplace giant, Blur. Blend allows lenders to determine their own interest rates and loan-to-value ratios, showcasing its rapid growth and potential to revolutionize the lending landscape.

In other news, Binance also recently gained its first Southeast Asian license from Thailand as the team gets ready to launch a new Thai crypto exchange in late 2023.
 

Starting June 1st, the Hong Kong Securities and Futures Commission (SFC) will begin accepting applications for licenses from cryptocurrency exchanges. The SFC has issued guidelines that prohibit the offering of crypto gifts aimed at incentivizing retail investments, including airdrops. It has also stated that stablecoins should not be allowed for retail trading until they are regulated.

According to the latest consultation on policy recommendations, licensed virtual asset providers will be allowed to serve retail investors as long as they assess the overall understanding of the investors and associated risks. The SFC sought public feedback on its initial policy recommendations in February before finalizing them.

The guidelines place the responsibility on platform operators to conduct thorough due diligence, emphasizing that meeting the minimum requirement of being included in two acceptable indices is not sufficient for listing a cryptocurrency for trading.

Under the new rules, crypto exchanges must also maintain a minimum capital of $640,000 (USD) at all times. They are also required to submit reports on available and required liquid capital, a summary of bank loans and credit facilities, and profit and loss analyses to the SFC on a monthly basis. In addition, approved tokens on regulated exchanges must have a 12-month track record.

The SFC mentioned that it will separately consult on the inclusion of derivatives, which are crucial for institutional investors. Regarding the implementation of the travel rule by the FATF, which involves sharing information on crypto transactions between financial institutions, the SFC will accept delayed submission of required information until January 1st, 2024, if immediate submission is not feasible during the virtual asset transfer.

Ledger, the renowned cryptocurrency hardware wallet manufacturer, recently introduced a new Bitcoin (BTC) key recovery feature, aiming to provide users with an additional layer of convenience and security as it will reportedly enable them to back up their private keys so that they may be recovered if lost.

However, the introduction of this feature has not been without controversy, as experts and critics raise doubts about its safety and effectiveness. More importantly, it is indicative of how Ledger may have violated the trust of its user base with potentially catastrophic consequences.

Safety or violation of trust?

When it comes to user satisfaction and building trust, being technically correct is not enough. It is impossible to overestimate the importance of addressing user concerns and striking a balance between security and convenience, as while the new feature may be useful in the long run as far as Ledger is concerned, the crypto community remains unconvinced and feels betrayed.

Since then, Ledger has responded to the criticism and concerns expressed about their new wallet recovery service. The company talks about the specifics and how it intends to help users recover lost or inaccessible Bitcoin keys. Despite the controversy, Ledger defends the implemented security measures and emphasizes their commitment to protecting user assets.

Still, experts have expressed concerns about the security of the new Bitcoin key recovery feature. They evaluate the technical aspects while also examining potential vulnerabilities and risks associated with the recovery process. Twitter user foobar told his 132,000 followers to stop using Ledger hardware wallets as soon as possible, claiming that the company has shown nothing but gross incompetence and wild misunderstanding of their own purposes. Similarly, Polygon Labs CISO Mudit Gupta informed his 61,000 followers that the new recovery feature is a horrendous idea and that no one in their right minds would support it.

What comes next?

While it is optional, the new feature will split the private keys of the users into three encrypted fragments which would be stored by three different companies, including Ledger. Users who once trusted that it was next to impossible for their private keys to ever leave their Ledger devices are understandably livid with this new feature, as they believe it defeats the purpose of having a hardware wallet in the first place.

As to why Ledger would do this, the official statement was that the feature will make it easy for anyone to own crypto by eliminating the confusing and complicated terminologies and processes associated with private keys and crypto wallets. Nevertheless, many believe that this is indeed a violation of trust and numerous Ledger users are now shifting to alternative options like Argent and Trezor.

G-7 finance ministers reportedly held discussions on the regulation of cryptocurrencies prior to the upcoming Japan summit. The representatives expressed their commitment to adhering to the standards established by the Financial Stability Board (FSB) and the International Monetary Fund (IMF) regarding crypto assets and central bank digital currencies (CBDCs).

FSB will be providing final recommendations by July 2023 and pledged to implement effective regulatory frameworks for crypto assets and stablecoin arrangements in accordance with the appropriate guidance and standards established by standard-setting bodies (SSBs).

Many also expressed their support for the Financial Action Task Force (FATF) and its efforts to expedite the global implementation of the travel rule, which mandates the exchange of information on fund transfers between financial institutions both domestically and internationally.

Everyone involved is eagerly awaiting the progress report by the FATF on the travel rule implementation due to the increasing threats posed by illicit activities like money laundering and terrorist financing, among others.

Furthermore, the IMF will be providing its own recommendations on CBDCs, to be published later this year and discussed during the upcoming summit. The G-7 consists of the United States, United Kingdom, Canada, France, Germany, Italy, and Japan, with additional representatives from the European Union, Australia, India, and other jurisdictions invited to participate in the event.

Ripple has introduced a new platform that enables governments to issue their own digital currencies in the form of CBDCs (Central Bank Digital Currencies). With this announcement, Ripple looks to continue its innovative solutions for digital payments and cross-border transactions.

On May 18th, the launch of the Ripple CBDC Platform took place, which leverages the same blockchain technology used in the XRP Ledger (XRPL). The platform empowers central banks, financial service providers, and governments to holistically manage and customize the entire life cycle of fiat-based CBDCs, including transactions and distribution.

The new platform facilitates inter-institutional settlement and distribution operations for financial institutions utilizing CBDCs. It also enables global central banks to issue both retail and wholesale digital currencies. The capabilities are also exemplified through the e-HKD pilot, a CBDC program initiated by the central bank of Hong Kong (HKMA). Additionally, Ripple is working with Fubon Bank in Taiwan to develop a solution for real estate asset tokenization and equity distribution.

The CBDC platform offers four key features, namely Ledger technology, Issuer, Operator, and End-User Wallets. The platform builds upon the Private Ledger function, which was initially introduced by Ripple in 2021 for CBDC issuance.

James Wallis, VP of Central Bank Engagements and CBDCs at Ripple, expressed confidence in the platform and its ability to address challenges faced by central banks and governments while developing strategies for CBDC implementations. Ripple is also collaborating with several central banks to help establish it as a trusted partner in this space.
 

Many crypto businesses are hoping that a new US Supreme Court doctrine will set a legal precedent that could theoritically force the SEC to step aside, however federal regulators remain skeptical.

In a decision issued last June, the Supreme Court sided with states challenging the authority of the EPA to regulate greenhouse gas emissions. The institution had decided to adopt a formal doctrine that actively seeks to limit the power of federal agencies.

According to the doctrine, Congress should not delegate deciding the fate of extraordinary cases involving matters of significant political and economic impact to federal agencies such as the EPA or SEC.

In its April 2023 response to the Wells notice issued to the exchange by the SEC, Coinbase talked about how the agency has no authority to make crypto decisions unilaterally, especially when it comes to token classification.

In response to the request made by Coinbase for more regulatory clarity in the crypto space, Gary Gensler claimed that this industry has more than enough information to operate within the legal framework of the country.

Gensler further stated that many cryptocurrencies have been non-compliant in the past, and that the SEC has issued rules defining what it means to be an exchange, a broker dealer, an advisor or custody asset, and how to register a securities offering.

Those rules exist, Gensler continued, before saying that there is nothing about crypto or any new technology for that matter which would make it incompatible with pre-existing public policies.

There is an ongoing heated debate amongst Bitcoin developers regarding the censorship of a new type of transaction called Ordinals BRC-20s. This development has also had a significant impact on the mining of Bitcoin, causing transaction fees to surpass the mining reward for the first time in years.

Ordinals BRC-20s are a new type of transaction on the Bitcoin blockchain that allow for the creation of smart contracts on top of the Bitcoin network. These transactions can also enable other blockchain platforms to interact with Bitcoin. However, some developers are concerned that these transactions may be harmful to the overall health of the Bitcoin network, leading to a debate amongst developers on whether or not to censor them.

Ordinals, which require significantly more computing power to process than standard Bitcoin transactions, have been causing mining fees to skyrocket. This has led to concerns among some experts that mining fees may become prohibitively expensive for small-scale miners, causing centralization in the mining industry.

These concerns have led some Bitcoin developers to advocate for a spam filter to be put in place to limit the number of Ordinals transactions being processed on the network. Some have even suggested that all Ordinals transactions be blocked until a solution can be found to mitigate their impact on mining fees.

Despite the controversy surrounding Ordinals, many remain optimistic. Ordinals could help Bitcoin maintain its status by allowing for the creation of more complex smart contracts and enabling interoperability with other blockchains.

Cardano (ADA) is a blockchain platform that is rapidly gaining global popularity due to its focus on scalability, security, and interoperability. Most recently, the Cardano Foundation CEO, Frederik Gregaard, provided some insight into some potential use cases, wherein he envisions a future where Cardano will play a key role in areas such as supply chain management, digital identity, and DeFi.

What has Cardano accomplished lately?

Speaking of DeFi, a new platform called Empowa has been launched on the Cardano network, aiming to tackle the housing crisis in Africa. Empower is a DeFi platform that provides affordable housing loans to low income families in the country, and is fully powered by Cardano.

In addition, Cardano has a scalability solution known as Hydra which recently went live on its mainnet. Hydra is a layer 2 scaling solution that can handle a high volume of transactions per second without compromising the security and decentralization of the Cardano network. This could be particularly useful as Ethereum gas fees continue to surge and people look for an alternative.

What comes next?

Cardano Founder and Ethereum Co-Founder Charles Hoskinson has often gone on record to say that true decentralization is the only solution the world desperately needs and that Cardano has and always will work in this direction. Ultimately, the focus on scalability, security, and interoperability is making it an attractive platform for developers and entrepreneurs who want to build decentralized applications with practical use cases.

With the launch of Empowa and the rollout of Alonzo, Cardano is certainly showing that it possesses the potential to become a major player in DeFi and smart contract spaces going forward. The implementation of Hydra will further solidify its position as a scalable and secure blockchain platform.