While Africa is often seen as the cradle of crypto adoption, the largest economy on the continent, South Africa, is one of the leading countries in the region in terms of crypto adoption and regulation. The new report published by the local financial regulator highlights the bright prospects for the South African DeFi sector.
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The goal of the study
On Feb. 20, 2025, the Financial Sector Conduct Authority released a study called Market Study on Decentralized Finance (DeFi) in South Africa. The study is based on a survey of crypto asset service providers and aims to assist local regulators to better understand the role of DeFi in South Africa.
The timing is important as South Africa has become one of the world’s leading countries in the DeFi sector in the 2020s. As the sector itself is already shaping the country’s economic outlook, clearer regulation is in demand, particularly when it comes to the relationship between the banks and crypto asset service providers.
According to the study, the estimated annual revenue of the South African DeFi sector is $2.8 million. The main players in the market are retail clients (71%), followed by small and medium-sized enterprises. The key factors behind the sector growth identified in the study are financial inclusion facilitated by DeFi, low transaction costs, and transparency.
The growing significance of the DeFi sector in the local economy brings new risks. The study points them out, citing price manipulation, security breaches of smart contracts, potential platform failures, and fraud as the main threats associated with decentralized finance. The risks outlined in the study include custody risk, oracle risk, liquidity risk, and many more. The study suggests that regulations should factor these risks in to ensure users’ protection.
Respondents believe that the main ways to protect users are associated with improved regulation and educational efforts aimed to elevate the financial literacy of the residents.
The numbers
More than a third of respondents believe that the South African DeFi sector TVL exceeds $27 million, which is not a huge share of the global total but is still significant in the region. Moreover, it is growing rapidly. The overall DeFi market in South Africa is projected to reach $180 million by 2028.
The study reveals the top use cases for DeFi in South Africa. More than half of respondents use crypto for payments, with lending and borrowing coming in second at 47.6%. A third of respondents use decentralized exchanges, and only 14.2% say they use stablecoins. Staking, asset management, and tokenization are three other popular responses.
These responses show that the DeFi sector in South Africa is providing banking and remittance opportunities for residents while serving as a tokenization channel for traditional finance players.
Respondents provided an outlook on the market drivers in the country, citing increasing adoption by mainstream investors (62%), the emergence of new DeFi protocols (43%), the unbanked population (33%), and the declaration of crypto as financial products (29%) as the main factors.
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In general, it’s safe to say that despite the name (Decentralised Finance in South Africa), the report is largely focused on describing the DeFi sector per se so that the regulators (the report’s main audience) would know better how to deal with the growing sector.
South Africa as a significant nascent crypto hub
Sub-Saharan Africa, in general, is a region where the crypto sector is growing rapidly, largely because cryptocurrencies have met the unfulfilled demand for financial inclusion. South Africa, as one of the leading economies on the continent, has become one of the most important crypto hubs in Africa.
The local crypto sector saw important changes in the 2020s as the government implemented a series of crypto-friendly laws. Most importantly, in October 2022, the Financial Sector Conduct Authority declared crypto to be a financial product, making it legal to use cryptocurrency in South Africa, although the ruling didn’t grant crypto a legal tender status. In general, the favorable legal climate has made South Africa one of the nascent crypto hubs in the region and in the world as well.
Local crypto asset service providers are institutions regulated under the Financial Intelligence Centre Act. The AML rules are mandatory for the CASPs operating in South Africa. To control the cross-border movement of value, the country adopted a Travel Rule for crypto assets. It will come into effect from April 2025.
According to Chainanalysis, the South African crypto market was valued at $26 billion in 2023. Last year’s trends included the growing interest from institutional investors seeking custody solutions in the decentralized finance sector. Reflecting the overall African trend of using crypto for everyday payments, the circulation of stablecoins in South Africa outperformed Bitcoin in 2023. The experts from the local crypto industry claim that the elections scheduled for May of 2025 won’t affect a friendly crypto regulatory climate.
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