- According to Jocelyn Cheng, there are many practical uses for cryptocurrencies in emerging markets.
- Cheng says cryptocurrency could reduce remittance costs and open up access to loans in those markets.
- This article is part ofMaster your codingA series of Insider helps investors improve their skills and knowledge of cryptocurrency.
The cryptocurrency crash has slashed the value of assets like bitcoin and ethereum, but some investors say it has also provided opportunities to support companies at the forefront of emerging trends in the Web3 space.
Jocelyn Cheng, CEO of London-based Luno Expeditions, believes that many of these opportunities lie outside the United States. Her company, the investment arm of Luno, a cryptocurrency investment firm, has invested in 30 Web3 and fintech companies in 15 countries, including Nigeria, Kenya and Pakistan.
Several Luno wallet companies, including Kotani Pay, a crypto-payments startup, focus on clients in emerging markets such as Africa, South Asia and Latin America.
Insider spoke with Cheng about where she believes crypto applications are poised for growth globally.
This interview has been shortened and slightly edited for length and clarity.
What areas within crypto are most exciting to you right now?
We are still seeing a lot of interest in the stablecoins. he was there Very general stablecoin blast, but the basic tool for emerging markets is still there. They have become popular not only because they make a good transition from fiat currencies to cryptocurrencies, but also because they are by definition pegged to a stable asset like the US dollar.
They are able to help counteract price fluctuations, especially for emerging market investors. Historically, to access US dollars, they had to incur significant fees. With stablecoins, the benefit is that they make access to the US dollar more accessible to everyone.
What is the use case for stablecoins for the average person in the emerging market?
I’ll give you a personal example, if it works well. Many years ago, I lived in Tanzania and was renting an apartment. I had a US dollar account in the US, and they asked for my US dollar rent in cash. But because I was in Tanzania, I had to go to the automated teller machine - and withdraw the Tanzanian shilling from my US dollar account.
This was the only option. I had to pay ATM fees, foreign transaction fees and out-of-network fees, and had to take these Tanzanian shillings and take them to a local forex dealer just to exchange them for US dollars for delivery to my landlord. Then the landlord took that US dollar cash and had to do basically the same thing to deposit it into his local account.
We believe that the advantage of owning stablecoins is the ability to make this process simpler. We have invested in companies like Caliza, a B2B company that provides fintech companies with the infrastructure to offer synthetic US dollar accounts using stablecoins. The customer can deposit the local currency, where it is converted into a stable currency such as USDC, held by the custodian providing direct access to US banking.
Are there any other opportunities you see for cryptocurrencies in emerging markets?
There is a great opportunity for cryptocurrencies to provide better international payment methods. Remittances are the source of income for nearly 800 million people globally. I think cryptocurrency has a really important ability to make transfers faster and cheaper.
In the traditional method, it can take up to five days, and on average, it can cost 7% to transfer $200. On the other hand, crypto allows funds to be transferred within minutes from one wallet to another. The user-to-user fee is solely based on the blockchain transaction fee.
In some of the pilots we’ve seen using cryptocurrency as a conversion line, we’ve seen that transaction fees are really reduced. There is a company in our portfolio called Kotani Pay, which is testing cross-border payments for gig workers in Kenya. With crypto, they reduced transaction fees by 93%.
We’ve also seen other companies that are a bit more advanced than our early stage focus. Other companies such as Coins.ph and Aza Finance operate in emerging markets and use cryptocurrency for remittances. They offer a much lower cost: 1% to 4%, rather than the global average of 7%, and they take minutes to settle instead of five days.
What specific benefits does encryption offer over other technologies?
Simplifies the whole flow. If you are looking for instant settlement or very fast settlement, this avoids the need for the provider to have huge cash reserves in the destination countries.
Ultimately, a last mile payout is needed for the recipient. There is a need, for example, to integrate with mobile money or, in some cases, 7-Eleven - wherever the meeting point is in the last mile for recipients. So it’s important to integrate with non-encrypted systems as well, but encryption provides a faster and cheaper rail for the cross-country segment.
That’s one of the things we’re really excited about, working with Kotani Pay, the company I mentioned earlier. They do not need internet access to connect to the blockchain. This is important because in Africa, about 50% of people still use feature phones. So the user does not actually need to see the cryptocurrencies in order to be able to get the benefits of crypto.
Kotani Pay connects blockchain protocols to local payment channels using USSD services, which are the dominant channels for mobile money payments. So customers with access to these local payment channels can transfer money using feature phones.
Do you think most people will end up interacting directly with cryptocurrencies, or will it just be in the background even as more people start using these services?
I think, for sure, we will see more and more people interact directly with cryptocurrencies globally. But I think we can also design for a world where people have the benefits of encryption but don’t need to know what NFT is or what private keys to their wallet are.
One thing that we think is very interesting, but still very emerging, is to have cryptocurrency - more specifically DeFi Providing a more efficient source of capital for financing in emerging markets.
We’re seeing some early stories emerge: for example, Goldfinch, which isn’t a portfolio company but we’re very interested in. It has enabled borrowing by more than one million people in business across India, Mexico, Southeast Asia, and Nigeria, and has over $100 million in active loans.
Goldfinch works with existing lending companies that deal with loan creation and services, so no real behavior change on the borrower’s part is required. But then these lenders are able to tap into global credit pools using DeFi, withdraw stablecoins from the pool, and spread them on the ground in their home markets.
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