Go to Africa to harvest the next Web3 era

Recently, I have paid attention to the primary market of US dollar funds. Generally speaking, the fundraising end is much more difficult than in previous years. One trend is that the fundraising capacity of the Chinese market is starting to lag behind Southeast Asia, and capitals prefer the “emerging market” narrative. In the past , China is the largest emerging market. Now China is not so “sexy”. Instead, it is the Southeast Asian and Indian markets. What amazes me is that the valuation of projects in the Indian market with a very low unit price is surprisingly high, whether it is traditional Internet or Web3, the primary market is extremely hot.

But when it comes to newness, who can be newer than Africa?

The following is the text:

Have you ever wondered why most internet technology companies are influenced by Silicon Valley?

I have a theory because the telecommunications industry in the U.S. was already very well-aggregated at the time of the internet. While Napster was wreaking havoc in the music industry, the physical infrastructure needed to bring AOL (AOL) into people’s homes was already in place. Since the largest market for the Internet is the United States, most of the capital financing and initial innovations come from this region.

Consider what happened in the late 2000s. As mobile devices become cheaper and connections no longer depend on physical wires, emerging markets around the world are coming online, which means each market has competition from local variants. In Indian e-commerce in the mid-2010s, I saw Amazon and Flipkart (acquired by Walmart) compete, Uber had to make concessions to Didi in China, and Careem competed with Uber in Dubai, where I now live.

The chart above supports this claim. Until the mid-2000s, much of the world was far behind North America.Despite China’s low internet penetration, there is still a lot of venture capital, due to the country’s population four times that of the United States and the large flow of talent between China and Silicon Valley.

Why am I saying all this? Because a new form of networking is rebuilding the internet. When Web1 and Web2 took off, many of the emerging worlds were left behind – they were still trying to connect, but that has changed.

Web3 was the first evolution of the web, and everyone started at the starting line. North America has a strong financial market, Europe generates incredible research innovation, and Southeast Asia and Africa, when we look at the application layer like Axie Infinity, we see that they have a large number of consumers.

My view is that in the next phase of Web3, regional markets will create independent competitors that best appeal to local cultures. Of course, there will be exceptions that benefit from network effects and scale, but those that fit the local culture are more likely to be created by locals who better understand local nuances.Coinbase, for example, took a step back from India after being pressured by regional regulators.

If so, Africa could be the next big market for blockchain. Over the past few weeks, we’ve learned about the region and startups emerging from several countries, some founders have shared their experiences with us, and this is what we found.

regional differences

Let me start by stating that this article is almost entirely from the perspective of startups and technology.There are 54 countries in Africa, and this article is limited to observing only four of them.

Africa is a vast continent with vastly different cultures, and I’m not the best person to comment on the complex geopolitics of the continent, nor am I a social scientist, so we won’t discuss non-financial or network metrics. The largest countries in the region in terms of gross domestic product (GDP) are Nigeria, South Africa, Kenya and Ghana. Today, most of the internet stories in the region focus on Nigeria. In terms of teams accepted by Y Combinator, the country currently ranks third behind the US and India. Startups from Africa received $5.2 billion in investment last year.This is a 20-fold increase from the amount raised in 2015 ($275 million).

This growth is healthy, considering the region has only seen around 3,300 rounds since 2015, compared to around 73,000 in the US. With its strong corporate law and tax structure, Singapore attracts venture capital activity (around 3,300) comparable to that of Africa as a whole.

As a result, venture capital is at a low level in the region, while several countries have a much higher GDP than the rest of Africa. So, what are the opportunities here? I believe these two factors contribute to the ecosystems in these areas. The first is that the Internet is very popular in these areas, and I see extremely steep growth curves, and more people in the population of the area are starting to go online.

In 2006, about 70 percent of the U.S. population was online; as of today, that number is about 82 percent, compared with 70 percent in China. By contrast, Kenya has grown from just 11% of its online population in 2011 to nearly 30% in 2020, and Ghana appears to be growing faster, with nearly 60% of people online over the past decade.

In addition, in the four countries I mentioned, there is an increasing proportion of people storing funds in financial institutions. 80% of the population in Kenya has bank deposits, Ghana has close to 57%, and the African average is around 40%. We’ve been talking about banking the unbanked as long as we’ve mentioned emerging markets.

Thanks to the rise of mobile networks, the infrastructure needed to bank the unbanked almost already exists in much of Africa. What is needed now is more ways for those with access to the internet and financial services to increase their income levels, and that’s what Web3 is all about.

Previously, I wrote an article on Aggregation Theory and Web3. The core point of the article is that blockchain reduces the cost of verification and trust. Historically, it has been difficult for emerging markets to obtain higher premiums. Local various friction.

This includes corruption, fraud, but this brings me to my second reason for being bullish on Africa. I believe that blockchain will enable lower verification and trust costs in the region, higher revenue, faster processes.

The most authoritative statistics on Africa comes from Chainalysis’s Crypto Geography report. Between July 2020 and June 2021, crypto transactions in the region totaled $106 billion, accounting for less than 3 percent of total global crypto transactions. On average, about $20 million is traded through P2P exchanges every day, with an annual transaction volume of about $7.5 billion, still very early days.

A few years ago, Binance clearly saw this as an opportunity and set up a branch in Uganda in 2018. Yele Bademosi joined them as a director, responsible for finding and leading blockchain ventures in the region.Today, he runs Nestcoin, a venture capital arm dedicated to helping businesses in the region focused on DeFi, the Metaverse, and digital arts.

When we were researching these, we asked him, what are the factors driving the development of digital assets in Africa?

1. Income – Africans have embraced cryptocurrencies as it can create other sources of income. The informal economy, made up of drivers, fishermen, open-market traders and small and medium-sized enterprises, accounts for about 70 percent of sub-Saharan Africa’s economy. Unemployment among young people is between 25% and 60%, and the internet offers an alternative that today’s regional markets cannot.

2. Hedging inflation – Since 2008, the exchange rate of Nigeria’s Naira has risen from $0.008 to $0.02. Over the past 15 years, it has lost 80%.

Kenya has experienced a similar fate, with the value of its currency down nearly 50 percent over the past decade. Furthermore, due to government restrictions, Nigerians cannot protect their wealth by saving in dollars or investing in foreign markets.

“The purchase limit for buying things abroad or investing with your Nigerian card is $20 per month, which is crazy. With that limit, you can’t even pay for Github and Zoom,” said Ugo of Xend Finance, which is run by Binance and Google Launchpad-backed startups focused on offering interest-bearing accounts through stablecoins.

3. Currency Exchange – One would think that having a large customer base in a small area leads to lower costs. But if the numbers are any indication, that’s not the case. As previously mentioned, there are approximately $48 billion in remittances in sub-Saharan Africa. Nigeria accounts for about half of that.Despite the high volume and concentration of remittances in a small area, the average remittance cost is still between 7% and 10%.

For a better remittance solution, learn about Chipper Cash, which is valued at over $2 billion and has 4 million users by offering free cross-border payments. It recently raised $250 million in a funding round led by FTX. Chipper has not yet used P2P remittances as a model, but it is likely in the future.

Finally, we listed 48 startups in the African crypto ecosystem, and then screened out 34 of them, which are businesses that have raised at least $100,000.

Of the roughly $5.3 billion spent in venture capital in the region, only about $170 million went to crypto-native companies — just 3 percent. Only one company is valued at Series B levels (Valr). Of the 30 companies we track, 20 are still in the pre-seed stage or seed round, and 5 are in the Series A stage. The majority of capital financing in Africa is concentrated in the fintech ecosystem. Web3-native companies have similarities too, with most of the money going to payment processors, remittance companies, and exchanges.

Of the ten highly valued blockchain-related businesses in the region, only two are exchanges, Yellowcard and Valr. We have observed that capital has instead poured into other ways of bringing people into the crypto ecosystem. For example, Jambo raised nearly $40 million from companies like Paradigm, Alameda, and Coinbase. They are focused on being a super app in the African region, and apps like Jambo are critical to bridging the cultural gap between local users and Dapps built off several continents.

Another way that apps penetrate the market is to simplify the process of saving digital assets. These apps may not necessarily easily hype the price of Bitcoin or Ethereum, but can help users save a basket of crypto assets. Xend and Revix are currently focusing on this. model.

These apps reduce the amount of work required to sift through quality assets, I recently invested in Coinmara’s $23M VC round through LedgerPrime to support the same vision, I see them as a 1 billion user in emerging markets The next crypto portal.

Six of the 10 highest-funded African Web3 startups have South Africa as their home base, three in Nigeria and one in Congo. This concentration of start-ups can lead to agglomeration economies. We see startups concentrated in Silicon Valley, Bangalore or Singapore as the presence of other startups in the region lowers the cost of setting up a new venture.

For example, of the 30 startups we tracked for this article, 18 are in Nigeria, which is partly due to the flow of talent. According to Google’s African Developers Report, only about 9% of the region’s 700,000-plus developers are proficient in blockchain development, so talent is concentrated where other talented people are.

Investing in founders who have worked in big tech companies is a common way of investing these days, and individuals who work in other centers and move back to their African hometowns tend to raise more money.A recent analysis by Big Deal showed that founders who only had exposure to regional ecosystems raised less money than their overseas-educated counterparts.

How little? Only about 28 percent of funding goes to founders educated in the African region, with capital favoring founders who work or study abroad. Now, as African founders start investing in other founders from Africa, that problem is being addressed. This is one of the hallmarks of ecosystem development.

a glimpse into the future

So far, we have observed that more and more Africans are going online, using digital banks, and investing more and more capital into Africa. But what does the future look like? I think the big opportunity in Africa is to leapfrog their digitization, remember how I hinted at convergence theory in the context of emerging markets earlier in this post?

As payments become less reliant on traditional bank branches and jobs become more digital, income levels in Africa will rise significantly, and we’ve seen this with a small percentage of artists in the region making a living from NFTs.

Another area that makes sense to take off is gaming. Although still in the early stages, we are likely to see the P2E ecosystem in the region take off. Mvm.gg is a gaming guild focused on the region, and the game itself may not create a sustainable livelihood, but it allows individuals to earn the fees they need to improve other skills.

You can rightfully argue, “Okay, that’s cool, but not everyone plays games or sells NFTs”. This is stupid. My observation is that these transitions from gamers and artists are just transitions in the early stages. As stakeholders in the region see the possibilities blockchain brings, we will see their application in more traditional and rigid industries, the most immediate case being agriculture.

Any idea why Kobe beef, Parmesan or Spanish Iberico ham are so expensive? These items can only be considered authentic if they were produced in a specific region of the world. Restricting production to specific regions allows items to remain authentic while reducing supply and raising prices. It’s no secret, but historically, societies with low trust levels like India have struggled to command high premiums for their goods.

Part of the reason for this is the level of fraud, tampering and mismanagement of goods in the supply chain.Integrating blockchain (and sensors) in supply chains can help restore trust in the system, thereby increasing the consumer base of these commodities. This is not some far-fetched utopian vision. IBM has an enterprise solution that already tracks merchandise on the blockchain. Last year, E-Stock Global partnered with MasterCard to store cattle-related data on-chain.

Startups such as Chekkit have also been helping consumers understand how their products are sourced, shipped and sold. Of course, the challenge of fixing agriculture through blockchain will also require massive coordination between cooperatives and national governments.

Another way to open up opportunities is by empowering individual citizens to make the transition to web3.

From what I understand, platforms like Questbook, Gitcoin, Mirror, and OpenSea are enabling individuals to create verifiable bodies of work and connect with individuals. It is not far-fetched to believe that one’s skill set can be identified by on-chain assets such as NFTs in the future. If so, the region’s youth talent could soon benefit from building an online presence.

This is already happening in India. SuperteamDAO, to help individuals find meaningful work in vetted projects on Solana through donations and bounties focused on using the product. So far, they have handed out nearly $450,000 in grants. They are critical to lowering the barriers to entry for talent flow to Web3 and connecting great job opportunities with hungry talent.

Historically, trends like remote work have benefited knowledge workers who already have access to strong educational institutions. These are not signals of skill, but of reputation.

Earlier, the only way to gain this “knowledge and reputation” was to gain admission to a university by examination, or to be able to afford an education at a large university. Web3 more or less offers a new option.On-chain assets, such as NFTs given by doing courses, reduce the time and effort required to acquire skill reputation.

I’ve seen this change, analysts are hired almost entirely based on their Dune dashboards, and platforms like Rabbithole.gg and Layer3.xyz are making these on-chain credentials available to everyone with a computer.

Investment Opportunities

Every once in a while, I see well-known investors from the US mention that they are bullish on India. It’s easy to do when you’re not dealing with all the red tape and bad traffic in Bangalore, but it’s hard to be optimistic when you’re living in hardships that are barely visible to most foreign investors.

This post is also full of blind spots, as I have not built in Africa and I am not the expert that the founders there consulted.

From what I understand, African ecosystems are severely underinvested. Of the roughly $5-60 billion in crypto venture capital (including ICOs), only about $170 million was invested in Africa. This doesn’t look right given the number of people online and the fact that the region has one of the youngest populations in the world.

The opportunity for Africa lies in investing in a generation capable of working, earning and spending online.They will be able to reduce the reliance on traditional intermediaries through Web3, bring mundane, broken and fragmented processes into transparent, open and verifiable ledgers, like the agricultural use cases I mentioned, that will create value. All of these require financial infrastructure and technical knowledge. That’s why VCs have been fumbling around in Africa.

Last year, Chainalysis mentioned that the user base of the digital asset market has grown 12 times in one year. You could say it’s a base effect, but unlike India, China or the US, the WEB3 leader in Africa has yet to be determined. No one knows which application or business will dominate. So Africa’s opportunity depends on two things. One is that the ecosystem is catching up with the rest of the world; the other is using technology to disrupt traditional intermediaries in the region, paving the way for more economic activity.

I don’t think Web3 is a panacea for the system’s problems in the region – but it gives people a path to alternatives that didn’t exist before.

A famous article from the 1970s called “The Market for Lemons” explained how a lack of trust between buyers and sellers can lead to market crashes.

The most important limitation in emerging markets is the lack of insurance or remedies if economic interactions go awry, blockchain reduces the level of friction involved in enabling trust on a global scale, and properly implemented technology can reduce our reliance on unnecessary middlemen .

Change – in my opinion, will happen in two ways. The first is a bottom-up approach, where people transition to Web3 in pursuit of higher income. As you might have guessed, the second way is through policy changes at the government level. Given my own experience in India, I bet the former should happen first.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/go-to-africa-to-harvest-the-next-web3-era/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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