South Africa’s decentralized finance (DeFi) market is expected to reach 378,000 users by the end of this year, a new study by the country’s financial industry watchdog says.
“Market Study: Decentralised Finance in South Africa,” was conducted by the Financial Sector Conduct Authority and delved into the growth of DeFi in the country and the opportunities and risks consumers face.
The study, which involved 21 DeFi services operating in South Africa, found that the DeFi market hit $116 million in 2024. It projects that the sector will record a compounded annual growth rate of 11.82% to hit $180.7 million by 2028.
Retail investors dominate DeFi in South Africa, accounting for 71% of all activity, FSCA found. Small and medium enterprises (SMEs) boast a 19% share, almost twice as much as bigger enterprises. This distribution is not a surprise: since DeFi is loosely regulated, most big enterprises have steered clear in fear of regulatory repercussions.
South Africa’s DeFi growth in 2024 aligned with the global growth in the sector as DeFi platforms benefitted from a two-phased bull market last year. Between October 2023 and May 2024, the total value locked (TVL) in DeFi smart contracts tripled to $107 billion. A dip followed, but a ‘crypto’ bull rally towards the end of the year, sparked by Donald Trump’s election in the U.S., pushed it above $138 billion in mid-December. The record was set in 2021 at $180 billion.
DeFi lumps several diverse digital asset use cases together. In South Africa, payments were the most common DeFi application, with lending and borrowing, decentralized exchanges (DEXs), tokenization, and stablecoins being the other popular use cases.
In payments, non-custodial Web3 wallets were the fastest-growing DeFi trend in 2024, FSCA revealed.
“This innovation has now made it simpler for South African customers to purchase crypto assets from fiat into their wallet and vice versa, through local banking infrastructure. It also allows individual customers to swap their fungible tokens, such as crypto assets, for other fungible tokens,” the Authority said of self-custody wallets.
DeFi for financial inclusion in South Africa
Despite the rapid growth over the past year, DeFi remains a minute part of South Africa’s financial sector. With a population of 64.4 million, the 378,000 DeFi users only account for 0.59%. The $2.9 million in revenue DeFi platforms generated last year is also a drop in the ocean compared to the $6.2 billion the country’s four largest banks alone generated in 2023.
However, it’s a positive start and could lay the foundation for financial inclusion in a country where a third of the population is underbanked.
The FSCA study shows that South Africans rely on DeFi to solve some of the challenges plaguing underbanked nations, such as a lack of access to credit and overreliance on cash. DeFi-based lending and borrowing allow users to bypass legacy financial institutions, which are skewed against low-income customers and access credit facilities directly in a peer-to-peer platform.
Tokenization, the fourth-highest DeFi use case on the FSCA study, also opens up financial inclusion opportunities for South Africans. Tokenized assets on a public enterprise blockchain are easily divisible and easier for retail investors to access. For instance, a real estate project which costs millions of dollars and would have been inaccessible to retail investors can be fractionalized and sold as tokens.
To capitalize on these benefits, South African regulators must implement enabling policies for the sector, the FSCA report acknowledged.
“If South African DeFi evolves in a way that protects consumers and builds trust, it could support competition and financial inclusion, decreasing dependence on traditional financial intermediaries,” the Authority noted.
Among the policies limiting DeFi adoption is a stipulation prohibiting South Africans from exporting capital outside the country. According to the central bank, this includes purchasing digital assets on a local exchange and sending them to a DeFi wallet address on an offshore platform. Violating this law could imprison investors for five years, incur a $13,600 fine, or both.
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