In emerging markets, cryptocurrencies fueling decentralized finance (DeFi) have achieved what the traditional centralized financial system couldn’t — driving the economic upliftment of the population by making financial products accessible to all. Cryptocurrencies have helped alleviate many CeFi pain points: a middlemen-oriented, cost-heavy transnational payment infrastructure, a hyperinflation-stricken native currency vulnerable to devaluation, and incompetent and expensive or, in some cases, non-existent banking systems. Adding to that list is another pain point that’s easily taken for granted: the need for personal identification. In many emerging markets, even getting a legal birth certificate can be difficult — leading to entire communities being shunned by typical financial institutions who will always require a proof-of-self.
According to the World Bank, the cost of sending $200 to countries in sub-Saharan Africa averaged 9% of the transaction value in the first quarter of 2020. However, on peer-to-peer (P2P) cryptocurrency networks, like Paxful and LocalBitcoins, these fees averaged around 3.5%, with little to no KYC guidelines necessary — making a clear case for why people in emerging markets have started adopt the decentralized finance as the easier, cheaper, and more easily available counterpart to centralized finance (CeFi).
In the Philippines, a new class of cryptocurrency adopters emerged in 2020, when Axie Infinity, a blockchain-based play-to-earn (P2E) game, presented a viable revenue model for the financially underprivileged and the unbanked. For household helpers, barangay officials, parking attendants, members of a working class whose minimum wage hovers around $200 per month, spending the time to learn the intricacies of the game would prove to be worthwhile, as this new revenue stream promised to double or triple their monthly salaries just by playing a few hours per day. This is how the P2E phenomenon spread like wildfire to other emerging economies like Vietnam, Venezuela, and Brazil, where many, in this new segment of adopters, hadn’t even heard the word “cryptocurrency” before.
The success stories surrounding the P2E gaming space have piqued the interest of many, seeking their slice of the pie. This article aims to serve as a guide for those entering the DeFi space for the first time, providing a high-level view into the DeFi space: from buying cryptocurrency with fiat, storing funds on the blockchain, earning through cryptocurrency, to converting cryptocurrencies back to fiat.
Cryptocurrency P2P Exchanges
Peer-to-peer marketplaces like Paxful, Binance P2P, or LocalBitcoins have often served as the gateway to the world of cryptocurrencies for individuals in countries lacking advanced financial products. These exchanges allow users to buy or sell cryptocurrencies, supporting multiple payment options, including physical cash transfers between a local buyer and a seller. These exchanges can also be used to transfer and receive cryptocurrencies through mobile wallets integrated with local cash-in and cash-out agents and kiosks — also working as escrows, holding the funds in their custody until the transaction is complete, to avoid fraud. However, P2P marketplaces are not completely foolproof against fraud. Users must follow their own safeguards, as with any financial transaction: checking the seller’s ratings and feedback and waiting for the cryptocurrency to be sent to escrow before releasing the payment, and setting up a hardware wallet like Ledger Nano S to transfer your crypto assets into from the P2P exchange prevents losing your funds in the slight chance the exchange gets hacked.
Centralized Cryptocurrency Exchanges
Centralized exchanges (CEX) offer better liquidity, have advanced trading options and take shorter trade time than their P2P counterparts. These exchanges provide easy on-ramping and off-ramping from fiat to crypto and vice versa through a linked bank account. Those without bank accounts can also access the cumulative functions of these platforms through their P2P marketplaces that are integrated with specific mobile wallets.
It is recommended for those newly transitioning into the crypto sphere to understand CEX first, mainly because profit and losses are still being realized in local fiat and have familiar touch points to traditional financial institutions, making it easier to digest. The familiarity of CEX also translates to its disadvantages: as it is also a centralized body, users will not have complete control over their funds. Centralized exchanges will have access to a user’s private key — a combination of words or characters that take the place of a personal identification number. They will also usually require KYC documents, which pose two problems: in many emerging markets, getting legal identification documents is already a pain, and these data points can also be compromised in the event of an attack.
Enter Decentralized Cryptocurrency Protocols
The primary spirit that drove the cryptocurrency revolution was complete economic freedom without a central authority controlling finances. Decentralized cryptocurrency protocols do exactly this — allowing users to conduct transactions in a permissionless, trustless manner.
Unlike centralized exchanges, individuals can use decentralized exchanges with complete autonomy. Users need not submit their KYC details, making them permissionless, nor do they have to trust the protocol to protect their funds. Instead, they can store their funds in non-custodial wallets like Metamask. Decentralized exchanges such as SushiSwap, UniSwap, and dYdX maintain a public ledger, making them fully transparent.
Web 3.0 Wallets: The Portal to DeFi
Web 3.0 wallets like Metamask, Coin98, or Trust Wallet act as the bridge between the traditional centralized cryptocurrency space and the world of decentralized apps (Dapps) and non-fungible tokens (NFTs). These wallets come with multi-chain functions, meaning they can interact with Dapps distributed across various blockchains. For example, Metamask supports chains like Binance Smart Chain (BSC), Houbi Eco Chain, Polygon, Phantom Opera, KuCoin Community Chain. Trust wallet supports BSC, Ethereum, and Polkadot. The multi-chain function of these wallets allows users to switch between networks and avail services based on network fees. For example, a user can select a lending/borrowing service on the Polygon network over a similar service on the Ethereum network that often suffers from network congestion and high transaction or gas fees.
The Advent of Play-to-Earn Gaming in Emerging Markets
For the longest time, the DeFi space had been the playground only of those who understood its inner workings. Participating in the space almost required a tech background, or at the very least, in-depth research on how elements worked — smart contracts, protocols, liquidity pools. This created a massive barrier for a lot of potential users to enter the space. But eventually developers found ways to gamify the space, and even include actual playable games, with an earning component. GameFi apps opened the door for those who weren’t particularly interested in cryptocurrencies the way investors are, but who are curious enough to learn while they play an enjoyable game.
Axie Infinity set the global benchmark for the play-to-earn mode, with people from emerging markets flocking to it for two reasons: the challenging nature of the game, and making it a supplementary revenue stream. The game has become so successful that many of its players have been able to let go of their full-time corporate jobs to focus solely on the game, and managing or being part of the Axie Infinity Guild system.
This new set-up poses a new set of questions, particularly since this new class of play-to-earn gamers entered solely through the frontage of their chosen game, with many of them even learning the term “cryptocurrency” for the very first time through it. “Great, I’ve now earned all of this internet money, how can I use that to buy detergent at the corner store?” “Why can’t I just claim it at a remittance kiosk?”
While DeFi, with its many benefits like autonomy from the traditional financial system and complete control of your own money, is set up in a way that users wouldn’t need to convert the currencies they have into fiat, staying within the DeFi sphere. But play-to-earn gamers, coming from different municipalities in emerging markets, still have real-world necessities that they cannot currently pay for in cryptocurrency. They are forced to go through a difficult process of engaging a P2P marketplace seller, who will not always have their best interests at heart, to sell their tokens in exchange for fiat. This exposes them to a new set of risks, in addition to the multiple gas fees they incur from having to participate in this process.
Enter XLD Finance with its array of solutions which would help users sidestep all these problems. XLD Finance, built on the idea of financial inclusion, particularly for users from emerging markets — enables the free, convenient, and safe movement of assets between DeFi and CeFi. xSpend, the recently launched project allows play-to-earn gamers, who make 50% of the DeFi users, to use their in-game tokens, like SLP, and stablecoins to pay for real-world services or items. Users can buy mobile prepaid credits with their SLP and stablecoin and also pay merchants like Shopee and Grab (specific to the Philippines) — -with more in-game tokens and real-world merchants to be integrated in the coming year. xSpend is currently available to users in the Philippines, India, Indonesia, Bangladesh, and Malaysia.
To learn more about the XLD Finance ecosystem and be alerted for future updates, please visit our website, or follow us on Discord, Twitter, Medium, LinkedIn, and Telegram.
