According to a study conducted by South Africa’s Financial Sector Conduct Authority (FSCA), decentralized finance (DeFi) activities are gaining traction, with projected volume expected to reach $2.8 million (51,561,720 rand) in 2025. The study named retail customers as the primary users of DeFi services, followed by small and medium-sized enterprises.
In a Feb. 20 statement, the financial industry watchdog listed enhanced financial inclusion, increased transparency, and reduced transaction costs as some key DeFi benefits. The statement also highlighted inherent risks associated with DeFi, which include smart contract vulnerabilities, market manipulation, and financial losses due to fraud or platform failures.
The FSCA argues that the lack of “robust” regulatory oversight and clear consumer protection measures leaves users vulnerable and potentially undermines market trust. Highlighting the valuable insights gained from the study, the watchdog said it will continue to closely monitor the sector. Furthermore, the watchdog said it will engage with stakeholders “to develop appropriate regulatory frameworks that support the growth of a safe and inclusive financial system.”
Meanwhile, the FSCA Market Study, which canvassed opinions from 21 cryptocurrency asset service providers, found that 38% believe the DeFi total value locked (TVL) to be in excess of $27 million. On the other hand, 24% of respondents estimated the TVL to be between $2.7 million and $27 million, while a similar percentage said they were not sure. Still, the study report said the South African DeFi market is projected to reach about $180.7 million by 2028.
Turning to use cases, the study found that just over half (52.38%) of respondents identified payments as the key use case, while 47.62% said lending and borrowing. Decentralized exchanges, tokenization, stablecoins, asset management and staking also were identified as other DeFi use cases.
On factors seen driving DeFi in the future, 62% of respondents identified the adoption of cryptocurrency assets by mainstream investors as one such factor. Respondents also identified the emergence of new DeFi platforms (43%) and underbanked or unbanked populations (33%) as drivers of DeFi.
In conclusion, the FSCA Market Study suggested that effective DeFi regulation, and protection of consumers and the financial system can only be achieved via active stakeholder engagement. This can be done via public-private collaboration, consultative documents, regulatory sandboxes, and knowledge exchange activities like workshops.
According to the FSCA, these methods ensure regulatory clarity, transparency, and alignment between authorities and market participants, addressing blockchain concerns and adapting to evolving international standards.
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