Despite advancements in Web3 infrastructure and a more friendly view of regulators around the world on Web3 technology with MiCAR coming in Europe, and countries such as Singapore putting regulatory frameworks in place, DeFi is still failing to provide real value to end-users around the world. In this article based on a talk at ETHMilan, I want to touch on the reasons behind this.

Decentralized Finance, or DeFi, is an umbrella term for decentralized peer-to-peer financial services, where no centralized third-party, e.g. no centralized managed bank, needs to be involved. In many countries in the global north, with mature financial systems and elected institutions working on price stability to maintain economic growth, there is no pressing need for DeFi. However millions of people in the world today are excluded from those systems. While many projects in the Web3 space boast “financial inclusion” on their flags, recent developments in the ecosystem show that the industry failed to deliver on that promise. Even folks in Web3 do not use stablecoins for payments, or DeFi platforms for short term-credit, as they have access to credit cards, cash and even their phone as a means of payment, so they don’t need to rely on stablecoins.

However, these aren’t the users we built for. Let me give an example: In Ghana, only one third of the population has a bank account. However, close to 95% of the population has access to a mobile phone. This by itself makes a case for a mobile-first DeFi. These are users that would benefit from advancements in Web3.

Furthermore, especially in those countries, prices for remittances are still completely crazy. I’ll share examples about remittances from Germany (I am from Germany) to Ghana, according to https://remittanceprices.worldbank.org/.

So what conditions must be met for widespread end-user adoption of DeFi in order to provide actual economic benefits? From my point of view these are currently:

• scalable chains

• cheap gas fees

• identity solutions

• gas fees in stablecoins

• easy to use wallets

• cheap native on- and off- ramps in every country

• local currencies

• permissionless currencies

• transparent currencies

We’ve seen a lot of advancements in blockchain scalability. Celo, soon to be an Ethereum L2, offers scalable transactions with Ethereum security for ultra low gas fees. And also on the side of identity solutions, the industry has made a lot of advancements on how to find more users of Web3 technology.

With https://github.com/celo-org/SocialConnect you can connect a hash of your phone number (to keep your privacy on-chain) or any other identifier to your public key, so that other users can find you easily.

To get to a space where there are native on- and off- ramps in every country of the world, in the past, every wallet had to talk to as many on-/off-ramps as possible to get a deal and work on an integration. This many-to-many problem should have a simpler solution. A hub-and-spoke model, where on-/off-ramps and wallets can agree on a standard to enable cheap liquidity. FiatConnect.org provides that standard, and it is open-source, so accessible to every wallet and to every on-/off-ramp.

And also wallets became more accessible and easier to use for end-users. Two wallets that actually use SocialConnect for end users to easily connect with their phone number are valora.xyz and https://www.opera.com/products/minipay.

With these wallets, end users can now swiftly onboard to an ultra-lightweight wallet within seconds, enabling seamless sending and receiving of digital assets with ultra-low fees.

So why would users in markets of the global south actually need local currencies for a seamless DeFi?

Many users in the world still want to have access to the USD. In countries such as Ghana, Nigeria, or Uganda, where currencies have historically experienced devaluation against other currencies and the countries have been subject to high price inflation, users have a preference for stable fiat currencies, like the USD, and therefore for USD-based stablecoins when considering saving.

But at the same time, users need access to local (digital) currencies when they want to borrow money, or when they want to pay local merchants. If users have to borrow money in USD, a devaluating local currency would make the loan more expensive when they have to pay back the loan.

If a user in Nigeria wants to build a business, and needs a loan to get started, the user will have costs in local currency, will have to pay taxes in local currency, and potentially also will have the first cash inflows in local currency. At the time the user would pay back the loan, a loan in foreign currency would be more expensive if the local currency devalued. Therefore the user has a preference for a loan in local currency.

To address this, at Mento Labs we are working to build a platform that allows users to launch a local stable asset in every country in the world. And at the same time, we are building tooling that supports liquidity and usability of these stable currencies.

The Mento platform already hosts cUSD, cEUR, and cREAL. eXOF, the West African Franc, is launching now. And a Nigerian Naira or a Kenyan Shilling are in consideration. We want to find partners that launch a Korean Won, a Philippine Peso, a Colombian Peso, or a Singapore Dollar on Mento. If you are interested in working with us on these local currencies, please let Mento Labs know.