R500 million crypto boom for South Africa

South Africa’s financial regulator said decentralised finance (DeFi) has significant opportunities for financial inclusion in the country, and adoption is growing.

The total value locked (TVL) in South Africa’s DeFi market is estimated to be over R500 million, with the increasing adoption of crypto assets by mainstream investors expected to drive DeFi growth.

However, it warned challenges such as regulatory uncertainty, security risks, and market manipulation must be addressed. 

The Financial Sector Conduct Authority (FSCA) released the findings of its Market Study on DeFi in South Africa on Thursday, 20 February 2025.

This study explored the growth and challenges of DeFi in South Africa, focusing on its potential to improve financial inclusion, efficiency, and transparency. 

Simply put, DeFi is a financial system that operates without banks or other middlemen. 

Instead of relying on traditional institutions, it uses technology like blockchain to let people trade, borrow, and invest directly with each other. 

Therefore, DeFi eliminates the need for banks and intermediaries, opting instead for smart contracts to automate financial transactions.

The goal is to replace centralised financial institutions by removing their control over transactions and services.

The FSCA said DeFi eliminates traditional financial intermediaries by using blockchain technology and smart contracts.

The Market Study revealed that DeFi activities are gaining traction in South Africa, with market participants expressing both optimism and caution about its future. 

The DeFi market in South Africa is projected to reach revenue of approximately $ 2.8 million (R51.56 million) in 2025, indicating a nascent but expanding market. 

The TVL in South Africa’s DeFi market is estimated to be over R500 million, showing early-stage but significant growth.

Some market participants estimated the TVL between R50 million and R500 million, while a smaller percentage believed it to be under R10 million.

The regulator further identified retail customers as the primary users of DeFi services in the country, followed by small and medium-sized enterprises (SMMEs). 

Retail investors constitute 71% of DeFi users, particularly those who are tech-savvy and willing to take financial risks.

SMMEs, at 19%, are also exploring DeFi as an alternative financing method.

Large enterprises have the least participation at 10%, possibly due to regulatory concerns and market volatility.

The regulator said major local crypto exchanges in the country are integrating DeFi tokens due to rising market demand.

The FSCA sees the benefits of DeFi as the following –

• Financial inclusion – DeFi provides access to financial services for unbanked individuals and small businesses
• Lower transaction costs – Removing intermediaries reduces financial service fees
• Transparency and security – Blockchain records transactions publicly, reducing fraud risks

It also identified several use cases for DeFi in South Africa, with payments making up the majority at 52%.

The FSCA said these DeFi payments facilitate fast, low-cost, and borderless transactions using cryptocurrencies and stablecoins.

In addition to payments, users also employ DeFi applications for lending and borrowing (48%), decentralised exchanges (33%), and tokenisation (24%).

Interestingly, stablecoins make up only 14% of use cases, while asset management (10%) and staking (5%) are used the least.

However, the regulator warned that DeFi also carries several significant risks and challenges.

For example, coding flaws can lead to hacks and financial losses. For example, if the underlying blockchain fails or is hacked, DeFi services may become unreliable.

The regulator added that a lack of oversight makes DeFi susceptible to fraud schemes. This is because there are no legal protections for users who lose funds due to scams, fraud, or platform failures.

In addition, with DeFi, users control their own funds, meaning lost private keys can result in total asset loss.

DeFi markets can also be manipulated through pump-and-dump schemes and price distortions.

This is a significant concern, as the decentralised nature of DeFi also complicates government oversight and consumer protection.

In addition, sudden withdrawals can destabilise DeFi platforms.

“The lack of robust regulatory oversight and clear consumer protection measures further exacerbate these risks, leaving users vulnerable and potentially undermining market trust,” the regulator said.

The FSCA said it will track DeFi developments to identify emerging risks and protect consumers.

It also called for more efforts to educate South Africans about DeFi’s risks and benefits and the introduction of potential regulatory frameworks.

The FSCA identified five major factors that could drive DeFi expansion in South Africa –

• Growing adoption of crypto by mainstream investors (62%) – As more people trust crypto, DeFi usage will rise.
• Emergence of new DeFi platforms (43%) – More projects and services are being developed in the DeFi space.
• Increased financial inclusion for underbanked communities (43%) – DeFi provides banking services to those without traditional access.
• Crypto asset regulation (33%) – If crypto assets are officially recognised as financial products, DeFi adoption could increase.
• Venture capital investments in DeFi startups (29%) – More funding in the space will accelerate growth.

“The FSCA remains committed to monitoring the DeFi sector closely and engaging with stakeholders to develop appropriate regulatory frameworks that support the growth of a safe and inclusive financial system,” it said.