The Zimbabwean NFT artist Liam Vries signed up for an FTX account this past summer. He knew of the crypto exchange because some American friends recommended it and also through its aggressive advertising in Africa. He hoped to safeguard his crypto holdings—some of which came from the sale of his surrealist collage NFT art—while also growing it through FTX’s interest rates and trading opportunities.
“As an artist, I wasn’t selling as much, but knew my money could make money,” he says.
But after FTX collapsed in a stunning turn of events this month, Vries found his account, which he says contained 2 ETH (approximately $2,260), frozen and inaccessible. “It was a little bit gut wrenching,” he says. “I feel like I should have known better.”
On Nov. 11, FTX filed for chapter 11 bankruptcy. Filings indicate the company potentially owes over $3 billion to one million creditors. Ripple effects are being felt across the world, from Miami to Singapore to the Ontario Teachers Pension Plan. And Africa stands to be significantly affected, as FTX and its founder Sam Bankman-Fried had invested heavily in the continent, eyeing it as a crypto market with enormous potential. “One thing that a lot of people miss is the enormous amount of good that you can do in Africa, for instance,” he told Vox in 2021. “That’s where the most underserved globally are and where there’s a whole lot of lowest-hanging fruit in terms of being able to make people’s lives better.”
Last week, the Nigerian crypto company Nestcoin counted itself among the crash’s victims: it announced layoffs after its FTX account was frozen following the platform’s bankruptcy. And African crypto investors and entrepreneurs believe the fallout will continue to impact a nascent and vital ecosystem. Africa is home to one of the world’s fastest-growing crypto ecosystems, with adoption proliferating across commerce, decentralized finance, remittances and art NFTs. In the twelve months leading up to June 2021, Africa received $105 billion worth of cryptocurrency, making it the third-fastest growing crypto economy, according to the analytics firm Chainalysis.
Crypto proponents argue that developing economies like those in Africa stand to gain the most from the new technology, in that it offers efficient and decentralized alternatives to entrenched predatory banking systems. But FTX’s spectacular meltdown threatens that momentum. “Many were already skeptical in Africa, and this is not going to help: It’s going to backdate the Third World countries even further,” says Vries.
Crypto Adoption in Africa
While the total volume of crypto transactions in Africa is lower than other continents, studies have consistently shown that adoption is happening extremely quickly. A September report by Chainalysis documented hotspots in Nigeria, Kenya and South Africa, with crypto used for small retail and peer-to-peer payments. “Crypto usage is driven by everyday necessity, as opposed to speculation by the already well-off,” the report reads.
The use of stablecoins—crypto tokens that hold the value of a U.S. dollar—has skyrocketed, says John Samson Karanja, a Kenyan CEO of the blockchain accelerator Bithub.Africa. “People who are digitally native are using Bitcoin and USDT [a leading stablecoin] as a way to hedge against their own currencies,” he says. “They’re realizing it’s better to keep their money there rather than the Naira [the official currency of Nigeria, the largest economy in Africa].”
Crypto’s collapse is a setback for the region. Sinclair Skinner, blockchain organizer and entrepreneur, believes crypto has potential to make an impact in combating the long tail of colonialism. He points out, for instance, that many consumer money transfers between African countries flow through banking networks in New York. “That doesn’t make sense,” he says. “So Bitcoin gave folks an alternative: a digital highway where you can take encrypted data and exchange it almost instantaneously.”
FTX in Africa
While there are a variety of Africa-based crypto exchanges, a large number of Africans used FTX to store their money. The exchange was started in 2019 by Sam Bankman-Fried, who quickly made a name for himself with purported altruistic values, marketing savvy, and huge investments into the crypto ecosystem. Over the last couple years, FTX and its sister company Alameda Research invested in a slew of African companies, including the Nigerian-based Nestcoin; the Kenyan-based remittance company Chipper Cash, which raised $150 million last year at a $2 billion valuation; and the Kenyan digital finance start-up Mara, which raised $23 million.
FTX didn’t seem too bothered by regulatory hurdles on the continent. Reuters reported that when South African authorities published a warning that FTX and other crypto exchanges were not authorized to operate there, the company entered into a commercial agreement with a local exchange and continued to do business in the country.
FTX also spent money educating and onboarding newcomers to the crypto space. They hired a PR and marketing manager for the continent and partnered with Nigerian universities to hold seminars and conferences. They enlisted university campus ambassadors, giving them commissions for any FTX users they signed up.
One of the people who signed up for an FTX account this year was Vries, who makes art under the moniker Vintagemozart. In 2021, Vries sold tens of thousands of dollars worth of his dreamy collages on platforms like Opensea and SuperRare. He used his newfound popularity to co-found the African NFT Community—which now has 25,000 followers on Twitter—and spread the word about the power of blockchain technology.
When his NFT sales slowed this year, Vries became interested in crypto-based decentralized finance (DeFi) as an alternate income stream. And the first site he chose to purchase crypto was FTX. He selected it for several reasons, including advice from American friends as well as its omnipresent branding, which appeared next to luxury brands at high-profile sporting events. “The normal human brain is assuming something is safe because it is associated with bigger brands,” he says. “I never saw Binance [a rival crypto exchange] at Formula One.”
FTX was also easier to use than its competitors, Vries says. Its interface was more streamlined and intuitive, and the app had fewer barriers to entry. “With Coinbase, you needed to provide your proof of address and all this other kind of stuff. With FTX, all I needed was my national ID and a bank account,” he says.
Driven both by institutional investors and smaller holders like Vries, FTX gained a massive user base and credibility. But behind the scenes, Bankman-Fried was blurring the lines between FTX’s funds and those of its sister company, the investment firm Alameda Research. In early November, Binance openly questioned the amount of cash that FTX had on hand and pulled a $500 million investment. The move, combined with mounting evidence that FTX’s books weren’t as ironclad as promised, sent the market into a panicked sell-off. FTX soon found itself unable to repay all of the customers who wanted to pull their money from the exchange, and halted withdrawals.
A representative for FTX did not immediately respond to a request for comment.
Read More: Crypto Is Crashing. This Time, Blame FTX and Sam Bankman-Fried
Vries, who moved to the U.K. this year, says he reported the missing funds to the British Action Fraud office but doubts he will be made whole. And he says he knows other people who lost thousands after the FTX crash. New York Magazine contributor Reeves Wiedeman reported that several Nigerians he spoke to had lost their entire life savings. The Nigerian startup Nestcoin, meanwhile, wrote in a letter to investors that a “significant” portion of the funding it used for day-to-day operations was tied up on FTX. As a result, the company is shaving almost half of its 100 employees, the Financial Times reported.
Yele Bademosi, the CEO and co-founder of Nestcoin, declined an interview with TIME, writing in an email: “My focus is on supporting our internal stakeholders through the ongoing changes at Nestcoin.”
Looking Forward
Beyond the many investors nursing immediate losses, Vries and Skinner both say the consequences of the FTX crash could be much longer-lasting for the African crypto ecosystem. The African NFT art market was already in a slump, and Vries predicts it will likely continue its slide, as it consists of many middle class collectors who don’t have a financial cushion to soften a blow. “When they lack liquidity, they cannot spend,” he says. “Right now, we don’t have a formula to tell artists how to sell their work anymore.”
Skinner says the FTX crash will likely make institutional investors and regulators in Africa much more leery about jumping into crypto. “It will hurt all of us. Why would a politician or a policymaker want to be exposed to looking like an idiot? So the meetings get pushed off, the emails get slower. These political folks are looking at this exposure and don’t want to be on another headline.”
Karanja agrees that the crash will make the general public more “afraid of crypto.” However, he has a rosier outlook: he argues that the African crypto ecosystem is slightly insulated from FTX ripple effects because so much of the trading there is from peer to peer as opposed to through large platforms. (The Chainalysis study confirms this.) “A lot of people trade directly with each other on their phones. The intermediaries still have a huge presence, but they’re not critical,” he says.
For small investors like Vries, this debacle is a learning lesson: a reminder to keep cryptocurrency in more secure offline storage (like a Ledger wallet) and to scrutinize intermediaries offering unrealistic interest rates and premiums. “The more I think about this, it was too good to be true,” he says. “Now we know we need to do background checks on which exchanges we’re using.”
