PUBLISHED March 27, 2022
Pakistan is one of the fastest growing economies with a youth swell of 65%, rapid technological adaptation and a government trying to put in place a business-friendly legislative framework. The latest data from Sensor Tower shows that Binance, KuCoin, Crypto Blockfolio, OKeX and are the top cryptocurrency exchanges in Pakistan, among Android and iOS users. These exchanges have not taken any proactive steps to take advantage of this huge opportunity presented by the sixth most populous country with the third largest crypto adoption in the world. Most exchanges operate either through shadow partners without any regulatory effort. As many as a thousand Pakistani traders are listed on cryptocurrency exchanges based outside Pakistan. localbitcoins.com is one of the leading crypto exchange platforms, which facilitates a large portion of Pakistanis.
Bitcoin and cryptocurrency mining was thriving in Pakistan until April 2018 when the government banned virtual currency trading and mining. There is still a growing mining industry despite the fact that many mining farms have been closed since the ban was implemented. Bitcoin mining pools like ViaBTC, Braiins, and Slush Pool have seen an increase in people mining bitcoin and other cryptocurrencies from home following the ban. The cryptocurrency market is highly volatile, and due to its high volatility, we have seen a lot of hesitation from businesses, regulators, and consumers to embrace this asset. There is no doubt that cryptocurrencies are a very risky asset class, which is why more and more exchanges are thriving in countries with the least favorable circumstances.
The adoption of cryptocurrencies has started to gain traction in the country. For the first time, Pakistan was ranked third in Chainalysis’ 2021 Global Crypto Adoption Index. Cryptocurrency mining farm projects were announced earlier this year by Khyber Pakhtunkhwa province. A committee has been set up at the federal level to look into the regulation of cryptocurrencies. These are encouraging signs. However, there is still much to be done, and there is only a short window of opportunity to do so.
Cryptocurrency Regulations in Pakistan
DeFi is transforming industries and professional roles, opening up new markets for businesses. DeFi will continue to face hurdles in the form of legal, logistical, and regulatory hurdles to overcome. Blockchain technology fills the gaps in security, transparency, authentication, and automation that currently exist in our current systems. Despite still being speculative, cryptocurrency is a thriving financial industry in South Asia; especially in India, following the same steps by Pakistan.
“The stablecoin market is doing quite well, with a market capitalization of $166 billion and a daily trading volume of $72 billion,” said Haroon Baig, co-founder of Emperors Bazaar and former Microsoft employee. . “While the market is overwhelmingly dominated by fiat-backed stablecoins like Tether, USD Coin, and Binance USD, algorithmic stablecoins like Terra’s UST are doing extremely well, projecting a market capitalization of over $10 billion. Given the growth Terra has shown over the past year in the DeFi sector with nearly $18 billion in total value locked.
Since their inception as a Ponzi scheme, cryptocurrencies have gone from being a gambling tool and a highly volatile asset to finally being recognized as a legitimate virtual asset of value in the region in five years. In times of monetary expansion, high inflation, and significant currency depreciation, the private sector now views crypto as a hedge against such economic adversaries, according to the Wall Street Journal.
The government, on the other hand, is divided on the subject. Parliamentarians and legislators are frequently seen expressing support for the underlying technology, emphasizing the benefits of transparency and decentralization in their speeches. When regulations are not in place, the bureaucracy is compelled to issue blanket statements against the timing to reduce terrorist financing and widespread fraud, both of which are on the rise. At this point, the country is ready for a concerted corporate effort to gain legal legitimacy for the time being.
“A large unbanked population means the opportunity for disruptive innovations in fintech is enormous,” said Jawwad Nayyar, co-founder and chief vision officer of DAO PropTech. “Pakistan has one of the largest communities of freelancers as well as a huge untapped market for digital money transfer services that can greatly benefit from frictionless DeFi solutions. The market for independent and digital remittance services is worth more than $22 billion.
Many companies are currently working on innovative blockchain-based solutions, including electronic voting systems, supply chain management, implementations of crypto identity systems, and implementations of innovative real estate technologies (prop Tech ). Explaining to regulators that we stand for the same values they are trying to stand for seems like an uphill battle at this point. However, we are confident that we will achieve this goal in time, and financial democratization is something our people desperately need.
Frictionless DeFi Solutions and South Asian Market Potential
Defi solutions provide lenders with a complete, end-to-end solution for the lending or leasing lifecycle. Defi’s market-leading solution, which works in partnership with captives, banks, credit unions and finance companies, enables lenders to exceed their borrowers’ expectations. Defi sets new standards for flexibility, configurability and scalability in loan origination and servicing, starting with digital engagement and continuing through the loan process (by your experts or ours). Defi solutions is backed by Warburg Pincus, Bain Capital Ventures and Fiserv, among other investors.
Exchanges named Warburg Pincus, Bain Capital Ventures and Fiserv are among the major exchanges that already operate, enter or provide hybrid trading in South Asia; mainly India and Pakistan. This puts Defi solutions in an ideal place to enable lender innovation that attracts and delights borrowers in the marketplace. This may be a PropTech moonshot.
“With current and pending large-scale service implementations, we will have reached a critical mass of customers who use both our origination and service platforms, as well as one or more components of our business process outsourcing” , said Charles Sutherland, Defi Solutions Chief Strategy Officer. “Build on this momentum, along with ongoing work on the Defi organization, to deliver a modern, cloud-based, unified, consistent and efficient capability.”
Culturally speaking, paper-based fiduciary assets, created by institutional monopoly power, are seen as iniquitous. Thus, there is support for the DeFi movement within Intelligent, including entrepreneurs, legislators, parliamentarians, tech enthusiasts, and people in general. A consolidated effort to explain the merits of cryptocurrencies and blockchain could be a game-changer for developing countries like Pakistan in the age of Web 3.0.
A possible exchange framework in Pakistan
A regulatory framework for this asset class should be developed in Pakistan as soon as possible. The lack of an appropriate legal framework causes the demand for cryptocurrency to shift to unregulated or underground operators. The general public is forced to use unregulated platforms where they have little protection as an investor because they have no other choice. Pakistan has the potential to attract blockchain companies, which have lower risk thresholds than traditional financial services companies. These companies will ensure that, in order to comply with local regulations, they have appropriate KYC/AML policies and procedures in place. This will also benefit the tax net, just as investing in other asset classes like stocks, commodities, and bonds will benefit the tax net. Despite the difficulties, the cryptocurrency boom in Pakistan shows no signs of slowing down any time soon. There is a plethora of Pakistan-based social media groups teaching people how to trade and mine cryptocurrency, some of which have tens of thousands of Facebook followers.
For Pakistanis to participate in the Bitcoin revolution, there are a variety of options available to them. The benefits are considerable and far outweigh the costs. There is an urgent need to develop a national cryptocurrency strategy and position the country as an early adopter of the cryptocurrency ecosystem. The time has come to act. Various thriving crypto exchanges in Pakistan are paving the way for various trading options including initial public offerings (IPOs) while also trying to define digital tokens. This is an interesting possibility conceptually. While the real question is whether all of this will have a long-term impact.