FTX’s Collapse Troubles African Fintech Firms

The collapse of the once-beloved cryptocurrency exchange, FTX, is having an impact on some fintech companies in Africa.

Days after FTX filed for Chapter 11 bankruptcy protection in the United States, Nestcoin, a Nigerian web3 startup, announced that it was laying off some of its employees as the firm held its assets (cash and stablecoins) on FTX. This was “to manage our operational expenses,” the startup said.

Nestcoin, which was launched in November 2021, explained that it had raised capital from a range of investors last year, including Alameda Research, a quantitative trading firm and corporate sibling of FTX.

"For context, Alameda's equity is less than 1%. We used the closely-associated exchange, FTX, as a custodian to store a significant proportion of the stablecoin investment we raised -- i.e. our day-to-day operation budget," Yele Bademosi, Nestcoin's Founder explained in a statement shared on Twitter.

Additionally, Nestcoin clarified that it was not engaged in any trading "but simply custodied our assets on the FTX exchange."

An update shared with our investors earlier today on the FTX incident and its impact on @Nestcoin. pic.twitter.com/0Mjo4SYF7R

Finance Magnates in February reported that the Nigerian firm, whose portfolio includes a crypto education media, a gaming guild and a blockchain-based payment gateway, raised $6.45 million in a funding round that saw the participation of Alameda Research and tennis star Serena Williams’ Serena Ventures.

Other FTX Investments in Africa

However, Nestcoin is only one of a handful of African startups that have received funding support from FTX and sister Alameda Research. In November last year, Chipper Cash, an African fintech unicorn and cross-border payments firm, raised $150 million from a Series C extension round led by FTX.

Additionally, Alameda Research has invested in MARA, an Africa-focused crypto exchange startup with locations in Nigeria and Kenya; VALR, a South Africa-based digital asset trading platform; and Jambo, a Congo-based web3 startup.

In May 2022, MARA raised $23 million in equity and token sales from Alameda Research, Coinbase Ventures and Distributed Global. Also, earlier this year in March, VALR’s US$50 million Series B funding round enjoyed the participation of Alameda Research and top venture capitalists. Furthermore, in February 2022, Jambo raised $7.5 million from Alameda Research and Coinbase to build the “web3 onboarding portal of Africa.”

Although most of these firms have confirmed that they had zero exposure to FTX, eyes are on them, especially, as events unfold in the aftermath of FTX’s collapse.

Foiled Expansion to Africa?

In one of the latest developments in Africa with regard to FTX's collapse, the Bahamas-headquartered crypto exchange lost its Financial Service Provider (FSP) license in South Africa. This is as Ovex, a South Africa-based cryptocurrency market marker, removed the digital asset firm as its juristic representative. In April last year, The market maker raised R60 million (about $3.5 million) from FTX.

Meanwhile, TechCrunch reported that FTX processed billions of dollars monthly in Africa before it crumbled. Additionally, the crypto exchange was planning to establish an office in Nigeria, Africa’s most populous nation and largest economy, the outlet reported.

In other news, AZA Finance, a Kenya-based payment automation and settlement platform, recently denounced FTX’s listing of BTC Africa and 22 of its subsidiaries in its Chapter 11 bankruptcy filing. Elizabeth Rossiello, the CEO and Founder of AZA Finance, clarified that it only entered into a commercial partnership with FTX Africa to help expand web3 in Africa by building "regulated, safe and low-cost payment rails" for FTX.

@FTX_Official did NOT acquire @aza_africa or E4F - this list is incorrect. We were partners ONLY and there was no shareholding. We are licensed in multiple jurisdictions and our shareholding is public. Clearly FTX org chart is as messy as the rest of it

Notice: AZA Finance & our entities are not affected by the @FTX_Official bankruptcy, nor by the events of this week. FTX are not shareholders in@aza_africa, E4F or other entities of ours - the circulating list/org chart is incorrect. We remain stable, open, & running normally. https://t.co/uvHtXn09pu

The FTX later released a statement clarifying that it does not own BTC Africa and its subsidiaries companies.

Press Release: Clarification on Certain Entities Not Included in Chapter 11 Filings. pic.twitter.com/rxmY2f2iTB

In April this year, FTX entered a partnership with AZA Finance to roll out its digital asset services in West Africa. The plan, according to a Bloomberg report, was to launch the services in a few months' time, spreading out gradually across the continent over the next two years from that time.

However, the collapse of the once-beloved exchange means that this plan for Africa may never materialize.