In emerging markets like Africa where economic instability often drives the need for alternative financial solutions, stablecoins have seen rapid adoption. Yet, despite their promise, businesses still struggle with liquidity constraints and unpredictable FX rates when converting to and from local currencies.
Virtual Finance (ViFi), a new protocol co-founded by Tony Olendo aims to revolutionize the way emerging markets interact with stablecoins, offering a synthetic, USD-backed solution that addresses these pressing issues.
Tony Olendo heard of blockchain in 2014 and bought Bitcoin when the flagship asset was around $300. Initially sceptical about the technology backing Bitcoin, he saw himself working with a team to build a solution using the technology ten years later.
In a conversation with Technext, Tony reveals how ViFi plans to reshape the landscape of cross-border transactions in regions like Africa, providing a glimpse into the future of decentralized finance.
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Adding liquidity constraints and FX price discovery; Virtual Finance
According to him, emerging market currencies (Eg naira, cedis etc) are synthetically tied to the US dollar. Now, central banks have to hold USD reserves to serve the export and import market.
ViFi is the first protocol that links prices in FX rates to the minting of stablecoins, in his view. “In this way, we facilitate seamless movement in and out of USD positions and local currencies.”
Also, ViFi plans to introduce an Automated Market Maker (AMM) – a market that says what the best price USD is.
Tony Olendo and ViFi see an impact across Africa, but primarily in Kenya because of its relatively stable USD market. Also, high considerations are in markets like Nigeria, Ghana, and anywhere else where the teams look at collateralisation.
A core tenet of Virtual Finance (ViFi) is providing exposure to exotic FX trading on-chain. In Tony’s words:
“To the best of our knowledge, there hasn’t been a protocol that facilitates FX trading on-chain. The FX market is an $800bn industry, it represents the largest assets of the financial industry to date and the industry’s focus has been on crypto-dollars and crypto-euros.”
Virtual Finance (ViFI) aims to help market makers invest in exotic FX trading. Additionally, ViFi intends to provide what is called Stable Restaking. This means that if an investor in Mountain Protocol or sDAI looks to earn a t-bills yield, ViFi provides guaranteed exposure to the 5% yield.
In addition, the platform provides up to 32% yield off of exotic FX trading.
“This liquidity is brought to bear inside of the ViFi protocol and local traders can make large swaps backed by massive liquidity.” Tony Olendo stated.
In terms of liquidity for big businesses, the project is in conversation with the p2p markets which trade in the millions of dollars, to provide liquidity at ViFi.
Although the reliability of Central Bank Oracle Price Feeds in African countries might be questionable considering how financial data transparency may be limited, ViFi insists that it will rely on official data from the Central Banks at the initial stages.
“If this rate isn’t what the market reflects, the AMM will naturally surface the street price of USD through arbitrage opportunities. At scale, the provision of the government will be run via EigenLayer or a similar AVS where provisions can be made to reward stakers with the ViFi token for correct price provision and punish malicious actors through slashing mechanisms. The economic security of our protocol relies on the AMM surfacing the street price, not the Central Bank.”
Expected challenges and the future
It is well known that African economies often face significant currency volatility. To put this into context, the Nigerian naira started the year below N1000 against the United States dollar, but in February-March, the currency hit a record low of around $1/N1900.
It recovered to around N1200 and now it’s back to around N1600 against the US dollar.
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Now, how does ViFi’s protocol manage such volatility to ensure stable and predictable outcomes for users? Tony Olendo, ViFi’s co-founder is unfazed by this.
According to him, volatility is an opportunity. By using a call option to speculate on the price of USD, ViFi will provide a futures market for exotic FX. He added that any FX price action will be resolved by arbitrageurs, much as it works today in traditional FX markets.
“In the case of the Yen’s depreciation against the USD, we saw the market adjust their positions accordingly. Similarly, we expect that ViFi will essentially mirror the market. We are not building a new market, we are providing a DeFi primitive that accurately reflects the traditional market on-chain.” – he affirms.
Nevertheless, the biggest challenge Tony foresees is finding a favourable regulatory framework for ViFi tokens. In the countries where ViFi will operate, people are already trading crypto and his platform is a fully decentralized protocol that exchanges local currency for USD on-chain.
That way, the platform provides a unit of account for local trade when it comes to stablecoins. “Adoption in these markets is already high so we have to provide value inside of the existing constraints.”
However, ViFi has a legal team that will help navigate these regulatory landscapes.
“We want to be able to talk and engage and figure out the regulatory environment.” The cofounder said.
Going forward, Tony Olendo and Virtual Finance (ViFi) plan a mainnet launch slated for December 2024. Until then, Tony says the audience should expect think pieces and collaborations with the stablecoin global community.
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