Why VC The CEO of Luno Expeditions, Jocelyn Cheng, thinks that Kenya, Nigeria, and other emerging economies will offer the next significant prospects for cryptocurrency

Jocelyn Cheng, the CEO of Luno Expeditions

• Many of the most practical uses for crypto are in emerging markets, according to Jocelyn Cheng.
• Cheng says crypto can reduce the costs of remittances and open up access to loans in those markets.
• This article is part of "Master Your Crypto," a series from Insider helping investors improve their skills in and knowledge of cryptocurrency.

The crypto crash has significantly chopped down the value of assets such as bitcoin and ethereum, but some investors say it's also presented opportunities to back companies at the forefront of emerging trends in the Web3 space.

Jocelyn Cheng, the London-based CEO of Luno Expeditions, believes many of those opportunities lie beyond the US. Her firm, the venture arm of Luno, a crypto-investing company, has invested in 30 Web3 and fintech companies in 15 countries, including Nigeria, Kenya, and Pakistan.

Several of Luno's portfolio companies, including Kotani Pay, a crypto-payments startup, focus on customers in emerging markets such as Africa, South Asia, and Latin America.

Insider spoke with Cheng about where she thinks crypto applications are poised to grow globally.

This interview has been condensed and slightly edited for length and clarity.

What areas within crypto are most exciting to you right now?

We continue to see a lot of interest in stablecoins. There was a very public stablecoin blow-up, but the core utility for emerging markets is still there. They've become popular because not only are they good on-ramps from fiat currency to crypto, but also because by definition, they are linked to a stable asset such as the US dollar.

They're able to help weather price volatility, especially for emerging-market investors. Historically, to have access to US dollars, they'd have to incur significant fees. With stablecoins, the benefit is that it really makes access to the US dollar much more affordable.

What's the use case for stablecoins for the average person in an emerging market?

I'll give you a personal example, if it's OK. Many years ago, I was living in Tanzania and I was renting an apartment. I had a US-dollar account in the US, and they demanded my rent in US dollars in cash. But because I was in Tanzania, I had to go to the ATM and — out of my US-dollars account — withdraw Tanzanian shillings.

That was the only option. I had to pay ATM fees, foreign-transaction fees, out-of-network fees, and I had to take those Tanzanian shillings and take them to a local FX dealer just to exchange them back into US dollars to hand to my landlord. My landlord then took that US-dollar cash and had to do basically the same in reverse to deposit it in their local account.

We think that the benefit of having stablecoins is being able to make that process more streamlined. We've invested in companies like Caliza, which is a B2B company that offers fintech companies the infrastructure to offer synthetic-US-dollar accounts using stablecoins. A customer can deposit local currency, where it's converted to a stablecoin like USDC, held by a custodian that provides direct access to US banking.

Are there any other opportunities you see for crypto in emerging markets?

There is a huge opportunity for crypto to provide better international-payment rails. Remittances are the source of income for 800 million people globally. I think crypto has a really important ability to make remittances faster and cheaper.

In the traditional method, it can take up to five days, and on average, it can cost 7% for a $200 transfer. On the other hand, crypto allows the transfer of money within minutes from one wallet to another. User-to-user fees would depend only on the blockchain's transaction fees.

In some of the pilots that we've seen for using crypto as a remittance rail, we've seen that transaction fees are really reduced. There's a company in our portfolio called Kotani Pay, which has been testing cross-border payments of gig workers in Kenya. Using crypto, they've cut down transaction fees by 93%.

We've also seen other companies a little bit more advanced than our early-stage focus. Other companies like Coins.ph and Aza Finance work in emerging markets and use crypto rails for remittances. They offer a much lower cost: 1% to 4%, rather than the 7% global average, and it also takes minutes to settle rather than five days.

What are the specific benefits that crypto offers over other technologies?

It streamlines the whole flow. If you're looking for instant settlement or very quick settlement, it avoids the need for the provider to have enormous cash reserves in destination countries.

Ultimately, there is a need for a last-mile payout for the recipient. There is a need to, for example, integrate with mobile money or, in some cases, 7-Eleven — wherever that last-mile pickup point is for the recipients. So it is critical to integrate with non-crypto systems as well, but crypto provides a faster and cheaper rail for the cross-country part.

This is one of the things that we're really excited about, working with Kotani Pay, the company I mentioned earlier. They don't need internet access in order to connect to blockchain. That's important because in Africa, something like 50% of people still use feature phones. So a user doesn't actually need to see crypto in order for them to get the benefits of crypto.

Kotani Pay connects blockchain protocols to local-payment channels by using USSD services, which are the dominant channels for mobile-money payments. So clients with access to those local-payment channels can transfer money using feature phones.

Do you think most people will end up interacting directly with crypto, or will it just be in the background even as more people start to use these services?

I think, for sure, we will see more and more people interacting directly with crypto globally. But I think we can also design for a world in which people have the benefits of crypto but don't need to know what an NFT is or what the private keys to their wallet are.

One thing that we think is quite interesting, but still very nascent, is to have crypto — more specifically DeFi — provide a more efficient capital source for funding in emerging markets.

We are seeing some early stories come out: For example, Goldfinch, which is not a portfolio company but is one that we're very interested in. It has enabled borrowing by more than a million people in businesses across India, Mexico, Southeast Asia, and Nigeria, and has more than $100 million in active loans.

Goldfinch works with existing lending businesses who handle the loan origination and services, so there's no real behavior change needed from the borrower's end. But then those lending businesses are able to tap into global credit pools using DeFi, draw down stablecoins from the pool, and deploy them on the ground in their local markets.