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Stellar and PwC release a “framework” for evaluating blockchain applications in developing markets.

The Stellar Development Foundation has unveiled a method for assessing the effectiveness of Web3 projects in emerging markets such as Colombia, Argentina, Kenya, the Philippines, and more.

The Stellar Development Foundation, the driving force behind the Stellar network, has introduced a framework for evaluating the impact of blockchain projects in emerging markets on financial inclusion. Developed in collaboration with PricewaterhouseCoopers International (PwC) consultants, this framework was detailed in a white paper released on September 25th.

Through this framework, the research teams have determined that blockchain-based payment solutions have significantly improved access to financial products by reducing fees to 1% or lower. Furthermore, they have observed that blockchain solutions have accelerated transaction speeds and shielded users from inflation.

Some blockchain developers assert that their products can enhance “financial inclusion” by offering services to unbanked populations in developing nations. This assertion has proven to be a compelling means for Web3 projects to secure funding. For instance, the United Nations International Children’s Emergency Fund (UNICEF) has endorsed and funded eight blockchain initiatives based on this premise.

However, in their published paper, Stellar and PwC argue that projects can fall short of enhancing financial inclusion without a comprehensive evaluation framework. They emphasize that, as with any technological innovation, robust governance and responsible design principles are pivotal to successful implementation.

To foster such governance, the two organizations propose a framework for assessing a project’s potential to promote financial inclusion, consisting of four key parameters: access, quality, trust, and usage, each further subdivided into specific criteria. For example, under “access,” they suggest measuring affordability, connectivity, and ease of initiation.

Moreover, they provide recommended methods for measuring each sub-parameter. For instance, the “connectivity” metric could be measured by counting the number of cash in/cash out (CICO) locations within the relevant target population region. This scientific approach aims to replace guesswork with precise measurement.

The teams also advocate a four-phase assessment process for projects aiming to address financial inclusion challenges. The initial phase involves identifying a solution, target population, and applicable jurisdiction. Phase two focuses on identifying barriers hindering the target population’s access to financial services. In phase three, “level charts and guidance” are employed to pinpoint the most significant obstacles to onboarding users. The final phase entails implementing solutions that prioritize key parameters, optimizing the allocation of resources for maximum effectiveness.

Utilizing this framework, the teams have identified at least two blockchain solutions that have proven highly effective in enhancing financial inclusion. The first pertains to payments. Their research revealed that traditional financial applications charge an average of 2.7-3.5% for money transfers between the United States and the studied markets, whereas blockchain-based solutions charge only 1% or less. This accessibility has opened up electronic payments to individuals who were previously unable to afford them.

The second successful solution pertains to savings. The team contends that a stablecoin application in Argentina enables users to invest in an inflation-resistant digital asset, preserving their wealth when it would otherwise erode.

The Stellar network has been at the forefront of promoting financial inclusion in underserved financial markets. In December, it announced a program to assist charitable organizations in distributing funds to Ukrainian refugees fleeing conflict. On September 26th, they unveiled a partnership with MoneyGram to develop a non-custodial crypto wallet usable in over 180 countries. Nonetheless, some financial and monetary experts have voiced concerns about cryptocurrency usage in emerging markets. For instance, a paper published by the Bank of International Settlements on August 22nd argued that cryptocurrency has heightened financial risks in emerging market economies.

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