The CFA Digital (CFAD) – A stablecoin for low-cost cross-border money transfers for Sub-Saharan African Country

The Background

Nowadays the cross-border transfer of funds is difficult and limited between sub-Saharan African countries and the rest of the world (Europe, North America, and developed Asia). This difficulty can be explained by the following reasons:

High costs of remittance from the developed countries to Sub-Saharan African countries.
Capital controls that limit the transfer of funds from Sub-Saharan African countries.
Slow and costly cross-border payments within Sub-Saharan African countries.
The non-convertibility of sub-Saharan African countries’ currencies outside their issuing zones.

The Vision

The CFA Digital (CFAD) stablecoin comes as a solution to overcome the above mentioned limitations. This stablecoin is pegged on a one-to-one ratio to the CFA francs. It is fully collateralized by the corresponding EUR held in deposit at a FDIC-insured custodian bank located in the United States. As both the Central and West African fiat CFA francs are pegged to EUR by the fixed rate of 655. 957 CFA to 1 EUR, the price of the CFAD will also be fixed in terms of EUR, but will fluctuate in terms of other major currencies – such as USD, CAD, GBP, CHF, JPY, and AUD – as the price of these currencies fluctuate in terms of EUR. For fast execution, the CFAD will be interoperable across multiple blockchains, including Ethereum, and BNB chain.

The Purpose of the CFAD Stablecoin

To facilitate cross-border funds transfers, between developed countries and the sub-Saharan Africa region, which remove multiple intermediaries, reduce transaction time and cost, and therefore, provide tremendous cost-savings to the sub-Saharan Africa communities around the world.

To eliminate the problem of inconvertibility inherent to sub-Saharan African currencies. As the CFAD is fully collateralized by the equivalent amount in EUR, it will be totally convertible outside the sub-Saharan African region.

To create a means of exchange within the sub-Saharan African region, for use cases like lending, investments, and payments for transactions. This will also help increasing the access to financial services and financial inclusion in these countries.

To provide the sub-Saharan African with a more trusted store of value. Being fully collateralized by the EUR, the CFAD has a characteristic that none of the currencies of the countries of sub-Saharan Africa have. This will help users hedge against low economic productivity and political instability.

THE CFAD STABLECOIN IN A NUTSHELL

The CFAD is a wrapped stable coin, designed to minimize price volatility and it does so by ensuring that every unit of CFAD is only created when a corresponding EUR is deposited into a reserve account held by a FDIC-insured custodian bank. As the issuer of the CFAD, a trust authority, registered in the Unites States, will be licensed to handle electronic money, will have audited KYC/AML (Know Your Customer & Anti-Money Laundering) and compliance programs that meet the FinCEN standards. This trust authority will back all tokens with EUR collaterals deposited in a custodian bank and will publish quarterly proofs of these collaterals attested by Certified Public Accountants. Users will be able to buy and redeem the CFAD coin either on crypto exchanges or on the trust authority website.

The CFAD is an ERC20 and SPL centralized stablecoin, such as USDT and USDC, that is backed by a fiat currency. SPL is the token standard of the Solana blockchain, while ERC20 is the token standard for the Ethereum blockchain. Both blockchains are good candidates for building decentralized applications. Ethereum blockchain has been selected for its popularity and wallet availability, while the Solana blockchain has been selected because of its faster speed, and lower transaction costs.

BUYING or SELLING the CFAD

Users have several ways of purchasing or redeeming the CFAD

Through crypto exchanges

In this case, the user has various options to trade currency pairs involving CFAD, i.e. EUR/CFAD, USD/CFAD, USDT/CFAD, USDC/CFAD, BUSD/CFAD, BTC/CFAD, EHT/CFAD, BNB/CFAD, and so forth.

Through the trust authority website

To acquire CFAD coins, the user should send a wire transfer to the trust authority, along with his/her wallet public key. For the redemption, the user should transfer CFAD coins to the trust authority, along with his/her appropriate bank information for receiving a wire transfer.

Through peer-to-peer transactions

Between users who want to privately transact with CFAD. In this case, each user must have a crypto-broker account or hold a wallet compatible with Ethereum, or Solana blockchain.

ILLUSTRATING USE CASES

Remittance from developed countries
to sub-Saharan Africa

Alice, a holder of a crypto exchange account who lives in Paris (France), wants to send 1,000 EUR to her brother Bob, living in Dakar (Senegal). From her broker account, Alice converts this amount of EUR into CFAD, then forward the proceed to Bob, who either exchanges it into fiat CFA francs or use it to purchase goods and services from local merchants. The following are the detailed steps.

(1) Alice, from her broker account, sends 1,000 EUR to the exchange.
(2) The exchange sends 1,000 EUR to the trust authority.
(3) The trust authority sends 1,000 EUR to the custodian bank, which keep the funds as collateral.
(4) First, the trust authority mints a CFAD amount equivalent to 1,000 EUR, i.e., 655,957 CFAD. Then, send this CFAD amount to the exchange.
(5) The exchange credits Alice’s account with the 655,957 CFAD.
(6) Alice, from her broker account, sends the 655,957 CFAD to Bob’s wallet.
(7) Bob converts these 655,957 CFAD to 655,957 fiat CFA francs (or to the equivalent in a different local currency) in another local currency, in peer-to-peer transactions with another CFAD user or purchase the equivalent amount of goods from local merchants.

Cross-border transfer of fund from sub-Saharan Africa
to developed countries

Paul, a businessman, leaving in Abidjan (Ivory Coast), wants to import goods in USD, for an equivalent of 1,000,000,000 fiat CFA francs (or for the equivalent in a different local currency) from ABC corporation, located in New York (United States). Against 1,000,000,000 fiat CFA francs, Paul obtains 1,000,000,000 CFAD in peer-to-peer transaction or from local merchants. Then, forward these CFAD to ABC corporation, which converts them into USD on the trust authority’s website. The following are the detailed steps.

(1) Paul converts his 1,000,000,000 fiat CFA francs to 1,000,000,000 CFAD in peer-to-peer transactions with individual users or local merchants.
(2) Paul sends his 1,000,000,000 CFAD to the ABC corporation’s wallet
(3) ABC corporation sends 1,000,000,000 CFAD to the trust authority, via the trust authority’s website.
(4) First, the trust authority burns these 1,000,000,000 CFAD. Then, requests an amount of 1,524,490 EUR from the custodian bank (as 1,524,490 = 1,000,000,000/655.957).
(5) Assuming the prevailing exchange rate is 1.1 USD for 1 EUR, the trust authority converts these 1,524,490 EUR into 1,676,939 USD and forward it to the trust authority, via a wire transfer (as 1,676,939 = 1,524,490 x 1.1).
(6) ABC corporation ships the goods to Paul.