In Nigeria, a growing number of startups are building hybrid finance apps that aim to simplify access to cryptocurrencies for users. These apps integrate traditional finance (TradFi) and decentralized finance (DeFi) features, allowing users to buy, sell, or convert crypto to Naira without the need for an escrow or peer-to-peer (P2P) trading.

At least 20 startups currently operate this hybrid finance model in Nigeria, including Taja, Palremit, Prestmit, Azasend, and Pandar. These apps provide users with a seamless experience, allowing them to interact with cryptocurrency as easily as they do with fiat money on their traditional mobile banking apps.

The need for hybrid finance apps arises from the complexity and risks associated with P2P trading and crypto exchanges. Many Nigerians are averse to digital assets due to the fear of losses and bank account freezes. The hybrid finance apps offer a solution by providing a simple and secure way to access cryptocurrencies.

According to Ayo Adewuyi, head of product at Prestmit, the startup has over 700,000 users, thanks to additional features like gift card trading, which attracts users from several countries. Adewuyi believes that founders who build these apps see an opportunity to tap into a "grassroot movement" and localize crypto for the Nigerian market.

The clampdown on P2P trading and the strict regulatory oversight on big crypto exchanges have paved the way for hybrid apps to thrive. Adewuyi claims that Prestmit's users grew significantly after large crypto exchanges deprioritized the Nigerian market.

Hybrid finance apps are not new, but there is a growing focus on integrating crypto payment options into traditional finance systems. These apps allow users to manage digital assets like local currencies, pay bills, buy airtime and data, trade gift cards, send crypto directly to others through app tags, and pay for online services with crypto.

The operating model of hybrid finance apps is relatively simple. They provide three key things: the platform (proprietary technology like an app or a web-app), virtual accounts for user account management, and crypto liquidity. Most of these apps rely on crypto infrastructure providers to enable users to buy and sell crypto, while some outsource liquidity to over-the-counter (OTC) traders and institutions that provide bulk crypto liquidity.

However, the result of this outsourced liquidity often means that users have to play by the rules of the providers. Most liquidity providers cap the minimum amount of crypto users can buy or sell, which can be a bad experience for people buying or exchanging small amounts.

Hybrid finance apps primarily make money from transaction fees, which are higher compared to trading platforms. Users get charged a percentage of their deposits on some of these platforms, and when they try to exchange, they do so at a higher, marked-up rate than the official exchange rate.

Despite their dual nature, most hybrid finance apps tilt more toward their traditional finance side than crypto, qualifying them more as fintechs than crypto startups. With this distinction, they are more bound by fintech rules than by the rules governing crypto startups in Nigeria's evolving regulatory structure.

The broader trend has seen TradFi platforms integrate DeFi solutions into their products in attempts to find a balance. Uganda's Eversend and Nigeria's Grey, two traditional cross-border fintechs, have integrated stablecoin payments into their apps to appeal to Web3 freelancers who earn money in digital assets.

Hybrid finance apps are products of founders' conviction that onboarding users into the utility side of crypto—as everyday money—is the future-forward way digital assets are developing. They also suggest that P2P, despite its faults, has no shortage of admirers who make crypto an insider affair. These apps are responses of founders for all those who feel left out.