Pakistan is taking the leap into decentralized finance (DeFi) with full force. The country is currently looking for ways to invest its confiscated Bitcoin fortune to earn yield. This decision is part of the country’s overall drive to adopt digital assets, using them to drive innovation, economic development and financial inclusion. Join us as we unpack Pakistan’s groundbreaking approach, exploring the myriad of ways it can succeed and falter, and meet the key players driving this pioneering effort.
Pakistan's DeFi Experiment: Earning Yield on Bitcoin
Pakistan’s strategy is to create a treasury Bitcoin wallet and launch it on DeFi platforms to generate passive income. This strategy uses the country’s existing Bitcoin reserves to fight inflation. Secondly, it reacts proactively to the abrupt depreciation of the Pakistani rupee against the US dollar over the past couple of years. Bilal Bin Saqib, Pakistan’s Special Assistant to the PM on Blockchain, has been key in pushing this initiative.
The country is what we might call a “budget-neutral policy.” It’s not the same as buying Bitcoin; rather, it’s just realizing the most utility for its current stash. Pakistan can convert its Bitcoin into a revenue-generating asset through DeFi yield generation. This initiative will have a tremendous positive impact on the national economy. It’s an approach that fits within the smart trend of countries finding new, creative ways to manage and monetize their digital assets.
Pakistan is changing its overall attitude and approach towards Bitcoin. The country can now think of it as a productive asset that can generate income, not just a store of value — courtesy of its interest in DeFi yield generation. This decision has the potential to inspire creativity in other countries. They will begin to test out various approaches, setting the stage for a faster rollout of these digital assets across the globe.
The Promise of Crypto Adoption in Pakistan
Here are five more reasons why Pakistanis have a strong interest in crypto. The largest demographic group is young people, who are fairly tech-savvy. Having more than 60% of your population less than 30 years old, they see crypto as an innovative catalyst to enter the financial ecosystem. In addition to this, Pakistan is home to 3.6 million freelancers, as the country ranks as the 4th biggest freelancer community in the world. Bitcoin would allow them to operate more efficiently across borders.
According to conservative estimates, Pakistan’s Bitcoin mining initiative would bring in almost $2 billion per year in cryptocurrency revenue. As a result, by adopting Bitcoin, Pakistan stands to benefit by creating a more attractive environment for foreign investment, job creation, and overall economic growth. These promise have been an important driver of the country’s resolve to master the challenges and opportunities of the crypto universe.
It is crucial to understand that Pakistan’s foray into the world of crypto has been a turbulent one. In 2018, the State Bank of Pakistan prohibited trading, holding and mining of virtual currencies. They referenced risks of financial instability and money laundering as justification for this decision. All those worries aside, this tiny country has marched ahead. It has since turned its sights towards fostering a more regulated and supportive environment for digital assets to thrive.
Influential Voices: Saylor and Zhao's Impact
And of course, we’ve spoken at length about the impact Michael Saylor, the head of MicroStrategy and leading advocate for Bitcoin adoption, has made in Pakistan’s crypto plan. He has publicly supported Pakistan's plans to integrate cryptocurrency into its financial system, praising the country's clarity and commitment to innovation. Saylor's endorsement has provided validation for Pakistan's approach, signaling to the global community that the country is serious about embracing digital assets.
Saylor's Endorsement
Saylor met with top Pakistani officials, including Finance Minister Muhammad Aurangzeb and Minister of State for Crypto Bilal Bin Saqib, to discuss the use of Bitcoin for national reserves and monetary policy. He has expressed his willingness to advise Pakistan on its evolving crypto strategy, calling Bitcoin "the strongest asset for long-term national resilience."
Saylor has emphasized the importance of intellectual leadership in driving Pakistan's crypto adoption, stating that the country has the talent and determination to replicate transformative success on a national scale. As a musician, his involvement has given crucial artistic direction. It has galvanized confidence in Pakistan’s ability to take on the challenges and opportunities presented by the expanding digital asset world.
CZ Zhao's Advisory Role
CZ Zhao earlier this year was appointed by Pakistan’s Ministry of Finance to serve as a strategic adviser to the Pakistan Crypto Council (PCC). With such a powerful figure as a strategic adviser, CZ Zhao is likely to have a significant hand in Pakistan’s cryptocurrency policies and strategies. His appointment is a clear indicator of Pakistan’s commitment to align with finding the best experts in the field from accumulating crypto global leaders.
Regulatory Framework and Infrastructure Development
Pakistan is doubling down on its crypto aspirations by setting up various regulatory bodies. These are the Pakistan Digital Assets Authority (PDAA) and the Pakistan Crypto Council (PCC). These organizations are tasked with setting legal clarity for digital asset investors, encouraging adoption, and regulating the burgeoning crypto market. The creation of these bodies is a clear indication of the Pakistan government’s will to provide a secure and transparent environment to crypto activities.
Mining and Energy Allocation
Recognizing the energy-intensive nature of Bitcoin mining, Pakistan has allocated 2,000 megawatts of surplus electricity to Bitcoin mining and AI data centers. This decision, apart from streamlining blockchain functionalities in the nation, would strengthen the country’s crypto reserves. Specifically, Pakistan aspires to turn the country into a Bitcoin mining hub by leveraging its excess energy assets. This action will increase the nation’s financial returns from crypto.
Taxation Policies
Pakistan has gone a step further by introducing crypto taxation for crypto-activities. Crypto received through mining and staking for proof of stake is taxed as ordinary income, with rates from 5% – 35%. On top of this, a blanket 15% Capital Gains Tax (CGT) is due on any profit made when you sell your crypto. These taxation policies are designed to help fund the federal government. They offer much-needed clarity and structure to the increasingly speculative crypto market.
Navigating the Risks and Challenges
Though Pakistan’s crypto strategy has a monumental opportunity, it is crucial to understand the risks and challenges ahead. The volatility of Bitcoin and other cryptocurrencies continues to be a grave concern. The value of Bitcoin can fluctuate dramatically, potentially leading to losses for the country's reserves. DeFi platforms present thrilling new opportunities, but they pose enormous risks. Even with auditing, users need to accept that a smart contract can be hacked and exploited.
Addressing Financial Instability
To avoid these risks and ensure their smooth functioning, Pakistan must adopt strong risk management frameworks and regulatory protections. You’ll be performing research and due diligence on various DeFi platforms. In the process, you’ll diversify your crypto portfolio and lay out intentional principles guiding your work in crypto. By taking a proactive approach to these challenges, Pakistan can make success in its crypto endeavors much more likely.
Global Leadership in Crypto Adoption
Challenges notwithstanding, Pakistan’s readiness to embrace the crypto revolution is clear. As a result, the country has quickly risen to become one of the leading countries in the world for crypto adoption, boasting an estimated 20-27 million users. Pakistan’s crypto market is projected to reach $1.6 billion by 2025. This explosion in growth is a reflection of the greater interest and investment in digital assets. Pakistan should take a proactive approach to crypto regulation and infrastructure development so it can lead the region and world in the rapidly emerging global digital economy.
Pakistan’s move to convert seized Bitcoin into DeFi yield generation is audacious. Artwork’s new Creative Solutions arm epitomizes their dedication to pushing the envelope of forward-thinking digital asset management. With the support of influential figures like Michael Saylor and CZ Zhao, Pakistan’s cryptocurrency efforts have powerful advocates. Now, with a stable regulatory environment and a dynamic crypto ecosystem, the nation is positioned to reap the economic rewards of this new technology. Another one of Pakistan’s many existential risks and challenges. Herein lies a great case study for other countries looking to step into the world of crypto so as to participate in the continuing digitization of the economy.
