Nigeria Establishes New Regulations for Cryptocurrency and Stablecoins

Strengthening Supervision for Financial Stabilization and Launching a New Licensing System

The Central Bank of Nigeria (CBN), which boasts one of Africa's largest cryptocurrency markets, has officially announced the "Regulations on the Operation of Non-Security Virtual Assets" based on an executive order signed by President Bola Tinubu.

These regulations take effect immediately upon publication, requiring existing cryptocurrency-related businesses to apply for licenses within a 180-day grace period.

This new institutional framework has led to the establishment of a "Virtual Assets Council," led by the central bank and involving the Revenue Authority and the Nigerian SEC (Securities and Exchange Commission). The council will oversee a wide range of market participants, including cryptocurrency exchanges, payment providers, and custodians.

Strict Reserve and Capital Requirements for Issuers and a Complete Ban on Algorithmic Stablecoins

Notable aspects of the newly announced regulations include stringent funding and asset requirements for stablecoin issuers and clear restrictions on certain digital assets.

Raising the Capital Requirement:
The minimum paid-up capital set by the CBN is 10 billion Naira (approximately 11.7 million USD) for issuers of Naira-denominated stablecoins and 15 billion Naira (approximately 17.6 million USD) for foreign currency issuers. Additionally, related service providers such as cryptocurrency exchanges and custodians are required to hold at least 1 billion Naira (approximately 1.17 million USD).

Reserve Requirements and Buffer Maintenance:
Issuers are required to maintain 100% of the backing reserve assets, as well as a buffer equivalent to at least 2% of the total amount of tokens issued. Furthermore, at least 40% of the reserve assets must be held in cash or highly liquid assets. Meanwhile, the SEC has proposed a reserve ratio of 120% for foreign currency-linked assets and 150% for cryptocurrency-backed assets, creating a multi-layered safety net.

Ban on Algorithmic Stablecoins:
Algorithmic stablecoins that do not have backing assets and rely on programmatic calculations, as well as tokens without clear redemption rights, are completely banned from circulation in the country.

Concerns have been raised that these strict regulations may allow major players to monopolize the market, hindering the entry and growth of local startups.

Strong Demand for USD and Challenges Facing Naira-Denominated Coins

The backdrop of these stringent legal frameworks is the depreciation of the domestic currency, the Naira, and a strong preference for the US dollar.

Among Nigerian residents, there is a growing trend to hold and utilize USD-linked stablecoins such as USDT, which are seen as more stable than the local currency, leading to significant capital outflows and currency manipulation through P2P transactions. In the past, there have been serious frictions with major exchanges like Binance, leading to service suspensions and the detention of executives.

In response to this dependence on the US dollar, the Nigerian government introduced the Naira-linked stablecoin "cNGN" after the failure of the government-led digital currency eNaira. However, there remains a strong sense of caution among the public that this is part of government surveillance and regulation of cryptocurrency, making it difficult to expand the user base of cNGN.

The central bank is exploring institutional establishment through a sandbox system for pilot projects, but overcoming the entrenched demand for USD-denominated assets and establishing a stablecoin linked to the local currency will be a major focus moving forward.