Nigeria All for Tokenized Assets, Not Crypto

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Nigeria’s Securities and Exchange Commission has announced the approval of a new framework that allows for the issuance of tokenized assets, excluding crypto. This means the issuance, trading and exchange of cryptocurrencies remain unregulated in the country as they won’t be recognised as securities in the country. The Central Bank of Nigeria (CBN) has previously banned financial institutions from dealing with cryptocurrencies, citing concerns over their use for illicit activities.

Tokenized assets that are backed by tangible assets such as real estate, commodities, or securities can now be issued and traded in Nigeria. Asset-backed Token Offerings (ABTOs) are defined as “tokenized securities backed by assets”, and are distinct from cryptocurrencies.

ABTOs are being seen as a way to leverage the benefits of blockchain technology while minimising the risks associated with cyptocurrencies.The SEC notes that these token offerings must comply with existing securities regulations in the country.

The SEC building in Nigeria, who are working on crypto regulations.
The Securities and Exchange Commission in Nigeria. Image Source

Before the securities regulator can finalise the licencing of the exchanges, the SEC and the central bank must agree on standards. Exchanges can start providing basic services in a regulatory sandbox for up to 10 months after the relevant authorities provide their approval.

The new rules are expected to cover issues such as investor protection, disclosure requirements, and the registration of token issuers. The SEC is also said to be exploring the possibility of developing a regulatory sandbox for digial assets.

These regulations served as the foundation for future crypto legislation in a proposed finance bill that also contains rules for crypto asset taxes. Currently, capital gains tax on cryptocurrency holdings are paid by Nigerian investors.

Nigeria’s Ups and Downs with eNaira

In October 2021, Nigeria became the first country in Africa to launch its own CBDC. While the country struggled to drive the adoption of their CBDC, eNaira, in the beginning, the wallet use transactions have seen a recent increase. However, neither of the instances came as a positive development.

enaira has been around for a year now.
The eNaira was launched in October 2021. Image Source

The Nigerian government failed to build a digital currency that could work with a lrge unbanked population and limited infrastructure. People couldn’t seem to get behind the new currency and adopt it as a means of payment. In an attempt to promote the use of eNaira and reduce the amount of cash in circulation, the Nigerian government even put a limit on cash withdrawals from ATMs.

Recent cash shortages in Nigeria, however, have made it difficult for people to access physical cash which consequently has driven the increase in eNaira transactions. From 3.2 trillion naira in September, there are now only roughly 1 trillion naira in circulation. In March 2023, the value of transactions made by using eNaira wallets, which rose to 13 million, increased by 63% to $48 million.

In February 2023, technical issues with eNaira system resulted in user being unable to access their eNaira wallets. The CBN responded by announing that it was in talks with NY-based improve the technology around it, hoping to revive the eNaira and achieving the vision of financial inclusion it was intended for.

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