29 November 2023
The Central Bank of Nigeria (CBN) has taken a major step forward by announcing its plans to create a regulatory framework to manage stablecoins as well as Initial Coin Offerings (ICOs). Nigeria has taken many steps to regulate the continent's largest Cryptocurrency sector, and the "Nigeria's Payments System Vision 2025" report is an extension of these efforts. The Nigerian Central Bank is now working to establish a regulatory standard that would allow for the launch of a stablecoin. The study stresses the need for a framework since stablecoins may become a widely used payment mechanism in the country.
It was outlawed by the nation's central bank in 2021 for any local financial institution to facilitate any kind of Cryptocurrency-related transaction. However, the regulatory mandate really hasn't significantly altered the market status of Cryptocurrencies in Nigeria. In August 2022, Nigeria topped CoinGecko's list of African nations when it came to Crypto interest and investments. The CBN acknowledged in a newly released paper that stablecoins are a practical means of payment, and added that it would be willing to develop a legal framework for their eventual implementation.
What are Stablecoins?
Stablecoins are digital monies whose worth is anchored to that of a stable value asset, such as a fiat currency or a resource price. Because of its extreme price swings, Bitcoin (BTC) and other prominent Cryptocurrencies have become unsuitable for everyday transactions; stablecoins try to address this problem by providing a more steady option. Bitcoin is still the most widely used Crypto, but its rate of exchange is notoriously unstable. For example, in March 2020, the price of Bitcoin was at $5,000. By April 2021, it had risen to almost $63,000. However, it then fell by over 50% during the subsequent 2 months. The Cryptocurrency's price may fluctuate by over 10% in only a few hours, and intraday fluctuations are typically just as dramatic.
What are Initial Coin Offerings (ICOs)?
The Crypto market's version of a stock market IPO is called an initial coin offering (ICO). To finance the development of a brand-new Cryptocurrency, decentralized application, or online service, a business may choose to host an initial coin offering (ICO). A corporation may distribute a new Cryptocurrency token to investors who participate in an initial coin offering. The coin might symbolize a stake in the business or the project, or it could be used to get access to any services or products. The initial stage for the organizers of a Cryptocurrency project seeking funding via an ICO is to settle on the coin's design.
More on the Regulations of Stablecoins and ICOs
There were rumblings in December 2022 that Nigeria was considering making bitcoin and other Cryptocurrencies legal tender. According to local media, the Nigerian Securities and Exchange Commission (SEC) would be allowed to accept bitcoin as well as other digital monies as investment capital if the Investments and Securities Act 2007 (Amendment) Law were to be enacted. The CBN, on the other hand, sees ICOs as a fresh approach to P2P lending, crowdsourcing, as well as financing large-scale projects. Therefore, a regulatory framework was required in the event that an ICO-based investment plan is approved.
While stablecoins as well as Initial Coin Offerings received some attention, the native CBDC, eNaira, received a disproportionate amount of attention in the survey. After more than a year after its introduction in late 2021, less than 0.5% of the population was utilizing eNaira as of 25 October 2022. CBDC provides several benefits, but the government has had a hard time getting its citizens to utilize it. The CBN also highlighted the potential for DLT as well as blockchain-based virtual currency to provide quick, low-cost value transactions independent of any third party or partner.
The newly released report proposes that the central bank as well as the Nigerian Securities and Exchange Commission (NSEC) collaborate to oversee the Crypto sector in Nigeria. Given that coins will represent a new asset category, the paper emphasizes that rules must be provided by the NSEC, as well as the financial sector must be engaged in the token's payment element. Prior to actually implementing blockchain-based payment solutions, the CBN said it will confer with relevant stakeholders.
Disclaimer: The author’s thoughts and comments are solely for educational reasons and informative purposes only. They do not represent financial, investment, or other advice.