Market News

…Bans unapproved tokens, tightens crypto oversight

To strengthen oversight of digital assets, the Central Bank of Nigeria (CBN) has introduced stricter regulatory requirements for the operation of non-security virtual assets in the country.

Under the new rules, naira-backed stablecoin issuers must maintain a minimum capital of N10 billion, while operators issuing foreign currency-backed stablecoins are required to have N15 billion.

Other virtual asset service providers (VASPs), including businesses offering payment, transfer, custody, wallet and related services, must maintain a minimum capital of N1 billion. Their operations will also be subject to licensing, supervision and reporting requirements.

Issuers must further maintain sufficient liquid assets to cover at least six months of projected operating expenses or the cost of an orderly shutdown, whichever is higher.

To protect customers against losses arising from insolvency or poor reserve management, the regulations prescribe strict rules for assets backing stablecoins.

Issuers cannot create new tokens without first receiving equivalent eligible reserve assets. This means they cannot issue stablecoins based on expected future deposits or anticipated payments.

Reserve assets must be kept separate from issuers’ operational funds and other corporate assets. They must also be held under arrangements that protect stablecoin holders and give them priority claims over the reserve pool if an issuer becomes insolvent.

For naira-backed stablecoins, eligible reserves include deposits with the CBN, short-term Federal Government securities and naira deposits with licensed commercial banks, among other approved instruments.

Class 1 issuers must keep at least 20 per cent of their total reserve pool in a designated account with the CBN, although the Bank may prescribe a higher percentage.

Reserves for foreign currency-backed stablecoins must be held in the relevant reference currency. They may comprise cash deposits with approved banks, short-term sovereign securities and qualifying overnight repurchase agreements.

Issuers must also maintain an additional two per cent in overcollateralisation above the full reserve-backing requirement.

Stablecoin holders are entitled to redeem their tokens at par in the currency to which they are referenced, subject to applicable requirements. However, redemption and settlement involving foreign currency-backed stablecoins must comply with Nigeria’s foreign exchange regulations and may be required to pass through authorised dealers or other approved channels.

Such platforms are prohibited from facilitating transactions designed to evade foreign exchange rules, customer limits, anti-money laundering requirements or regulatory reporting obligations.

The Bank may also consider transaction volumes, the concentration of users and the proportion of the token’s activities linked to Nigeria.