Nigeria CBN sets stablecoin licences and bans algorithmic tokens

Nigeria’s central bank brought stablecoin licensing rules into force on Nov. 5, setting capital requirements for issuers and banning algorithmic stablecoins.

• ₦10 billion minimum paid-up capital for naira-referenced issuers.
• ₦15 billion for foreign-currency-referenced issuers.
• 180 days for existing operators to apply for the appropriate licence or authorisation, according to The Block.

The Central Bank of Nigeria’s regulations create separate licence classes for tokens tied to the naira and those tied to another currency. The Block reported that the rules took effect on Nov. 5 and give existing operators 180 days to apply.

Who needs a licence to issue stablecoins in Nigeria?

Issuers need a Central Bank of Nigeria licence and separate approval for each token before issuance begins. A Class 1 licence covers a stablecoin tied one-to-one to the naira and fully backed by eligible naira-denominated reserves; Class 2 covers a stablecoin tied to a foreign currency.

Both kinds of issuer must operate through a company incorporated in Nigeria. A foreign issuer’s licence from another country does not replace the Nigerian licence, and a foreign-currency stablecoin can be made available to Nigerians only through a locally incorporated Class 2 issuer, the regulations say.

The central bank must approve each token’s classification, reference currency and reserve arrangements before it can be issued. The application also identifies the token’s name, ticker and supported blockchain networks. That means a company licence alone does not clear every stablecoin it may want to offer.

Which stablecoins are prohibited?

The rules prohibit algorithmic stablecoins: tokens that try to hold their value mainly by changing supply or demand instead of being fully backed by eligible reserves. They also prohibit fiat-referenced tokens backed mainly by other virtual assets, tokens from sanctioned people or jurisdictions, and tokens marketed as stablecoins without an enforceable right to redeem at face value.

The ban applies to issuing, offering, distributing or trading those tokens in Nigeria. The regulations also make people who facilitate access to a prohibited token subject to enforcement measures. The Block reported that the CBN’s framework covers activities conducted in Nigeria, directed at Nigerian users or affecting the country’s financial system.

What do the rules require of reserves and users?

Class 1 issuers must keep at least 20% of their reserve pool as a cash deposit at the central bank. The CBN can see the account balance in real time, and the issuer cannot withdraw the deposit without written consent. The deposit earns no interest.

The regulations require stablecoin issuers to hold reserves separately from their own funds and publish monthly reserve reports. They also bar issuers from paying holders interest or yield just for holding tokens, and say stablecoins cannot be presented as bank deposits or as covered by Nigeria’s deposit insurance.

The Central Bank of Nigeria’s remit covers stablecoins and virtual-asset services used for payments, transfers, remittances, foreign exchange and settlement. Securities and capital-market activities remain under the Securities and Exchange Commission, according to The Block’s report on the new rules.

Sources and documents

• Central Bank of Nigeria’s regulations — cbn.gov.ng
• report on the new rules — theblock.co