Cryptocurrency adoption Nigeria is seeing unprecedented increase in crypto adoption. This drive is propelled by a unique confluence of economic headwinds and a tech-savvy, innovative populace. In 2021, due to growing concerns over crypto-related crimes, the Central Bank of Nigeria (CBN) banned financial institutions from engaging in crypto transactions. In response, peer-to-peer (P2P) trading has exploded, exposing an immediate demand for regulatory clarity. In this article, we will take a look at the key reasons behind Nigeria’s crypto boom. We’ll trace some of the actions around currency devaluation, banking restrictions and steady rise of stablecoins and DeFi, as we explore how Nigeria is […]

Economic Challenges Fueling Crypto Adoption

Multiple economic issues have led to Nigeria’s growing obsession with cryptocurrency. The stakes are high for a country suffering from soaring inflation above 22%, a collapsing currency, skyrocketing unemployment and local cash shortages. These challenges have led Nigerians to explore other financial options with more stability and convenience.

The Naira has devalued wildly, losing more than half its value against the dollar over the last 12 months. This sudden drop is what has alarmed many the most. In 2020, the Central Bank of Nigeria devalued the Naira by 24%. This action almost certainly increased the demand for stablecoins and other cryptocurrencies as citizens looked for stable forms of value and insulation from swings in currency backed by an untrusted regime. As a result, Nigerians are searching more for cryptocurrencies to keep their savings and purchasing power.

Additionally, traditional banking systems charge exorbitant remittance fees especially for money sent across borders, often upwards of 20%. Cryptocurrency provides them with a cheaper and faster alternative creating a compelling use case especially for Nigerians that send or receive money to/from overseas. Bitcoin/Naira is the largest traded pair in Nigeria. This indicates that Nigerians are increasingly using cryptocurrencies as a way to shield themselves from the naira’s devaluation.

Banking Restrictions and the Rise of P2P Trading

The Central Bank of Nigeria has banned cryptocurrencies on their platform. Ironically, these measures have only increased the market’s expansion. These restrictions have paved the way for a skyrocketing surge in peer-to-peer (P2P) trading. Indeed, Nigeria ranked first globally in 2023 for P2P exchange volume, according to Chainalysis. Whatever the reason, Nigerians have determinedly continued using cryptocurrencies even after bank accounts for crypto-related work were ordered to be frozen. It demonstrates that they see cryptocurrencies as a protection against domestic currency devaluation and government capital controls.

Impact of Restrictions

  • Driving P2P Trading: The CBN's restrictions have led to a surge in peer-to-peer (P2P) trading.
  • Encouraging Informal Trading: The CBN's restrictions have forced crypto traders to operate in the informal market.
  • Highlighting the Need for Regulation: The restrictions have highlighted the need for clear regulations and guidelines for the crypto industry.
  • Prompting a Shift to Regulated Exchanges: The CBN's more accommodative stance could encourage a shift among crypto traders and users in Nigeria.

These restrictions have driven crypto traders to the black market. This transition has been the driver of the boom of Nigeria’s crypto industry and highlighted the critical need for regulations and guidelines. Our federal government and regulatory agencies have finally begun to take action. Their overall goal is to promote a more favorable and holistic regulatory landscape. A less restrictive attitude from the CBN might pave the way for licensed, regulated crypto exchanges. This proposed change would allow for meaningful oversight by regulators.

Stablecoins and DeFi: Powering Financial Inclusion

Stablecoins, which are cryptocurrencies whose value is pegged to a stable asset such as the US dollar, have gained significant traction in Nigeria. In countries facing fast depreciating local currencies and lack of access to U.S. dollars, dollar-pegged stablecoins have surged in usage. They afford businesses and individuals a more reliable means of storing value and making international payments, an increasingly salient consideration for Nigerians in light of… With the naira continuing to depreciate against the dollar, stablecoin inflows both for transactions below $1 million are increasing. This trend is further exaggerated during times of major currency devaluations.

Stablecoins have begun to be used for cross-border remittances, offering a faster and cheaper method of sending money across borders. Nigeria has rightfully earned its reputation as a global leader in DeFi adoption. Just last year, DeFi services in the country added over $30 billion worth of value. Stablecoins and DeFi are leading the way towards financial inclusion in Nigeria. Through them, they provide access to critical financial services to the millions of Americans who otherwise would be unbanked or underbanked.

At the same time, Nigeria’s young, tech-savvy population is hungry to use cryptocurrencies and blockchain technology to tackle more tangible, real-world problems. This enthusiasm, along with the factors mentioned above, is setting Nigeria up to be a Web3 development hub. Entrepreneurs across the country are leveraging the full potential of crypto and blockchain. They’re developing transformative applications for environmental justice, rural development, and economic mobility across the board.

  • Cross-Border Remittances: Stablecoins are being used for cross-border remittances, providing a more efficient and cost-effective way to send money across borders.
  • Financial Inclusion: Stablecoins and DeFi are driving financial inclusion in Nigeria, providing access to financial services for people who may not have had it otherwise.

Nigeria: A Budding Web3 Hub

Though Nigeria’s crypto evolution continues to be marred by regulatory uncertainty, the opportunity for crypto to enable growth and innovation is clear. By establishing clear and comprehensive regulations, the government can foster a sustainable crypto ecosystem that empowers entrepreneurs, drives financial inclusion, and positions Nigeria as a leader in the Web3 revolution.

While Nigeria's crypto journey faces regulatory challenges, the potential for growth and innovation is undeniable. By establishing clear and comprehensive regulations, the government can foster a sustainable crypto ecosystem that empowers entrepreneurs, drives financial inclusion, and positions Nigeria as a leader in the Web3 revolution.