A DEEP DIVE INTO STABLECOIN ADOPTION IN NIGERIA

7 min readMay 17, 2024

John was about to hit send when he got a message from Alex.

He quickly responded to it.

John was about to pay for his new PlayStation using USDT. He has been fantasizing about beating Alex to the first game on his new PlayStation for months now and it’s all coming to reality.

He let go of his thoughts and went on to continue the transaction.

Sent ✅ popped up on his screen and he heaved a sigh of relief.

John had just escaped the stress of going to his local bank to process this transaction as his vendor resides in the United States. What should have taken him weeks to send took just some seconds. Now he can focus on more important things.

If you are curious about what USDT is and how to save time like John then continue reading. In this article, we’ll discuss stablecoins in Nigeria, use cases and challenges of stablecoins.

OUTLINE

What are stablecoins
Types of stablecoins
Why do Nigerians use stablecoins ?
Challenges of stablecoin adoption in Nigeria
Conclusion

What are Stablecoins?

Stablecoins are assets whose value is tied to another commodity, currency, or financial instrument. They are alternatives to the regular cryptocurrencies available on the market. One of the major reasons for choosing stablecoins is the non-volatility they possess over regular coins like $BTC and $ETH. Take, for example, Bitcoin has seen a major fall and rise in prices over the past years. In November 2021, it reached an ATH all-time high of $69,000 only to fall to $46,211 in mid-December as reported by Coin Telegraph. This volatile nature has been one of the disadvantages of holding regular cryptocurrencies and led to the creation of stablecoins. I mean imagine what a loss it was to the hodler then.

There are various kinds of stablecoin according to the asset they derive their value from.

Types of Stablecoins

Fiat-collateralized stablecoins

These are coins whose value is tied to a fiat currency or commodity such as metal and crude oil. In this category for every unit of stablecoin issued out, there’s an equivalent unit of fiat currency/commodity stored in a reserve to provide stability of the coin. For most fiat-collateralized stablecoins, the US dollar is majorly used. A popular example is Tether (USDT).

Crypto-collateralized stablecoins

Their value is pegged to crypto tokens. You might be wondering why crypto tokens. What about the problem with volatility? Well, in this case, the reserve is always more than the stablecoin issued, making it over-collateralized. This accounts for any fall in price at any point in time. DAI is a good example of this category.

Algorithmic stablecoins

They are coins whose value is controlled by an algorithm. They may have a reserve asset protecting its value but it’s majorly controlled by the algorithm. The purpose of the algorithm is to control the supply of the coin to match its demand keeping a stable price with minimal fluctuations.

The general idea of stablecoins is the stable price, right? But not all stablecoins are like that. Some stablecoins such as Algorithmic experience volatility or a large fall in price. This is because of the asset used to provide its value.

TerraUSD (UST), the stablecoin of the Terra blockchain, experienced volatility as described earlier. The token’s price fell to $0.30 from $1 due to market fluctuations caused by Luna, the asset it is deriving value from. This event caused a wipeout of $45 billion from the market. Aside from the collapse of UST, there have barely been any significant events as such in the industry.

Moving on, Nigeria as a country has always stayed on top of trending technology and innovations like blockchain, and Artificial Intelligence (AI) so it is no surprise that Nigeria is leading amongst other African countries in the use of cryptocurrencies and digital assets. A report by Chainalysis confirmed the hypothesis after analyzing data from countries in Sub-Saharan Africa. The bitcoin and stablecoin value received by Nigerian exchanges from the period from August 2021- July 2023 is shown in the chart below. According to the data, the amount of stablecoins received surpasses Bitcoin by a considerable margin.

What could be the reason for the uprise in the usage of stablecoins and other digital assets in Nigeria?

Why do Nigerians use stablecoins?

There are numerous reasons why Nigerians use stablecoins for everyday transactions and in this section of the article, we will be exploring some of them from a user and business perspective.

As a store of value

The Naira has experienced a serious decline in value especially post-COVID due to economic fallout, drop in oil prices and disruption in the global supply chain leaving people to run to the saving arms of stablecoins as a solution to their problem. People prefer to convert most of their money or earnings to stablecoins to preserve their value. Money converted to stablecoins is then used for regular transactions due to easy access, fast transaction speed, and low fees.

To receive payments from foreign countries.

The scope of the economy is evolving. We are currently in the skill economy, where various citizens in Nigeria offer their skills in exchange for money. Most often, they have clients from other countries, where the issue lies is how to receive payments. Receiving payments via traditional banking services such as World Remit can be stressful as it takes days to confirm payments, and you have to present a lot of paperwork to confirm your processing while transaction fees are also high. A better option is to receive payments in stablecoins and convert to fiat currency. USDC and USDT are popular stablecoins used to receive payments. Business owners who have international clients utilize stablecoins as a form of payment because of easy access.

Inflation and the devaluation of naira

Inflation has always been a problem in Nigeria but has worsened from the post-COVID period. According to the Central Bank of Nigeria (CBN), inflation rates have been on the rise for some time and peaked at 33% in March 2024 making it the highest ever for the past two decades. What 20,000 Naira can purchase in January is not the same today in May. According to the Chainalysis report, Nigeria as a country has seen two economic recessions causing further devaluation of the naira and making cryptocurrency a viable option. Citizens have taken to the use of stablecoins especially to preserve the value of their earnings and hedge against inflation.

Cross Border transactions

This is a major reason stablecoins are adopted very well in Nigeria. To send and receive payments from other countries is often a herculean task because of the cost, time, and transaction fees associated with it. Using stablecoin via web3 wallets has proven to be faster, and more efficient than traditional banking methods such as Western Union, and World Remit. With stablecoins, you can send and receive money without hassles.

Challenges of Stablecoin Adoption in Nigeria

Despite the benefits stablecoins offer to users Nigerians especially, it is not adopted by the larger part of the community due to certain reasons. Let’s look over a few of them.

Awareness

Most of the active crypto users in Nigeria fall under the age bracket of 16–35. A wide gap is still left unfilled as the majority of the population is not aware of digital assets such as cryptocurrencies and stablecoins. Intentional education and outreach to the citizens would see a significant increase in the number of active users of cryptocurrencies. Superteam of Solana is one of the communities that have been actively educating people about cryptocurrencies and blockchain technology, opportunities available and how to maximize it, and organizing ecosystem calls across different states. A highlight of the Ilorin, Kwara State’s ecosystem call can be seen here.

Regulatory risks

The Nigerian government seems to be sitting on a fence as to whether digital assets are legal. They published a report last year stating the benefits Blockchain-a DLT technology could bring into the country in terms of economic growth and development but their actions to prevent the crypto transactions between citizens are visible. A regulatory framework regarding cryptocurrencies and other digital assets will bring rest to the minds of many users and enthusiasts. The Central Bank of Nigeria (CBN) has acknowledged the use of stablecoins among its citizens in the Nigerian Payment Vision 2025 document. The institution is also proposing a regulatory framework that will see through the use of stablecoins. CBN is taking advantage of the citizen’s use of stablecoins to adopt a native stablecoin for the country in the form of cNGN. The financial system hopes with time cNGN becomes a preferred choice of stablecoin by its citizens which will be beneficial for the economy.

CONCLUSION

Stablecoins have proven to be the savior for many Nigerians due to their efficiency, low transaction fees, and source of preservation of income. The rise in its usage shows the potential to become a mainstream adoption in years to come. However, regulatory clarity, awareness of the technology and its impact have to be taken into consideration. Overall, stablecoins provide a reliable means of exchange of value whilst enabling stability in the process.