Last month, Nigeria upturned its crypto ban. Now, it’s driving a naira-backed stablecoin in hopes of boosting naira prospects.

The African Stablecoin Consortium (ASC), an alliance of banking, blockchain, and government stakeholders, has announced the launch of cNGN, a stablecoin pegged to the naira. This ‘compliant naira’ project, which is rolling out under the CBN’s regulatory sandbox program, is a collaborative effort by top Nigerian banks, virtual asset service providers, and government agencies, to provide Nigerians globally with a digital version of the naira. Built on the Bantu blockchain protocol, cNGN is touted as a home-grown solution that will add value to the Nigerian naira and tap into a “growing demand for naira worldwide”.

The ASC will distribute the cNGN to vetted institutions in an MPC wallet designed by local startup Convexity, and connect VASPs to banking partners in a manner compliant with recent regulatory requirements by the CBN. Key partners in the ASC consortium include Tier 1 banks such as First Bank, Access Bank, Sterling Bank, and Providus Bank; payments companies Budpay, Kora, and Interswitch; and blockchain consultants Convexity and Interstellar.

Telly Valerie, Head of Governance at Interstellar, described the project to NODO as a means of creating more value and global accessibility for the naira. “Millions of Nigerians in the diaspora presently do not have direct access to the naira. The cNGN will change this, and make the currency available to everyone, stimulating remittance and trade flows.”
With the cNGN, Valerie explains, Nigerians can seamlessly move money to the digital forms of other currencies, enabling swifter payments for international trade.

Digital naira, everywhere

The cNGN launch, which follows last month's lifting of Nigeria’s “crypto ban”, adds to growing digital alternatives of the naira. Deposit money banks enable digital fiat; the CBN runs the eNaira, a CBDC which continues to struggle with adoption; and the ASC has now introduced the naira-backed stablecoins, which it believes will make the national currency borderless, interoperable, and efficient.

Yet, the ASC will not be the first to think in this direction. In 2019, the Token Mint consortium drove a naira stablecoin project dubbed NGNT. NGNT was pegged to Circle’s USDC and listed on local exchanges including Busha, Paxful, and Buycoins. But its adoption remains terminally low. NGNT was last transacted about two years ago, according to Etherscan. The eNaira has also faced similar challenges. To date, about 98.5% of eNaira wallets, for any given week, have not been used even once—a “disappointingly low adoption rate”, says the IMF.

Meanwhile, the ASC team maintains the superiority of their stablecoin product. As Abubakar Khalil argues in this Forbes article, “The benefits and effects of the cNGN stablecoin on monetary policy and FX could be more significant than the eNaira, given its wider target reach. Further, the cNGN might indeed have greater adoption and success than the eNaira, especially given the recent reversal of the CBN's bitcoin ban….”

That the cNGN will be controlled by the ASC and held by banks gives it the advantage of being loosely affiliated with the CBN, which, until recent times, held a pro-ban position on cryptocurrency. Industry watchers speculated the crypto ban as a CBN strategy to introduce its eNaira. Already in what can be described as an impasse, the eNaira continues to reel from this negative marketing.

Tapping into the crypto love

Valerie claims the cNGN will benefit from the increasing stablecoins adoption among crypto-savvy Nigerians. The 2023 Geography of Cryptocurrency Report by Chainalysis cites Nigeria as Africa’s topmost crypto destination and establishes the dominance of stablecoins in crypto transactions on the continent. If Nigerians already use stablecoins for payments and even salaries, nothing stops them from using the cNGN similarly, Valerie reasons.

While this thinking holds water, the reality is that stablecoins are valued based on the existing demand for the US dollar, which remains one of the world’s most stable currencies and store of value. The naira, which plunged 55% last year—its worst performance since 1999—inherently lacks this appeal and has no signs of a rebound, reports Bloomberg.

“Markets go up and down all the time. We believe there’ll be a swing in the future that will create more demand for the naira, and by then we’ll have already functional rails,” Valerie said, speaking to the need for naira-pegged stablecoin in a devaluation environment.

In a podcast conversation with Crypto@Scale last year, Ngozi Dozie, CEO of Carbon, a digital neobank, emphasized the importance of exercising caution when dealing with dollar-backed stablecoins. He highlighted the potential risk associated with widespread adoption, stating that if millions of people become aware of stablecoins, they could easily transfer funds on a large scale. According to Dozie, this could pose a challenge for banks that traditionally rely on a 2% or 3% cost of funds. The cNGN model aims to alleviate such fears by ensuring that the naira equivalent of the stablecoins is securely held in banks.

In all these, the most obvious win of the cNGN is its ability to pull together blockchain players, traditional finance institutions, and regulators around a common goal to bring the naira on-chain. This feat holds broader significance for the blockchain ecosystem and presents opportunities for innovators to build disruptive solutions on top of cNGN’s infrastructure.