Nigeria Cracks Down on Stablecoins with Tough Redemption Rules

Nigeria's Securities and Exchange Commission (SEC) has proposed a new framework for stablecoin regulation, focusing on redemption liquidity, reserve quality, and counterparty risk.

The draft rules require stablecoin issuers to maintain a minimum 120% Liquidity Coverage Ratio (LCR), which is based on high-quality liquid reserves relative to projected 30-day net redemption outflows. Foreign-currency-backed stablecoins would need 120% backing, while crypto-backed stablecoins would face 150-200% collateralisation.

The SEC also proposes stress tests every quarter, including a 50% redemption shock within 48 hours and a 30% crypto-market decline within 24 hours. Issuers would need to model the failure or impairment of a reserve-holding institution, foreign-exchange devaluation, or convertibility stress.

The proposal also introduces reserve quality and counterparty risk considerations, with different indicative risk weights for various assets, such as CBN treasury bills (0%), short sovereign bonds (5-20%), and Bitcoin and Ether (50-75%). Exposure to one Nigerian bank is capped at 25% of reserves, while foreign bank exposure is capped at 20%.