INTERVIEW: FG losing money due to delay in licensing crypto exchanges, says Chike Okonkwo

On August 20, 2024, the Securities and Exchange Commission (SEC) disclosed plans to license virtual assets providers — including cryptocurrencies. The move was envisioned to enable Nigerians to explore opportunities and “protect investors as adoption rates surge in Nigeria”. A week later, the SEC granted two digital assets exchanges “approval-in-principle” to commence operation under its accelerated regulatory incubation programme (ARIP).

Although the approval is not a full licence, as the commission admitted, it comes as a major, real step to crypto regulation and acceptance in Nigeria after the country approved the national blockchain policy in 2023. Along with the ARIP, the SEC had proposed raising the minimum capital requirement for VASPs to N1 billion – up from N500 million.

While the proposition is still being debated, the ARIP – now widely known as the regulatory sandbox – is gaining momentum among players. As of September last year, about 50 cryptocurrency exchanges reportedly applied for operational licences. The regulatory attempt has also been recognised by the International Monetary Fund (IMF), as Nigeria remains one of the top three countries globally with rising rates of crypto adoption.

But despite this, VASPs’ licensing has remained slow, even though the SEC had promised acceleration. In this interview, Chike Okonkwo, YDPay ‘s business development and marketing lead, speaks with TheCable’s DESMOND OKON on the implications of delayed licensing for the industry and the federal government. He also shares his views on the VASPs industry and its potential contribution to the $1 economy target of President Bola Tinubu.

TheCable: Does Nigeria have the infrastructure to monitor crypto transactions right now?

Okonkwo: There is a sandbox being used for testing. When it comes to sandboxes, I am not very moved because if you create a sandbox, I do not think the person who is creating the sandbox knows what the industry wants. It is to listen to what the industry wants, and we are the ones who can give the best test case for it.

With the conversation of sandboxes, I want to believe that there is a system they have put in place that they are using to understand the activities of the current crypto exchanges that have received the approval in principle, because, as far as I am concerned, it is an approval in principle and not a full licence, as it is supposed to be.

So, the modality of how FIRS wants to collect tax from crypto exchanges is a completely different ball game that we do not understand. They have not come out to say we have a system to track all the activities. If they do, kudos to them. But for now, not many of us know. We know that they say they are included in taxable assets in the new law that is going to kick off in 2026.

TheCable: So, you’re saying that there has not been any clear direction as to how that is going to happen?

Okonkwo: There has not been any clear direction.

TheCable: And the industry is also concerned about this?

Okonkwo: Very concerned. Everybody has been saying that we have not been fully licensed. There is no clear-cut policy, and you are already including us in taxes. We have been saying we are open to working with you, but we should have a clear-cut policy before you tax us.

TheCable: Talking about licensing, you earlier mentioned the regulatory sandbox that the SEC introduced in 2024. What do you think is delaying licensing for VASPs right now in the country?

Okonkwo: Let’s put it on bureaucracy and how the government does its approval and checks. I am very sure since they gave seven companies approval (two crypto exchanges and five others in different aspects of the industry), quite a number of people have applied, and YDPay is one of them. With some of the recent responses we just received, we have moved to a very good stage, which means that there is a lot of ongoing process. I do not know what kind of checks they are doing, but I am sure a lot of reviews are happening.

Then the number of companies that have applied might be so many that they have to go through them. I also have an idea that the department [manning the applications] was newly created. So, I am sure the people who are there might be overwhelmed by the application that has come in, because there are a lot of crypto companies.

So, the rigorous process might be the delay because from when you apply to when you go for the screening, they will check all your documents as a company. If you meet their different criteria, then you move to the stage where you are being screened, and then you do a presentation by product. There are quite a number of things. I feel those are different things that are happening, especially with all these steps for companies to follow.

TheCable: How is that delay affecting your company and other players?

Okonkwo: One thing about startups, financial technology, and people who build is that we are very quick to build and always want to push out. So, that delay is not letting us do a lot of things that we want to do. It is not letting us explore partnerships and collaborations. For example, many traditional financial institutions will not want to work with you if you do not have that approval, unless they have some sort of licensing from their own part that can give them the power to just work with us directly.

Those who are completely restricted by that cannot work with us. So, there is little collaboration that we can do, especially when we are a very traditional-facing business. I believe the industry is going to deal with people, no matter how you like to say ‘everything is digital’. It is people. You partner and collaborate with as many people as you can. That is one of the things the delay is really hindering. It is limiting some of the collaborations you can do.

Also, the speed to launch all kinds of different features and offerings and services is also an issue. You cannot just get up and say that you are launching a new feature or a new service to customers, or you want to onboard businesses. Some businesses will say, ‘If you do not have this, I do not want to work with you’ because of trust.

TheCable: What consequences do you see for the government or Nigeria as a country?

Okonkwo: I know that they are doing their best, and I really appreciate it, but I really want the government to explore speed. If they need to even work with external consultants to speed up the process, they should do that because they are also losing money on the table. That is one thing I know. They should make sure that these conversations are as friendly as possible. They have tried, but there still needs to be more synergy between all the different financial regulators working with the SEC and a lot of other people. There needs to be that synergy so that the government can move with speed and not lose money that is on the table.

I think another thing the government is losing is insights, because the quicker they can work collaboratively with industry players, the more they can get more insights into the inner workings of the industry. People who do not see a working relationship with the government will not find them friendly to give information. It is when there is a working relationship that information and data can be shared.

TheCable: What do you think is driving crypto adoption in Nigeria despite the associated digital risk?

Okonkwo: What is really driving the adoption currently is a lot of economic instability, and that is not only a Nigerian case. We have quite a number of economies in Africa that are adopting crypto, but as they say, Nigeria is number two, the reason being that there have been a lot of economic setbacks for a lot of people. People do not have enough earning power, so many people have taken to crypto as a means to quickly either get a career, make money, or do tasks that give them financial incentives.

The reason why I said that is that the blockchain industry is an industry of value. Value in the sense that you are able to do some tasks like airdrops. People can now take that airdrop and do it for either $100, $50, and that is some financial incentive for them. When somebody begins to spread the word as to what they did, more people would want to learn about it, and the adoption begins to grow. It created the conversation of OTC traders, people who started understanding how to use stable coins to help people convert fiat, move money from Nigeria to Cameroon and to other African countries, making trade easier. So, there is no doubt that that is happening.

Another thing is limited access to forex. A lot of companies cannot really take out funds easily from the country because of limited forex (foreign exchange) access. The blockchain is cross-border. It is limitless. Money can move from Nigeria to as far as China. So, if that’s happening, why should I not understand how to use that kind of technology? Again, the digital nature of finance in the crypto space means that people can travel and rather than going to look for foreign exchange (FX) in the bank; if you understand how to use crypto, you hold the amount you want to travel with in your wallet, and you travel out and over there, if you get a vendor, you change money and a lot of people are also using it for payment purposes. So, these are the drivers of crypto adoption.

TheCable: President Tinubu wants to achieve a $1 trillion economy. What role do you see VASPs playing towards achieving that dream?

Okonkwo: We love the fact that the government wants to achieve a $1 trillion economy, and digital finance will play a huge role in that, and it is not even about taxing; it is about how we are able to key into it so that other financial institutions can learn and gain from it because the banks cannot really build blockchain solutions. They can if their regulations allow them, but for now, the regulations do not allow them. So, the best that can happen is that banks can exchange information between themselves and the companies who play in this space, and more money moves quickly and faster, and that also allows people have confidence in the economy, and people can bring in money knowing that there are now other avenues that are approved by the government where they can easily take money out of the country.

Some people tell me about agriculture, and people want to invest in some of their businesses. One of the problems some young founders are facing is: ‘I want to invest in you, but I have seen what is happening that I cannot easily take money out of your country’, especially uninformed investors. So, when this kind of thing happens, you are losing out. It is not just the founder who lost money; the country also lost FDI coming into the country.

TheCable: As we wrap up, what is your assessment of Nigeria’s VASP sector? What do you think has improved over the years? What has not improved over the years? What can be done to grow the sector for it to be globally competitive?

Okonkwo: We have come a long way in my one decade of being in the industry. There was a time when you could not type crypto without seeing scam, and this is global. There was a time when you could not discuss crypto with a banker; he would argue with you. There was a time when you could not discuss crypto with a government person. There was a time when the police, just by seeing a crypto app, they are already harassing you as a cybercriminal, but that is changing. Aside from that, I give kudos to the SEC for taking the forefront in helping us see that they are working with us, because that gave us leverage. Also, that gave us some sort of immunity over what the former CBN governor put out by plugging off all financial institutions from the crypto institutions. We are very hopeful that more needs to be done because education is key for institutions to embrace the industry, for players to understand how what they are doing either affects the economy negatively or positively.

There also needs to be more stakeholder, government engagement, and the government needs to invest in research because the industry is not only about trading crypto. As a matter of fact, it is more about data because when it comes to blockchain, blockchain stores data — it helps you track how people are doing financial activities — and it is the most important thing that any government should want to do, because with that, it helps you stay informed as to how the movement of money happens in the economy.

If the government cannot track that, it is a problem. You now have a technology that no bank can own, because banks tend to hold their own data to their chest. They may share it among themselves, maybe by virtue of leaps and the central bank, but it is not always easy to understand how that data moves. But when you have a centralised system or a transparent system, even the government can easily beat their chest and say, ‘this is how money was moved’, ‘this is how this demography of people spends money’, ‘this is how this demography of people receives money’. We are able to understand better. So, the future is bright, but we have come a long way because where we used to be and where we are now is very much better.

TheCable: With rising crypto adoption, what new threats do you foresee coming out of that space, and how can people guard against them?

Okonkwo: One of the threats I’ve seen can be caused by the government if care is not put into it properly: the concept of taxing what is not there. You can hear a company processed $1 million in a day. You will think the company processed $1 million, and it is their money. Processed means transactions are passed through. If you now say because you hear such amounts of money, it means this company made a lot of money, it might be that the ‘processed’ in that transaction, they made just $200, which is very possible, or in all of those transactions, all they made was just $200.

It is not their money. Process means the money passes through their system. So, we must learn to understand before we now put in taxes. India did it, put a 25 percent tax. The people revolted and said, ‘You cannot do this’. The industry is still very nascent. So, whatever you are doing here, do not look at the huge money or volumes you see. It is a lot of people’s money put together that makes that volume. So, if you tax companies based on that, you might be taxing them too much, and even taxing individual traders based on those conversations. So, it is important that we understand how we are going to tax it, and not begin to tax it like it is already established traditional financial institutions. We must do that with care.

I think another threat that I see is from the industry itself. Quite a number of people may be unable to meet some of the requirements to get licensed. We need to have a clear-cut understanding of how to categorise licensing for the industry, just as you have the FinTech licence, bank licence, MSB licence, PSSP licence, all of that; the industry must have those kinds of licences too, because there are people who just want to do OTC, convert money and now hold. There are people who just want to do cross-border payments. There are people who just want to build solutions where their API plugs both traditional finance and other digital finance together. So, we must know that this research needs to be done, and that is why stakeholder and government engagement are very important.