In February 2021, the Central Bank of Nigeria (CBN) dropped a bombshell on the country's crypto industry, banning banks from facilitating crypto transactions. The move sent shockwaves through the sector, forcing local startups to either adapt or face extinction. The ban was a seismic shift that changed the trajectory of Nigeria's crypto landscape, and its impact is still being felt today.

At the time, Nigeria was home to a thriving crypto industry, with startups like Bitfxt, LocalBitcoins, and Paxful pioneering crypto trading in the country. However, the CBN's ban caught them off guard, and many were forced to shut down or pivot their business models. Bitfxt, for instance, was in the middle of a fundraising round when the ban was announced, and it ultimately had to rebrand and pivot to Boundlesspay in 2021.

The ban was a response to the risks associated with crypto transactions, which banks deemed too high to handle. With few businesses accepting crypto, the risk of significant losses made banks even more hesitant to get involved. The ban hit customers the hardest, with many finding their accounts frozen if they had been linked to crypto transactions. Others couldn't buy or sell their digital assets, leaving them locked out of their crypto holdings for months.

In the aftermath of the ban, many local startups were forced to innovate or die. Some, like Roqqu and Quidax, introduced peer-to-peer (P2P) platforms, which allowed users to control liquidity and facilitated trades. Others, like Busha, introduced verification checks on traders to self-regulate during the era of regulatory uncertainty. Luno, a UK-based crypto company operating in Nigeria, chose an unconventional approach, introducing a voucher payment system that allowed users to make payments into a virtual account.

Despite these innovations, liquidity remained a challenge. Operating without a bank account was difficult, and surviving local crypto startups had to rely on revenue streams like token listings and other services. Many used offshore bank accounts to manage customer deposits, while multinational exchanges shifted focus to other markets. This pushed local startups to open accounts with crypto payment infrastructure providers like Circle and Nexo, which enabled them to manage liquidity by holding stablecoins.

In recent months, there have been signs of a shift in Nigeria's stance on crypto. In December 2023, the country lifted its crypto ban, and in August 2024, the Securities and Exchange Commission (SEC) issued provisional licences to Quidax and Busha. However, it's hard to argue that startups that folded wouldn't have survived under more favourable regulatory conditions. Banks remain wary of the volatile asset class, and the lack of clear regulatory guidance continues to stall them.

For crypto startups that have survived the regulatory turbulence, hope lies in leveraging blockchain technology to solve real-world problems, particularly in bridging traditional finance (TradFi) with decentralised finance (DeFi). Compliance remains a critical priority, and startups are now focused on building new features and expanding into markets where they are suited to generate revenue and grow their user base.

As the SEC tries to establish a framework for crypto, it's reportedly studying self-regulated startups to better understand how to oversee the industry in a way that balances innovation with compliance. The next few years will likely bring a more defined crypto landscape in Nigeria, but collaboration between the SEC and startup operators will remain key to success.