Globally, the rate of adoption of digital assets[1] has been on a steady rise and the growing interest and adoption of digital assets in Nigeria has translated into more regulatory attention in recent times. In this article, we examine the conceptualisation of digital assets as securities, the evolution of the regulatory framework for digital assets in Nigeria, and the adequacy of the existing framework whilst drawing lessons from other jurisdictions.
What are Digital Assets?
Digital assets are digital representations of value or contractual rights that are facilitated by distributed ledger technology[2], and can be transferred, stored, or traded electronically. Examples of digital assets include convertible digital currencies, stable coins, and non-fungible tokens. Convertible digital currencies (i.e. cryptocurrency) have an equivalent value to fiat currency and can act as a substitute for the latter.
The Securities and Exchange Commission (the "SEC"), in its Statement on Digital Assets and their Classification and Treatment (the "SEC Statement")[3] outlined four (4) broad categories of digital assets. These are crypto assets, utility tokens, security tokens and derivatives or collective investment funds of the foregoing categories.
According to the SEC Statement, crypto assets such as a non-fiat digital currency will be treated as commodities if traded on a recognised investment exchange. Similarly, utility tokens that enable holders have access to specific products or services will be treated as commodities. Additionally, derivatives and collective investment funds of crypto assets, security tokens, and utility tokens will be regulated as specified investments by the SEC.
The approach that the SEC has taken in the regulation of digital assets by extending existing traditional securities law to digital assets is similar to the approach that regulators in developed countries like the United States of America (the "U.S.") have adopted[4].
[1] Can be referred to as virtual assets and used interchangeably with digital assets as applicable in this article.
[2] Digital system of recording the transactions relating to a digital asset whose details are recorded in multiple places at the same time. Blockchain operates by the digital ledger technology system.
[3] SEC 2020 Statement On Digital Assets And Their Classification And Treatment
[4] The World Economic Forum, Digital Assets Regulation Insights from Jurisdictional Approaches, October 2024 available at <WEF_Digital_Assets_Regulation_2024.pdf> accessed 10 December 2024
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