Analyzing Stablecoin Adoption and its Challenges in Nigeria
Some weeks ago, I decided I wanted to invest in cryptocurrency. I had 47 USDT ($47), which I wasn’t using at the time so, I felt it would be great to make an investment.
I transferred the 47 USDT from Bybit (an exchange) to Phantom Wallet, hoping to buy some coins there. (I cannot explain why I didn’t just buy the coins on Bybit, since it’s also a marketplace where you trade cryptocurrency).
In my Phantom Wallet, I went ahead to buy some coins, only to find out that I couldn’t make any transactions. The wallet kept on informing me that I didn’t have enough SOL (Solana) to complete my transactions. I totally didn’t know that I needed to have some SOL before I could make any transaction on the wallet.
At this point, I was in a panic and all I wanted to do was to withdraw all my money. Luckily, a friend helped send some SOL to the wallet, and I was able to withdraw the money, every single cent of my 47 USDT.
Now, the point of this story is to illustrate how secure the value of your money is, when stored in stablecoins. I was able to withdraw my money without any loss because it was stored in USDT, a stablecoin backed by the US dollar.
If the money had been stored in a more volatile cryptocurrency, I probably would have lost some cents or if I was lucky, gained some (it’s a two-way thing).
Because of how volatile crypto is, a lot of people are scared of saving/investing in cryptocurrency, especially in Nigeria where the currency (Naira) is even more volatile. However, this volatility isn’t an issue when stablecoins are involved, hence it’s popularity is on the rise.
In this article, we’ll explore key use cases and challenges of stablecoin adoption for both individuals and businesses, and what this means for Nigeria.
Before we go ahead, let’s properly define what stablecoins are.
What are Stablecoins?
Stablecoins are cryptocurrencies tied to real-world asset, like fiat currencies, gold, etc.
They are designed to have the same value of the given currency, causing them to remain steady and stable. This stability is totally opposite to traditional cryptocurrencies like Bitcoin, which exhibit high volatility.
An example of a popular stablecoin is USDT (Tether), a stablecoin backed by a diverse mix of assets.
Countries are beginning to adopt stablecoins linked to their currencies, because they offer stability and make cross-border transactions easier.
Nigeria is one of the leading countries of crytocurrency users in Africa. To back up this claim, in September 2023, Chainalysis compiled a report which placed Nigeria as No. 2 in their 2023 Global Crypto Adoption Index.
This simply shows how cryptocurrency adoption is on the increase in the country. Due to the rate at which inflation is increasing steadily, many Nigerians have begun to seek better ways of storing their money, and what better way to store money than in stablecoins?
A lot of people now prefer to be paid in stablecoins because this ensures that the value of their money is preserved.
Types of Stablecoins
There are several types of stablecoins, including:
- Fiat-backed/collaterized: these are stablecoins backed by traditional currencies like the dollar, meaning that each stablecoin is supported by actual cash reserves. This helps them maintain their value and makes them less volatile e.g USDC, USDT, etc.
- Crypto-backed/collaterized: these are stablecoins backed by other cryptocurrencies. They use smart contracts to maintain their value, but are prone to higher volatility e.g DAI, sUSD, etc.
- Algorithmic: these are stablecoins which use algorithms to control their supply and maintain value without direct backing. They rely on supply and demand mechanisms to keep their price stable e.g FRAX, AMPL, etc.
Now, let’s explore the key use cases and challenges of stablecoin adoption in Nigeria, from both business and user perspectives.
Key Use Cases of Stablecoins
Stablecoins have a lot of uses across different sectors in Nigeria. In order to adequately explore these use cases, we’ll seperate them into categories; User and Business perspectives, respectively.
From a User Perspective
Every individual has the ability to interact with stablecoins as long as they have access to a smartphone and internet. Here are some ways individuals can use stablecoins:
Remittances
Nigeria is a global leader in remittances, due to millions of her citizens living abroad sending money back regularly. Almost every extended family has a family member abroad due to the high rate of japa.
With stablecoins, it would be faster and more affordable to send money back home, avoiding traditional remittance channels which are often costly and inefficient. The good people at Techpoint estimate that Nigeria received over $56 billion in crypto, between July 2022 and June 2023, while remittances for 2022 were $20 billion.
Day-to-day transactions
There are lots of challenges associated with traditional banking channels in Nigeria, including bank delays. The newly introduced Cybersecurity Act is not helping matters as it adds more compliance requirements, potentially slowing down transactions further.
With stablecoins you can avoid the high fees attached to fiat currency and carry out transactions quicker and easier, offering a more efficient alternative to traditional banking.
Faster payments
Stablecoins facilitate fast and low-cost transactions, making them suitable for everyday payments. You can use stablecoins to purchase goods and services both online and in-store, helping to solve the problem of high transaction fees and delays associated with traditional banks.
Increased financial inclusion
A large proportion of Nigeria’s population remain unbanked, lacking access to formaal banking. Stablecoins help to bridge this gap by providing anyone with smartphone and internet connection with the ability to save, invest, and transact without needing a traditional bank account.
From a Business Perspective
From a business perspective, there are a lot of use-cases for stablecoin adoption in Nigeria. They include:
Easier international trade
For businesses engaged in cross-border trade, stablecoins can help to provide a stable medium of exchange. You’ll no longer have to worry about high exchange rates or how long payments or transactions might take.
Merchant payments
In Nigeria, businesses face challenges with traditional payment systems, including high transaction fees and limited accessibility. For small businesses trying to get established, high transaction fees can be a huge deterrent. Stablecoins would help by offering lower fees, quicker transactions, and broader access to financial services.
Employee payments
This days, a lot of people prefer to be paid in stablecoins. For small and medium sized businesses, this is a convenient way to pay wages and salaries. This method reduces the cost and complexity associated with payroll management, ensuring timely and accurate payments, and making sure your employee gets the accurate value of their wages.
Challenges Associated with Stablecoin Adoption in Nigeria
Although the benefits of stablecoins cannot be denied, everything that has advantages must also have disadvantages. Let’s explore the challenges associated with stablecoin adoption from both user and business perspectives.
From a User Perspective
Users in Nigeria face quite some challenges in adopting stablecoins. These challenges include:
Limited awareness
Many people are not familiar with how stablecoins work or their potential benefits. This lack of knowlegde can make users not comfortable using them for transactions or savings.
Access issues
A lot of users might not have access to the technology required to use stablecoins, such as smartphones and reliable internet. This makes it harder for the user to participate in the digital currency space.
Requlatory uncertainty
Frequent changes or unclear regulations about cryptocurrencies can make users hesitant. They may fear future restrictions or penalties, which can discourage stablecoin use.
From a Business Perspective
Businesses are not left out when it comes to having challenges associated with stablecoins. Some of these challenges are:
Regulatory compliance
A major challenge of any business would be regulations. Businesses would need to comply with evolving regulations, which can be challenging and costly. Ensuring compliance with local laws is necessary but at the same time, it can stop businesses from adopting stablecoins.
Cost of integration
Integrating stablecoins into small & medium sized businesses can be really expensive. Businesses will need to implement systems to accept stablecoin payments, and also invest in technology and training, which may be a barrier for small businesses.
Volatility rate
Although stablecoins are highly regarded for their stability, there are still some concerns about minor fluctuations in the market. This could affect the financial stability of a business, and cause problems for them later.
How can we Improve Stablecoin Adoption in Nigeria?
Most people would agree that the benefits of stablecoins outweigh the cons. There’s just a lot of opportunities there, and the Nigerian market has a lot of interest in them. Despite the high rate of interest, stablecoin adoption still has room to grow in Nigeria.
This brings us to the question of how we can improve stablecoin adoption in Nigeria, to the extent that it can be used for day-to-day transactions anywhere, even in our local markets. Below are some ways we could increase stablecoin adoption in Nigeria:
Removing the ban on cryptocurrency in Nigeria
In Nigeria, cryptocurrency was banned by the government, which discourages many from exploring stablecoins or crypto in general. Removing the ban would allow people to learn more about stablecoins without the fear of being penalized. This could lead to improved financial inclusion and increased innovation.
Crypto education carnival
The truth is, crypto can be complicated. Hosting fun and interactive workshops can help people better understand stablecoins. Think of a carnival or fest, where there are booths on blockchain technology, workshops on wallet setups, etc. By making learning fun, it’s easier for people to get more curious about stablecoins.
Integration with local services
To drive adoption, stablecoins have to be practical for everyday use, like I mentioned earlier. Integrating stablecoins into local businesses, websites, and applications can make adoption easier. Imagine paying for a tricycle ride with stablecoins. How amazing would that be?
Localized Content and Marketing
Creating marketing content that are in tune with Nigerian culture and values is crucial. Localized content, perharps in Nigerian indigenous languages, can make the concept of stablecoins more relatable. We can even make use of catchy jingles, and engaging videos that reflect local scenarios.
Conclusion
The increased adoption of stablecoins would be great for Nigeria, especially as the value of the Naira depreciates everyday. However, we’ll have to be very careful of the potential negative effects.
Regulations should be in put place to ensure that all users are protected from scams or frauds, and there’s clear and open operations by stablecoin providers.
This will ensure a safe and stable financial environment, boosting the use of stablecoins alongside the traditional economy, and benefiting both individuals and businesses.
Thank you for reading this article; I hope you enjoyed it. Please clap and leave a comment!
References:
- What are Stablecoins? by Britannica
- Why Stablecoins may be bad for Nigeria by Techpoint Africa
- Nigeria: Demand for stablecoins fuels new wave of dollarisation by The African Report
