Franklin Peters, the founder of the crypto startup Bitfxt, set out in 2017 to provide three solutions. A crypto payment gateway, cross-border remittance products, and a trading platform. Bitfxt processed “tens” of millions of transactions per year at its peak in 2019. A seismic event changed the trajectory of the company, which was in a fundraising round.
The Central Bank of Nigeria (CBN), on February 5, 2021, barred banks from facilitating cryptocurrency transactions. This forced banks into closing the accounts of crypto-companies, locking them out over night. In just a few days, a thriving industry was forced underground. The ban had a devastating effect on Bitfxt LocalBitcoins and Paxful, which were pioneers in crypto trading.
Bull market
In 2017, Bitcoin reached $10,000 for the very first time. This raised awareness about digital assets. Nigerians joined the market in 2017, hoping to make crypto-money, but it was difficult for them to buy Bitcoin.
Existing cryptocurrency exchanges were not designed for Nigeria making it difficult to purchase crypto using Naira. Buyers sent money to a friend abroad to buy Bitcoin at a foreign exchange. Then, the money was transferred to a decentralised Wallet. Or they used WhatsApp groups to communicate with crypto traders. Both methods had some risks, namely the risk of being scammed due to the lack secure and regulated platforms.
Bitfxt is a crypto trading platform which allowed Nigerians the option to purchase crypto using Naira. It made money by charging token listing fees and transaction fees. The startup charged cryptocurrency token creators an inclusion fee for listing their crypto tokens on its app. The startup’s revenues were not enough to cover its overhead and operating costs. Peters, the former founder of Bitfxt, said that they were never profitable and had no extra cash. “The money was always used to pay our engineers.”
Due the shortage of local blockchain talent Bitfxt hired Indian engineering, paying them in dollar while earning revenue in Naira. These engineers maintained the platform, and managed token integrations – one of the company’s main income streams.
Peters said that there was a lack in education and legitimacy when it came to crypto. “Nigerian Software Engineers didn’t want it to be risky, so they stayed with Web2 jobs. We had no other choice but to hire foreigners.”
The challenges grew by 2020. Foreign exchanges like BinanceHuobiand OKX, who had more money and global experience, expanded to Nigeria, undercutting the local crypto startups. Their entry coincided when Nigerians with cash in hand queued up to buy Bitcoin again, hoping to make profits. In order to attract these buyers, the foreign exchanges engaged on a price war for transaction fees and recruited top-tier blockchain developers.
Bitfxt, facing stiff competition, struggled to raise funds. A failed funding round left it on shaky grounds in 2020. Peters, without enough capital to run Bitfxt for months, shut down the business. He later rebranded and pivoted it to Boundlesspay. The CBN ban was the final nail to the coffin.
A seismic change
When the [crypto ban] occurred, everyone–crypto exchanges included–was affected. “That’s when the first version Boundlesspay was to launch. In that first version, our partnership with a bank allowed us to integrate the core infrastructure of their system into ours. This allowed our users the ability to purchase virtual assets through our platform.”
As the crypto industry became more risky, banks began to be cautious about crypto transactions. The banks did not like the time and money it took to check these risky transactions, especially because they already adhered to strict rules. Banks wanted to avoid fines and protect their customers’ money. The risk of large losses made banks more reluctant to get involved.
Customers were the hardest hit by this ban. Nigerians found that their accounts were frozen if they were linked to crypto transactions. Others were unable to buy or sell digital assets. They were locked out for months.
It was either innovate or die for local startups. In 2021, 42 crypto startups focusing on Africa and local Nigerians were operating in Nigeria. These included Egoras Cryptofully Bitmama NairaEx BuyCoins Fluidcoins VIBRA and Lopeer. Twenty-six shut down, were bought, or repositioned due to regulatory issues and liquidity shortages.
Formerly thriving local crypto startups such as Naijacrypto NairaEx and Bitfxt have gone under. Lazerpay in 2023, which allowed businesses process crypto payments, closed citing the “uncertain regulatory environment around crypto in Nigeria.” BundleAfrica, another crypto startup shut down its exchange platform in order to restructure their business. Paxful, an international crypto trading platform, temporarily left Nigeria to focus on global operations. They returned one month later. In 2024, another crypto company, Helicarrier–formerly known as BuyCoins–also shut down its exchange platform over liquidity concerns. Web3 startups were struggling to cope with the impact of the bear market and crash of popular crypto exchange FTX .
Adaverse, a startup funded by Adaverse, rebranded Payourse to Partna and shifted its focus to B2B Remittance. Y Combinator’s iFlux, now known as Flux, shifted from being a crypto exchange into providing traditional remittance.
No one wants to work with anyone if they deal with crypto. Ben Eluan told TechPoint that in June 2024, “We’ve had rethink our strategy.”
Yet, adversity met grit. The first wave of innovation was the introduction of peer to peer (P2P), a trend that started with foreign exchanges, and was quickly adopted by local startups who adapted their models.
Due to the CBN’s ban, banks and payment providers were not allowed to issue virtual accounts for crypto companies. Crypto startups then adapted the WhatsApp model from 2017 to integrate it into their platforms. With P2P the users controlled liquidity, and the startups were merely facilitators.
Rkquet & Quidax launched their P2P versions in 2021. Initial P2P platforms such as Binance and Roqqu were not strictly regulated. Scams were commonplace when people were allowed to self-regulate their dealings.
Busha, a local crypto platform, learned from this and introduced Busha Connect in 2021. This service uses verified merchants to facilitate trades. This setup, while not an escrow service, allows Busha to monitor trading activities on its platform. It still uses Busha Connect.
Crypto P2P trading is still available today, but crypto firms started performing verification checks on traders to self-regulate in an era of regulatory uncertainty. They introduced Know Your Customer measures and proof of funds for traders who sold cryptocurrency on their platforms.
Luno is a UK-based cryptocurrency company that operates in Nigeria. They chose an unconventional strategy. Luno, a UK-based crypto company operating in Nigeria, chose an unconventional approach. Users created vouchers using Afritickets. This third-party platform allowed users to pay into a virtual wallet, redeem the voucher and purchase crypto with the funds. During the ban, users were unable to liquidate any crypto on Luno.
Luno announced on December 12, 2024 that it would phase out its voucher feature. However, it is still available. This shows that the company is not yet able to establish a strong relationship with banks that would allow it to move past methods that helped navigate years of regulatory uncertainties.
Liquidity remained a problem despite innovations such as P2P trading or voucher payments. Even as facilitators, these firms relied on revenue streams such as token listings and other service. Local crypto startups that survived used offshore bank accounts to handle customer deposits while multinational exchanges focused on other markets. Local startups were compelled to open accounts at crypto payment infrastructure providers such as Circle and Nexo. This enabled them to manage their liquidity by holding stablecoins. This was a good alternative to traditional banking. It also forced them to obtain foreign licences in order to legitimize their businesses as there was no easy way to obtain a domestic crypto license.
Roqqu acquired an European Union virtual currency license in 2023 which allowed it operate in 28 European nations. Another popular option was to secure a Polish Virtual Asset Service Provider licence (VASP). The relatively short processing time (2-12 weeks) and lower cost made this a popular choice for local crypto firms looking to appear compliant with offshore banking service providers.
Yellow Card is a US-based startup that has thrived despite the uncertainty. In 2019, they expanded into Nigeria. During the ban, however, the startup decided to expand into other African countries to derisk its Nigerian operation. In October 2022 the startup expanded into Botswana, where it received its first crypto licence. It is currently active in 20 African nations.
The ban threw everyone off-balance. Exchanges that operated in Nigeria [only] couldn’t survive, because they only operated in Nigeria,” stated Lasbery Oludinmu. Yellow Card VP Operations. We never created P2P transactions as we understood the risks. Our business was affected [by the ban]so we focused on developing new features and expanding into the markets where they would be suited to generate revenues and grow our userbase.
The future outlook of crypto startups
Nigeria lifted its crypto-ban in December 2023–a change from its anticrypto stance. In August 2024 the country’s Securities and Exchange Commission issued provisional licenses to Quidax and Busha. It is difficult to argue that the startups that failed would have survived in a more favourable regulatory environment.
Banks are still wary of this volatile asset class as the Central Bank of Nigeria has not yet provided clear regulatory guidance. This lack of clarity has continued to hold back banks, causing them to be cautious about crypto.
Binance’s soft exit, which excluded Nigerians from their P2P platform due to regulatory issues last year, created a market void that local crypto players now want to fill.
For those crypto startups that have managed to survive the regulatory turmoil, there is hope in leveraging blockchain technology in order to solve real-world issues, especially in bridging traditional (TradFi), with decentralised (DeFi). Compliance remains a top priority.
Crypto companies cannot ignore compliance again. Peters said that at BoundlessPay we have made it our priority to monitor and know each user [over 15,000 of them] on our platform.
The SEC is studying self-regulated startups as it attempts to establish a framework to regulate crypto. This will help them better understand how to balance innovation and compliance. The regulator has so far standardised the use Chainalysis, an intelligence platform for blockchains that startups use to track and report crypto transactions.
Nigerian regulatory agencies are expected to introduce more guidelines for the crypto-industry, which has been operating like a ship with no rudder for years. In the next few years, Nigeria’s crypto landscape will become more defined. However, collaboration between the SEC (Securities and Exchange Commission) and startup operators is key to success.
