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Globally, the rate of adoption of digital assets has been on a steady rise, and the growing interest and adoption of digital assets in Nigeria have attracted increased regulatory attention in recent times.
What are digital assets
Digital assets are digital representations of value or contractual rights that are facilitated by distributed ledger technology, 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) 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.
In this article, authored by ALN Nigeria Partner Ajibola Asolo, Senior Associates Tomilola Tobun and Orinari Jeremy Horsfall, and Associate Ayomide Awoyemi, we explore 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, while drawing lessons from other jurisdictions.
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Should you have any questions regarding the information in this legal alert, please do not hesitate to contact, Ajibola Asolo.
Contributors
1. Tomilola Tobun – Senior Associate
2. Orinari Jeremy Horsfall – Senior Associate
3. Ayomide Awoyemi – Associate