Nigeria targets hidden crypto flows as $92bn oversight faces offshore test

Nigeria has unveiled an ambitious plan to regulate its fast-growing virtual asset market, aiming to bring more than $92 billion in annual crypto transactions under formal oversight, boost investor confidence, and widen its tax net.

This is even as experts have warned that gaps around offshore platforms and enforcement could test the framework.

The proposal, outlined in a new government White Paper, introduces a coordinated regulatory system designed to capture the scale of digital asset activity already embedded in everyday financial transactions across Africa’s largest economy.

Between July 2024 and June 2025, Nigerians conducted an estimated $92.1 billion worth of transactions on centralised crypto exchanges, a 52 percent increase from the previous year, according to the document.

The figure excludes large volumes traded through peer-to-peer channels and informal platforms, suggesting the true size of the market is significantly larger.

The government said rapid growth in crypto usage, driven by a young, tech-savvy population, rising remittance flows, and demand for alternatives to traditional banking, has outpaced existing laws, leaving gaps in consumer protection, taxation, and financial oversight.

Read also: Crypto shakeout deepens as dozens of blockchain projects shut down

“Virtual assets are no longer peripheral. They are now part of Nigeria’s economic infrastructure,” authorities wrote in the White Paper.

To address this, authorities have created a coordinating structure known as the Virtual Asset Regulatory Authority (VARA), which will bring together key institutions under a shared supervisory framework.

Unlike a single regulator, VARA will operate through a distributed model, allowing multiple agencies to oversee different aspects of the market while sharing data and coordinating enforcement.

The Central Bank of Nigeria will supervise payment-related and non-security tokens such as stablecoins, while the Securities and Exchange Commission will regulate digital assets classified as investment products. The Nigeria Revenue Service will focus on taxation, while financial intelligence agencies will monitor illicit flows.

Analysts say the structure reflects the complexity of crypto markets, where a single platform can combine payments, trading, custody and lending services.

A central feature of the framework is mandatory registration for all virtual asset service providers operating in Nigeria. Firms that comply will gain access to banking services, partnerships and regulatory clarity, while those outside the system risk exclusion from the formal financial ecosystem.

To ease the transition, regulators plan to launch a Virtual Asset Sandbox, allowing firms to operate under supervision while working toward full licensing.

The plan also introduces a real-time data-sharing system, described as a Supervisory Telemetry Fabric, to improve visibility into a market that currently operates largely outside official monitoring. Firms will submit data once, which will then be shared across agencies to detect risks such as sudden withdrawals, liquidity stress or suspicious transactions.

Authorities say the system will help close information gaps that currently limit oversight of financial flows with implications for monetary stability and tax compliance.

The framework adopts a risk-based approach, with stricter requirements for large or complex firms, including exchanges, custodians and stablecoin issuers. Basic standards such as segregation of customer funds, disclosure rules, anti-money laundering compliance and cybersecurity safeguards will apply across the board.

For Nigeria, one of the world’s most active crypto markets, the stakes are high.

Digital assets have become a critical workaround for users navigating high inflation, foreign exchange shortages and expensive cross-border payments. Many Nigerians rely on crypto for remittances, online payments and as a hedge against currency volatility.

But the growing reliance on crypto has also raised concerns about systemic risks, consumer losses and loss of fiscal visibility.

Obinna Iwuno, a digital economy expert, said the success of the framework will depend on how regulators handle offshore platforms that dominate Nigerian usage but operate outside local jurisdiction.

He called for stronger coordination with international platforms through agreements such as memoranda of understanding and, where necessary, requirements for local incorporation.

“We have seen cases where Nigerian users lost money on offshore platforms and could not recover it. If these platforms fail, how do we protect Nigerian users? How do we ensure their funds can be recovered?” Iwuno told BusinessDay.

Read also: Binance founder pens memoir on prison experience, crypto rise

He pointed to past incidents where users were unable to retrieve funds after platform failures, warning that without clear rules on jurisdiction and custody, similar risks could persist.

Iwuno said the proposed requirement to separate customer funds from company assets is a positive step, but stressed that custody location is equally critical.

“It is not enough to separate user funds if those funds are held outside Nigeria. If custody is in another country, Nigerian regulators may have no control. For real protection, those funds should be held within Nigeria’s jurisdiction,” he advised.

He also questioned how regulators would handle platforms that refuse to comply with registration requirements, noting that enforcement clarity will be key to the credibility of the system.

“What happens to operators that do not adhere to the rules? That is something the government must clearly address,” he said.

Iwuno further warned about policy continuity risks, urging the government to back the framework with strong legal instruments such as an executive order to ensure stability across political cycles.

“Policies can change with administrations. There is a need for legal backing that protects this framework beyond a single government,” he said.

The government’s plan includes aligning reporting standards with global frameworks such as the Crypto-Asset Reporting Framework to improve transparency and tax compliance.

Read also: Africa’s crypto boom enters regulated maturity as fraud falls 28% in 2025

Implementation will follow a phased approach, starting with defining the regulatory perimeter and pilot programmes, followed by consumer protection measures and eventually advanced supervisory systems.

Officials say the gradual rollout is designed to avoid disrupting innovation or pushing activity further underground.

Industry participants have broadly welcomed the move toward regulatory clarity, saying it could strengthen Nigeria’s position as a digital finance hub in Africa if executed effectively.

However, they caution that overly complex requirements or weak enforcement could undermine the effort by driving users back to informal channels.

The government insists its objective is to strike a balance between innovation and accountability.

With crypto already deeply integrated into payments, savings and cross-border trade, officials say bringing the sector under formal oversight is no longer optional but essential to building a transparent, resilient and globally competitive digital economy.