One cryptocurrency exchange told TechCabal that operators received the draft proposal on Friday. The SEC first shared the draft on virtual asset providers in 2022 and, at the time, proposed N500 million in minimum paid-up capital.

“Our SEC has indirectly told the community that this game is for the big boys,” said Rume Ophi, a crypto expert. 

A crypto exchange operator who asked not to be named told TechCabal believes local operators should unanimously reject the proposal. 

“This proposal locks out a lot of local players. I suspect at the end of the day that the foreign-owned companies will dominate the crypto space in Nigeria,” said Tim Akimbo, a Bitcoin expert. 

Apart from the N1 billion minimum paid-up capital, virtual asset companies must also provide current Fidelity Bond covering at least 25% of the minimum paid-up capital.

A fidelity bond is a type of insurance that offers business protection against losses caused by employees who commit fraud, theft, and forgery. The rules also allow the SEC to, at any time, impose additional financial requirements on the digital asset operator commensurate with the nature, operations, and risks posed by the company. 

The commission also increased the number of additional documents required for registration. The new rules require “a sworn undertaking that the applicant will be able to operate an orderly, fair, and transparent market in relation to the securities including derivatives that are offered or traded, on or through its platform.” 

Gambrayan, who leads the Binance criminal investigations team, and his colleague arrived in Nigeria one week after telecom companies were told to block the websites of several crypto exchanges. According to several reports, they were arrested on their arrival in Abuja, with their passports seized. The government has shared very little about their arrests, and it is unclear if they have or will be charged in court.

Their arrests are in connection with a push by the Nigerian government to halt speculation on forex trading, following volatility in the price of the naira. After a decision to remove artificial controls, the naira’s plunge only worsened.

Regulators have historically blamed those plunges on speculators. At one point, it blamed Abokifx, a website that published FX rates.

The Central Bank has also pointed fingers at Bureau de Change operators and the banks. Several policy changes by Olayemi Cardoso, the CBN chief appointed last year, have purportedly aimed to stop such speculation.

Of these speculators, none has quite been treated like Binance. In a press briefing after a February monetary policy meeting, Cardoso claimed $26 billion of suspicious monies had passed through Binance.

It provided a justification for the government to make the arrests.

Several reports claimed the government asked for data on Binance users, while claims of a $10 billion fine were later denied.

The global crypto exchange has responded by suspending all trades in naira but has not publicly responded to the arrests otherwise.

“There’s no definite answer for anything: how’s he’s doing, what’s going to happen to him, when he’s coming back,” Wired quotes Gambaryan’s wife, Yuki Gambaryan, as saying.

Two crypto startups have applied for licences from Nigeria’s Security Exchange Commission (SEC) after the central bank lifted its 2-year ban on crypto-related bank accounts, a highly-placed source at the exchange told TechCabal, signaling a push by crypto startups to take advantage of a recent u-turn by regulators.

Quidax and Luno, two popular crypto exchanges, reportedly began speaking to the SEC in October 2023, a source familiar with the talks told TechCabal.

Luno told TechCabal that it does not comment on discussions or potential discussions with regulatory authorities.

Quidax declined to comment for this story.

Another crypto company reportedly in talks with regulators is Yellow Card. “We have not made any public moves yet, but it is in the process,” said one person with knowledge of the company’s business.

[ad]

Last week, Yellow Card announced a partnership with American crypto exchange platform Coinbase that will allow Nigerians and people in 19 other African countries to use Coinbase’s wallet, purchase stablecoin (USDC), make remittances, save, and do everyday commerce on the platform.

Crypto startups are moving quickly

While the ban’s lifting eases business for crypto startups, experts doubt it will magically transform the market, which has found ways around the CBN ban to buy, sell, save, and trade crypto.

“Nigerians are very price-sensitive. Some of the platforms sell for about 20% more than relatively risky platforms,” a web3 PR consultant who asked not to be named told TechCabal.

“Beyond the exorbitant price, these crypto startups operate with a near-saviour complex and think that it is just enough for Nigerians to have access to the blockchain. If these platforms do not significantly become easier to use, people will continue using what they have been using to transact in crypto.”

Even though it came a year after the SEC published regulations to safeguard digital assets, the CBN may have removed the stigma associated with digital currencies, popularly linked to scams. A founder of a now-defunct crypto company told TechCabal, “It is probably the best thing, if not the only positive aspect, about the CBN’s guidelines.”

In December, the CBN lifted stringent regulations that had banned banks from transacting with crypto companies. In its place, the apex bank shared guidelines mandating banks to obtain the bank verification number (BVN) of all directors and owners of crypto businesses that use their services. The rules also say cryptocurrency companies must secure a license from the country’s capital markets regulator, the SEC. Earlier in May 2022, the SEC issued rules on offering and collecting digital assets. 

The SEC did not directly respond to TechCabal’s inquiries about which startups had already applied for the licences.

*Editor’s note: This article has been updated to state that Luno declined to comment on this story

Kenya’s parliament has asked the Blockchain Association of Kenya (BAK) to prepare the first draft of what might become the Virtual Asset Service Provider’s Bill, commonly known as the Crypto Bill. The decision followed BAK’s second appearance before the National Assembly Committee on Finance and National Planning on October 31. BAK’s first engagement with the committee was in August 2023 when it opposed the Digital Asset Tax (DAT) provision in Kenya’s Finance Act, 2023. BAK’s draft preparation coincides with notable cryptocurrency transactions in Kenya, reaching nearly $20 billion (KES 3 trillion) between July 2021 and June 2022. Kenya’s engagement with crypto assets is also high, coming in third position in Africa for crypto site traffic and 21st in global crypto adoption.

The meeting between BAK and the National Assembly Committee sought to enable BAK to partner with the national government in shaping cryptocurrency and digital asset regulation policies. BAK, alongside Binance, Yellow Card, Kotani Pay, and the Law Society of Kenya (LSK), presented key elements for a robust regulatory framework, including a clear licencing framework, tax framework, consumer protection framework, anti-money laundering (AML) and counter-terrorism financing measures, and a regulatory sandbox.

In response, the parliamentary committee directed BAK to draft and submit a bill governing digital assets within two months. This development acknowledges a knowledge gap that has historically hindered their ability to address this asset class. It also marks a unique instance of a parliamentary committee instructing an association to draft a bill for adoption.

BAK’s directive to draft Kenya’s digital asset regulatory framework, including tax integration and revenue guidelines, mirrors efforts in South Africa (Financial Sector Conduct Authority), Nigeria (Finance Act 2023, SEC Regulations on Digital Assets), and Mauritius (Virtual Asset and Initial Token Offering Services Act 2021), which lead in Africa’s crypto market values at $25 billion, $19 billion, and $3 billion, respectively. 

Nigerian crypto company Patricia has said its plan to repay customer funds will proceed despite the withdrawal of its escrow trustee, DLM Trust.  On Tuesday, Patricia announced that it had engaged DLM Trust to handle the repayment of $2 million in customer funds that it lost to a hack. One day after that announcement, the SEC-licensed trust company said it had ended all engagements with Patricia and would not be proceeding with the disbursement of refunds. The company cited “multiple breaches in the terms and conditions of agreement and trust.” According to a person with direct knowledge of the matter, DLM Trust abruptly withdrew from the partnership due to media backlash.

Patricia told TechCabal it was shocked by DLM Trust’s sudden decision to terminate the partnership without prior notice. The crypto company maintained that it observed “all due processes, including fulfilling our financial commitments to consummate the contractual agreement.”

“It is therefore astounding to us that not only have DLM Trustees chosen to renege on our agreement, but that they failed to issue us a notice or extend the basic courtesy of a prior discussion, in stark disregard for the clearly spelled termination clause in our contract. We not only categorically reject this false claim, but we also challenge DLM Trustees to substantiate the allegations,” Patricia said in the statement.

DLM’s about-face comes two days before Patricia’s virtual town hall meeting to discuss the partnership with its customers. This turn of events means that  Patricia will have a harder time convincing frustrated customers who want access to their money after the trading platform lost $2 million to a hack last year. Since April, customers have been unable to withdraw funds from the Patricia Plus app which triggered a bank run. Patricia scrambled to control the panic by freezing withdrawals, blocking customers from accessing their assets.

The company’s attempt to salvage the situation was to unilaterally convert its customer assets to tokens, an action it took without users’ consent, which raised legal concerns. While Patricia has held town hall meetings and shared several plans around repaying customers, it has been met with skepticism. More recently, some customers started discussing plans to stage peaceful protests to demand refunds of their withheld funds.

DLM Trust, a trust company licensed by Nigeria’s Securities and Exchange Commission (SEC), will handle the disbursement of repayments to customers of Nigeria-focused crypto platform Patricia. It is Patricia’s latest move to repay $2 million in customers’ assets lost in a hack last year. DLM Trust confirmed the partnership in a statement published on Nairametrics on Tuesday. The company will serve as an escrow trustee—a third party that holds money or an asset on behalf of the other two parties in a transaction.

Per the DLM statement, the first batch of repayments to Patricia customers will be disbursed starting November 20, 2023. Kehinde Lawal, senior associate at DLM Trust, told TechCabal that the company has received some funds from Patricia to issue refunds to customers. In September, TechCabal reported that the Lithuania-based company had raised some funds to repay customers, though its CEO, Hanu Fejiro didn’t provide further details of the investment. 

“The funds are coming from Patricia and its partners/investors. We are acting as a trustee [and] making sure that we pay the customers as at when due. Payment plan and disbursement strategies will be made available to the users in the coming days,” Lawal said.

However, this repayment plan is tricky because DLM Trust doesn’t handle digital assets and its regulator—the SEC—has a firm stance against cryptocurrency. In May, Bloomberg reported that the SEC was considering allowing tokenized coin offerings on licensed digital exchanges that are backed by assets including equity, debt, and property with the exemption of crypto.

Last week, Fejiro confirmed to TechCabal that Patricia is asking users to convert their debt tokens to company shares which will be managed by an SEC-licensed company. Lawal disclosed that the plan is still in the works. “There have been discussions around converting debt to equity. It’s subject to the users’ discretion. And it is a part of the overall debt management strategy. That is in motion,” he said.

Nigeria-focused crypto platform, Patricia has reacted to a video of its purported office making rounds on social media. The video, made by a frustrated customer, showed an empty workspace believed to be Patricia’s office, insinuating that the company had absconded with customers’ funds. In May, TechCabal reported that Patricia lost $2 million to a hack. 

While it has held town hall meetings and shared several plans around repaying customers, it has been met with skepticism. At its last town hall, it clarified a plan to convert user assets to Patricia tokens. With customers losing patience, the video that was posted on Instagram suggested that a customer had hoped to get answers from Patricia’s physical office. 

But in an email response to TechCabal, Hanu Fejiro, the company’s CEO, said it runs a fully remote structure. “The office in the video is an innovation hub set up (we announced in 2022), to offer free working spaces to Devs and Crypto enthusiasts, Patricia does not actively operate from that office,” he said.

According to Fejiro, the company moved its headquarters to Villanius, Lithuania after the Central Bank of Nigeria (CBN) banned financial institutions from trading cryptocurrencies in 2021. “Our business model allows us and we have invested in infrastructure to run a fully remote model with team members spread across continents. As it stands, we do not have a registered office in Nigeria.”

Fejiro also confirmed reports from earlier in the week that the company is asking users to convert their debt tokens to shares in the company. He said the move “forms an integral component of our strategy for fundraising and reorganizing our debts.” TechCabal had reported that the Lithuania-based company is raising new funds in its latest move to repay customers. 

Fejiro disclosed in the email that the company is “affording our users the opportunity to transform their debt tokens into convertible notes at a favorable discount in Patricia.” He claimed that numerous users have previously approached the company with the proposal and now Patricia is embracing it. “Please note that these shares will be managed by a SEC license trusted third-party, ensuring complete transparency,” he added.

Patricia’s decision to convert the rest of its customers’ assets into a debt management token—the Patricia token—was met with mixed reactions from customers. The company is hoping that it can successfully use the debt management tokens to repay its customers, but its repayment plan is tied to the company’s profitability. But Patricia will have hard time convincing frustrated customers who want access to their money. Since April, customers have been unable to withdraw funds from the Patricia Plus app which triggered a bank run.

Speaking at a virtual town hall meeting with customers on September 29, Patricia’s CEO disclosed that the Patricia Plus app—which will be relaunched soon—is currently under beta testing. Fejiro said in the email that customers have been notified of the plan to redeem their balances in batches as soon as the new app is launched. 

TechCabal has confirmed that the crypto platform founded by Africa Blockchain Labs has shut down in its three markets—Nigeria, Ghana, and Kenya—not just Nigeria, as we previously reported. Vincent Li, the co-founder of the African Blockchain Lab, which received $6 million in VC funding from investors like Lateral Frontiers and Everest Ventures for VIBRA, told TechCabal that the business is currently undergoing a pivot. But reliable sources, including former employees who resigned from their jobs, have stated otherwise.

“In July, we were given the option to resign or be fired,” a former employee told TechCabal. At the time, the over-10-person team led by Hailey Yang had learned that the company was facing existential difficulties. The same month, the company emailed users that it would discontinue services by July 15. Li told TechCabal that the discontinuation was only for Nigerian users—its largest market—but the messages on the Telegram group named “VIBRA Africa” suggest that the closure was not regional.

The shutdown was effected three weeks after another Asian-owned startup, Pillow, shut down in Africa and months after Lazerpay closed shop too. Web3 startups were reeling from the impact of the persisting bear market and the crash of popular crypto exchange FTX. User engagement on the app, which allowed people to swap, send, receive, save, and spend cryptocurrencies, was waning. The company’s website says that VIBRA had over 100,000 agents in the three markets, but it is unclear how many users the company had at the time. “There were not many users,” an ex-employee said. They declined to state an exact figure or range but confirmed that user activity on the app fell, and consequently, the startup’s revenue from charges made from transactions plummeted.

“The company may have also closed because they could not work out how to get commensurate turnover from the user education we were doing,” an ex-employee told TechCabal. When Africa Blockchain Lab announced that it had raised $6 million for VIBRA, it said it would “drive the mass adoption of digital assets and blockchain technologies in Africa.” The startup had an education initiative, #VIBRAinClass, where experts could earn money for teaching Africans about blockchain. Tutors could earn up to $400 or $100 per class in four months. Students could also earn up to ₦1,000 in each class. However, it appears the downtime in the crypto sector discouraged new adopters.

Aside from education, the incentive-driven customer acquisition typical of blockchain startups proved to be very expensive for the startup. “Nigerians are very crypto-curious and are willing to try new ways to earn money, but they also have huge expectations of crypto companies,” said a former employee. Even influencers know this and often make costly demands of crypto-related service providers looking to advertise through them. “Nigerians see cryptocurrencies as a path to quick wealth creation. You need to be able to fly ten people out to Dubai to impress them,” the former employee said, referencing the expensive promotion tactics employed by popular exchanges like Binance in Nigeria.

VIBRA’s co-founder, Li, has declined to comment. 

Nigeria-focused crypto platform Patricia is attempting to raise new financing several weeks after admitting it lost $2 million worth of customer assets to a cyberattack last year.   This represents the Lithuania-based company’s latest move to repay customers.

Last month, Patricia converted the rest of its customers’ assets into a debt management token—the Patricia token. The abrupt arrangement triggered an outcry from customers, forcing the company to issue a detailed explanation of the token. Despite the new token, Patricia admitted that its repayment plan is tied to its profitability as a platform, although it has no timeline for financial sustainability.

With the company’s new fundraising efforts, Patricia is hoping it can raise enough money to repay frustrated customers.

At a virtual town hall meeting with users Friday, Hanu Fejiro, the company’s CEO, confirmed that Patricia has secured some funding but he didn’t provide further details of the investment. “We have raised money [and] we have been working very hard to get the money back to you. And when we launch the application, the first set of customers will be able to get their money back immediately and in full.”

Two months ago, Seun Dania, founder and CEO of crypto firm TradeFada announced on LinkedIn that he made an investment in Patricia. The value of the investment was undisclosed.

Hanu added that the Patricia Plus app — billed for a relaunch soon — is currently undergoing beta testing. But for frustrated customers, these explanations aren’t satisfactory. Patricia Plus first launched in April and immediately triggered a bank run, as customers raced to withdraw their funds after the company admitted to have lost funds due to the cyberattack. Patricia scrambled to control the panic by freezing withdrawals, effectively blocking customers from accessing their assets.

Patricia’s attempt to salvage the situation was to unilaterally convert its customer assets to tokens, an action it took without users’ consent which raised legal concerns. The company is hoping that it can successfully use the debt management tokens to repay its customers taking a cue from Bitfinex, a foreign cryptocurrency exchange platform which lost around $72 million to hackers in 2016. Bitfinex offered customers a debt management token, a liability obligation by the company until it repaid them in full.

Although Patricia is looking to do something similar, an atmosphere of mistrust, partly stemming from its delay in disclosing the breach, remains a stumbling block in its efforts to get full buy-in from customers. 

“Just let us know when we are getting our money,” one angry customer wrote in the comment section of the virtual town meeting. Another customer suggested in the comments section that the affected customers stage a protest to the authorities. Others are considering taking legal action against the company. “It is simple, just give us a date we will be able to withdraw,” another frustrated customer wrote.

Have you got your tickets to TechCabal’s Moonshot Conference? Click here to do so now!

Kenya’s Communications Authority (CA) has suggested establishing regulatory sandboxes to oversee new technologies like digital currencies. The Authority’s suggestion comes amid scrutiny of WorldCoin’s approval to collect biometric information from Kenyans. Tools for Humanity, which owns WorldCoin, collected critical biometric information by offering a token worth KES 7,000 ($50). 

“There is a need to develop an appropriate overarching legal framework for regulation on new and emerging technologies, including digital platforms, social media, and Over-the-Top services,” said Ezra Chiloba, CA’s director-general. The limitations of the existing laws were showcased last month when it emerged that WorldCoin had been registered as a data processor in Kenya. The licence allowed Tools for Humanity to onboard Kenyans onto its system using iris scanning machines.

When it became apparent that these activities were not fully compliant with data privacy laws, Kenya’s ICT ministry, among other agencies, argued that WorldCoin’s licence did not grant any authority to collect personal data. “The licence does not in any manner endorse an entity’s compliance with the Data Protection Act or its subsidiary regulations, nor is it a valid license for an organisation to operate In Kenya,” Eliud Owalo, Kenya’s ICT cabinet secretary, argued.

The Kenyan parliament also criticised data commissioner Immaculate Kassait over the WorldCoin controversy, accusing her of failing Kenyans. The WorldCoin iris-data collection activity raised concerns about data privacy and government involvement in digital identities. Kassait defended her office, arguing it issued an order to stop WorldCoin’s operations. In what can be seen as a failure to execute the mandate of the office of that data protection commissioner, Kassait said that she was not aware that Worlcoin was breaking privacy laws and only received that information after public outcry. 

WorldCoin has halted its activities in Kenya. It is also unclear what will happen to the already collected biometric data, although Owalo promised to explain it to parliament a few weeks ago. 

Have you got your tickets to TechCabal’s Moonshot Conference? Click here to do so now!