Issuance of Digital Assets in Nigeria (Definition of Terms)
As explained in my previous articles, Digital Assets can now be offered and issued in the manner of equity via traditional shares and stocks. This article will be focused on providing a definition of terms for regulatory purposes associated with the issuance of digital assets in Nigeria as provided by the Securities and Exchange Commission (SEC) Crypto Rules of 2021.
These terms are as follows :-
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– Digital Assets – Digital tokens that represent assets such as a debt or equity claim on the issuer.
– Digital Asset Offerings – ICOs (Initial Coin Offerings) & other Distributed Ledger Technology (DLT) offers of digital assets.
– Initial Coin Offerings (ICOs) – These are DLT capital-raising offers that involve the issuance of tokens to the general public in return for cash, Cryptocurrencies or other assets.
– ICO Project – The underlying business or project referred to in a white paper for which the issuer seeks to raise capital through an initial digital asset offering.
– Hard cap – The maximum amount of capital intended to be raised for ICO projects.
– Lockup period – This is a time period within which investors and issuers are not allowed to redeem, trade or sell their tokens.
– Pre-offer period – This shall have the same meaning as provided in the SEC rules.
– Securities Token Offering (STO) – This means any offering and sale of digital tokens that are considered securities.
– Soft Cap – The minimum amount of funds needed and aimed at by the project to proceed as planned.
– White Paper – This is a document that states the technology behind a project, including a detailed description of the system architecture and interaction with the users, description of the project and use of proceeds, information on the market capitalization, anticipated growth, other technical details and the team /advisors behind the project.
Cryptocurrencies – Registration Requirements For Digital Asset Offerings in Nigeria.
A Digital Asset Offering , which is a type of capital raising venture based on the public offer of digital assets by Digital Asset Offering Platforms or DAOPs, is regulated in Nigeria by the Securities and Exchange Commission (SEC) and carries a unique set of registration requirements which will be the focus of this article.
What are the registration requirements for a Digital Asset Offering in Nigeria?
The requirements are as follows :-
Upon the issuance of a determination by SEC that a proposed digital asset to be offered are securities, the issuer shall file an application for registration which in addition to the commission’s minimum disclosure requirements shall include –
- A registration statement of the digital assets which shall include :-
a). The name and ticker of the tokens.
b). The price per token.
c). The number of tokens to be sold.
d). The registration fees.
- KYC (Know Your Customer) procedures, disaster recovery plans and risk management protocol.
- Security protocols including platform architecture and technology.
- A solicitor’s opinion confirming that all applicable permits and licenses for the issuance and transfer of the securities, after the offer has been obtained.
- Copy of the escrow agreement with an independent custodian or trustee, registered with SEC.
- Corporate Governance disclosures.
- Evidence of payment of applicable fees.
- Any other information to be determined by SEC from time to time.
Can an application for the registration of a digital asset offer be rejected and on which grounds if so?
The SEC may reject an application for registration of digital assets if in its opinion, the proposed activity infringes public policy, is injurious to investors or violates any of the laws, rules and regulations implemented by the commission.
Is there a moratorium on equity interest concerning digital asset offerings?
The issuer’s directors and senior management shall in aggregate own at least 50% equity holding in the issuer on the date of the issuance of the digital assets.
At the post-issuance stage of digital assets, the issuer’s directors and senior management may sell, transfer or assign not more than 50% equity provided that the quantum of equity being sold, transferred or assigned shall not be more than 50% of their respective holdings until the completion of the initial digital asset offering project.
Are there limits on the funds to be raised by digital asset offerings?
Yes there are. A digital asset offering has a limit of 20 times the issuer’s shareholder fund subject to a ceiling of 10 Billion Naira within a continuous period of 12 months.
What are the limits on investments in digital asset offerings?
For high net worth & qualified institutional investors , there are no limits to how much they can invest in digital asset offerings.
For retail investors however, the SEC places an investment of 200 Thousand Naira per issuer with a total investment limit not exceeding 2 Million Naira in a 12 month period.