ABSTRACT
Nigeria’s Investment Securities Act (ISA) of 2025 unequivocally classifies crypto assets as securities under the purview of the Securities and Exchange Commission (SEC). This bold legislative stroke raises a critical debate: Is this uniform classification a fundamental regulatory flaw, stifling innovation and misrepresenting the diverse nature of digital assets? Or is it a trade-off necessary for investor protection and market stability in a rapidly economy? This essay explores this pivotal question. Erik Voorhees posited that “Crypto adoption is an unstoppable wave. It’s a question of when, not if.” Before 2025, Nigeria had a complex and evolving relationship with crypto-assets. In 2021, CBN banned cryptocurrency-related transactions preventing banks, non-banks, and financial institutions from facilitating cryptocurrency transactions, citing concerns about illicit activities. Fast forward to 2025, the Investment and Securities Act, 2025 (ISA) formally recognised virtual and digital assets while classifying crypto-assets as securities under the oversight of the Securities and Exchange Commission. It was a major milestone, but we must draw a clear distinction as to the functional diversity, as the current regulations present vague legislation driven by a uniform classification of the crypto-assets.
CONCEPTUAL CLARIFICATION: FUNCTIONAL DIVERSITY OF CRYPTO-ASSETS
Crypto-assets are a much broader category of digital assets. Of course, over the past few years, we have attested to the mainstream adoption of crypto assets on blockchain technology in Nigeria. It is largely steered by a growing interest among investors, industry, and public institutions. Therefore, the general term of crypto-asset is defined as ‘a digital representation of value or rights that may be transferred and stored electronically, using distributed ledger technology (DLT) or similar technology’.
MICA’s classification of crypto-assets (crypto assets also referred to as tokens in this essay) is however based on two overlapping criteria: (1) ‘purpose’ and (2) ‘structure’. The “purpose” is used to define a Utility token and a security token. On the other hand, e-money token and asset-referenced token are defined based on structure.[1]Furthermore, there need for a deeper understanding of the diverse functions of the crypto assets:
- Utility Token and Security Token: A Utility token is a type of crypto asset (also known as user token) created on the blockchain ecosystem. A utility token is not designed for investment returns but for specific on-chain functions such as accessing services, redeeming rewards, or participating in governance.[2] On the other hand, a Security token is a digital asset that represents a slice of ownership of or rights to an asset or a company through the process of “tokenization”. A security token is intended to be used the same way a stock, bond, certificate, or other investment asset is used.[3]
- E-money Token and Asset-Referenced Token: E-money token as derived from MiCA is a type of crypto asset the main purpose of which is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is “legal tender”.[4] On the other hand, an Assets-referenced token is a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies.[5]
Other classifications of crypto-assets include:
- Cryptocurrency and Non-fungible Token (NFTs): Cryptocurrency is a digital currency ( such as Bitcoin )that is not regulated by any central bank or financial institution.[6] Therefore, cryptocurrency transactions are verified and recorded on the blockchain, as it only exists in the blockchain ecosystem. On the other hand, NFT is a unique digital asset, that represents a digital collectible or a real-life asset, stored and managed on a blockchain ecosystem.[7]
CRYPTO-ASSETS IN NIGERIA: LEGAL FRAMEWORK UNDER ISA 2025 AND SEC PURVIEW
In a significant shift, the enactment of the Investment and Securities Act, 2025 which repealed the Investment and Securities Act, 2007 was a major milestone in Nigeria. The ISA 2025 expands the definition of securities to include virtual assets, and formally recognises digital assets such as cryptocurrencies as securities.[8] Section 357 ISA, 2025 redefines “securities” to include virtual assets such as cryptocurrencies, tokens, and other digital representations of value.[9] This change marks a formal entry of the digital asset ecosystem into Nigeria’s regulatory fold. Therefore, the regulation of crypto-assets in Nigeria has taken a more structured turn. The ISA, 2025 enhanced regulatory oversight and investor protection. While strengthening the Securities and Exchange Commission’s (SEC) authority and also saddling the SEC with responsibilities to regulate the market effectively, protect investors, mitigate risk, make rules and enforce them, and even to collaborate internationally.[10] Additionally, the SEC is empowered by the virtues of Section 196 ISA 2025, to criminalise prohibited schemes (Ponzi or pyramid structures) while maintaining the country’s interest.[11]
REGULATORY FLAW: CHALLENGES WITH UNIFORM CLASSIFICATION
The rapid growth of the crypto assets’ ecosystem has intensified traction and the focus of regulators globally, In the same vein in Nigeria, which is why ISA, 2007 was re-enacted into ISA, 2025. However, crypto assets are no longer a niche topic for geeks but an important trend in financial markets and an uprising asset class with varying functions and diverse nature. The uniform classification of crypto-assets under the ISA 2025, presents a regulatory significant flaw and challenges. It is fundamentally flawed due to the inherent diversity within the crypto asset ecosystem; and more of ‘one-size-fits-all’ approach.[12]
Here are the challenges posed by the uniform regulatory framework under ISA, 2025:
- Misclassification and Overreach: by broadly libelling all digital tokens as securities and asset fit suited for lightweight regulatory compliance; it’s a confusion on what qualifies as a “security” and what doesn’t. Assets such as NFT often issued for consumption or ownership may be a subject of inappropriate license. In the same vein, utility token which lacks profit expectations would require SEC license.[13]
- Innovation Barriers: the regulatory flaw may be inhibiting the ability to innovate. the nebulous classification of crypto-assets with increased compliance costs and legal uncertainty, deterring blockchain start-ups and fintech innovators from operating in Nigeria.[14]
- Enforcement Complexity: The challenges and difficulties associated with the uniform classification of crypto-asset places undue burden of enforcement on SEC ensuring compliance across divers asset types places including technical expertise and resources to differentiate between investment tokens and low-risk digital assets[15]
- Misalignment with International Standards: There are significant discrepancies and inconsistencies of ISA 2025 on how security is classified or addressed in other international standards or frameworks. For example, MiCA regulation introduces precise definitions for various types of crypto-assets also categorising digital assets clearly into e-money tokens, asset-referenced tokens, and utility tokens.[16] Confusion on what qualifies as a “crypto-assets” and what doesn’t; affects licensing, compliance, investor protection, and even users.
NECESSARY TRADEOFF: ARGUMENTS IN SUPPORT OF ISA 2025
The allure of high returns with little risk has continued to attract unsuspecting citizens. Over the years, Nigerians have experienced a series of Ponzi schemes that promised quick riches but ended in devastating losses.[17] With the coming of Investment and Securities Act, 2025 attest a watershed moment in the country. The Act embodies a necessary regulatory trade-off, prioritizing legal certainty and market integrity over unchecked innovation and exchange providers who would use back doors. By uniformly classifying crypto-assets as securities, with clear mandate the legislation consolidates regulatory purview under the Securities and Exchange Commission (SEC), thereby curbing systemic risks, enhancing investor protection, and fostering institutional confidence in Nigeria’s digital asset ecosystem.
RECOMMENDATIONS: BALANCING REGULATION AND INNOVATION
While inconsistencies persist, it is essential to propose forward-looking recommendations that strike a balance between innovation and regulation while preventing further discrepancies with international standards. Thus;
- Education and Awareness: The vibrant landscape of crypto-assets reveals its complexity and the indispensable role of education and awareness for Regulators investors and the demography. By Investing SEC technical training, public awareness campaigns, and legal guidance to market participants, promoting compliance clarity and innovation engagement.[18]
- Functional Classification: Introduces explicit and tiered classification model for various types of crypto-assets while distinguishing digital assets clearly into e-money tokens, non-tangle token (NFT) asset-referenced tokens, and utility tokens, so on.[19]
- Periodic Legislative Review: Crypto-assets market matures timeously its essential to embed a mechanism in ISA for phased review of Section 357, allowing for technical evolution and refinements as innovation unfolds in the crypto asset ecosystem.[20]
- Engagement with stakeholders: Engagement with shareholders may help overcome traditional obstacles. This is because it directly involves people who may be affected by a project, decision, or initiative.[21]
- Inter-Agency Coordination: CBN has once banned cryptocurrency in Nigeria owing to the legal uncertainty of the subject. Foster collaboration between the Securities and Exchange Commission SEC, Central Bank of Nigeria CBN, and Financial Intelligent Unit (FlU) for guidance on crypto-assets CBCs-avoiding jurisdictional silos and regulatory confusion.[22]
CONCLUSION
The Investment and Securities Act (ISA) 2025 reflects Nigeria’s acceptance of the growth in the financial market and marks a pivotal shift in the regulation of digital and virtual assets. It introduces a framework aimed at accommodating emerging investment vehicles and aligning with global market practices. Consequently, crypto-assets are no longer a niche subject for geeks but have emerged as a significant trend in the modern finance market, although it is an increasingly prominent asset class with diverse functions and dynamic characteristics. However, the ISA 2025’s uniform classification of crypto-assets reveals a critical regulatory drawback. This approach reflects a weak regulatory stance that may stifle the lofty opportunities crypto-assets present for Nigeria’s financial markets. Misclassification, regulatory overreach, and enforcement complexities are key flaws of this model. To overcome these challenges, regulators must work assiduously to enact laws that align with the pace of innovation. By adopting a functional classification system, enhancing education and awareness, and aligning with international best practices, Nigeria can build a more effective and efficient regulatory framework for its growing crypto-asset ecosystem.
About the Author:
Ismail Abdrasheed is a student at Ahmadu Bello University, Zaria. Researcher and legal writer. Article credit: BlockLaw Consulting Legal essay competition.
[1] Crypto-assets: (1) Luz Parrondo “Definitions and accounting treatment under the current International Financial Reporting Standards framework” (Wiley Online library) 2023
[2] Bitbond “Utility token crypto deep dive” 2025 https://www.bitbond.com/resources/utility-token-crypto-deep-dive/
[3] Investopedia “Cryptocurrency Security Token: Definition, Forms, and Investment” 2024. https://www.investopedia.com/terms/s/security-token.asp
[4] Bafin De Federal Financial Supervisory Authority “How are e-money tokens (EMTs) defined?” 2022 https://www.bafin.de/SharedDocs/FAQs/EN/Fintech/Geschaeftsmodelle/DLT_Blockchain/DL_Taetigkeiten_im_Zush_mit_Kryptowerten/0500_Definition_EMT_en.html
[5] MICA PAPERS “Asset-referenced token (ART)” Apr. 21, 2023
[6] Coursera “How does cryptocurrency work” 2025 https://www.coursera.org/articles/how-does-cryptocurrency-work
[7] Investopedia “Non-Fungible Token (NFT): What It Means and How It Works” 2025 https://www.investopedia.com/non-fungible-tokens-nft-5115211
[8] Marsfield LP “Eight Innovations in The New Investment and Securities Act (Isa) 2025 and What They Mean for Capital Market Operations in Nigeria” 2025 https://marsfield-lp.com/eight-innovations-in-the-new-investment-and-securities-act-isa-2025-and-what-they-mean-for-capital-market-operations-in-nigeria/
[9] Investment and securities Act, 2025. s. 357
[10] Ibid
[11] Investment and securities Act, 2025. s.196
[12] Olayimika Oyebanji “The Blanket Classification of Crypto Assets Under The Investment Securities Act (ISA) 2025” 05, 2025
[13] Osborne Clarke “Classification of crypto-assets: key aspects to consider” 2024 https://www.osborneclarke.com/insights/classification-crypto-assets-key-aspects-consider#:~:text=Misclassification%20of%20crypto%2Dassets%20can,companies%20operating%20with%20crypto%2Dassets.
[14] World Economic Forum “New Report Identifies Top Barriers and Potential Solutions in Global Crypto-Asset Regulation” 2023 https://www.weforum.org/press/2023/05/new-report-identifies-top-barriers-and-potential-solutions-in-global-crypto-asset-regulation/
[15] ScienceDirect “An analysis of crypto-asset trade, enforcement, and estate planning” 2024 https://www.sciencedirect.com/science/article/pii/S2214845024001637
[16] EUR – Lex “REGULATION (EU) 2023/1114 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL” 2023 https://eur-lex.europa.eu/eli/reg/2023/1114/oj/eng
[17] Punch NG “From MMM to CBEX: Timeline of Ponzi schemes that have duped Nigerians” 2025 https://punchng.com/from-mmm-to-cbex-timeline-of-ponzi-schemes-that-have-duped-nigerians/
[18] Cuinsight “The importance of education for crypto investors”2025 https://www.cuinsight.com/the-importance-of-education-for-crypto-investors/
[19] EUR LEX “Legal content” https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114
[20] Ibid
[21]LinkedIn “Nigeria’s ISA 2025: key takeaway from fintech’s stakeholders engagement with the SEC” 2025 https://www.linkedin.com/pulse/nigerias-isa-2025-key-takeaways-from-fintechngrs-stakeholder-3k1pe?utm_source=share&utm_medium=member_ios&utm_campaign=share_via
[22] Research Gate “Stakeholders’ Blockchain Engagement: An Interdependence Theory’s Principle of Interaction’s Framework” 2024 https://www.researchgate.net/publication387009822_Stakeholders’_Blockchain_Engagement_An_Interdependence_Theory’s_Principle_of_Interaction’s_Framework