The saga between Nigeria, Binance, and the crypto ecosystem has been on for two months. From blocking its websites to arresting its employees, Binance has been on the receiving end of Nigeria’s onslaught against crypto.
Nigerians who believe the government is being unfair argue that Binance, the world’s largest crypto exchange, should not be blamed for the massive devaluation of the naira.
Ray Youssef, CEO of NoOnes, shares the same stance, but he points out that Binance could have avoided the ordeal it is currently going through.
The syndicate sabotaging the naira
Although born in Egypt, Youssef has been to many parts of Africa as a result of running Paxful, an Africa-focused peer-to-peer crypto platform, which shut down last year.
Nigeria was one of Paxful’s largest markets, and Youssef has a great deal of experience in the country. In an interview with Techpoint Africa, he displayed his familiarity by stating that his high-ranking friends in politics informed him that “There’s a syndicate within Nigeria that was leveraging arbitrage in a heavy and hurtful manner to the naira.”
Arbitrage is the simultaneous buying and selling of the same assets in different markets to take advantage of or profit from the different prices within those markets.
Although legal, in the case of this syndicate, Youssef says they buy the naira for cheap and sell it for a profit in the black market.
“They were using a lot of multinational corporations, and the Nigerian government wanted to find out who these people are and to stop them.”
Crypto P2P platforms are also one of the many tools they used to hurt the naira in their arbitrage practices.
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However, legitimate P2P merchants were caught in the crossfire as the Nigerian government tried to identify the bad actors.
Binance played a role
Youssef believes that “Binance has been a net positive to the world” but it failed to put measures in place to prevent bad actors from using its P2P feature to hurt the naira.
This P2P feature was introduced on many exchanges after the crypto ban of 2021. However, Paxful had this feature before the ban. One of the platform’s primary functions was to help people perform P2P transactions safely.
According to Youssef, Changpeng Zhao, former Binance CEO, discussed buying Paxful with him four years ago but he declined the offer, “because P2P should not be in the control of one huge centralised player.
“Even though he copied the code and did a great job, I would not have instituted P2P in Nigeria the way Binance did it.”
Binance focused too much on profit and failed to put controls that would have prevented big “destructive” players from taking advantage of the feature.
Binance, renowned for its strict KYC policies before granting users P2P access, said in a statement that its system pauses automatically when there is significant currency movement. It also said it is “dedicated to providing a market-driven, fraud-free, and manipulation-free platform for users.”
While these statements and restrictions show that Binance has put some measures in place to prevent bad actors, a charge by the US Securities and Exchange Commission (SEC) says otherwise.
In 2023, the US SEC charged Binance with the unregistered offer and sale of securities. It said that while “Binance publicly claimed that U.S. customers were restricted from transacting on Binance.com, Zhao and Binance in reality subverted their own controls to secretly allow high-value U.S. customers to continue trading on the Binance.com platform.”
The Nigerian government also got court approval to get data on Binance’s top 100 users in the past six months.
Youssef opines that Binance would not have needed to sell out its users if it had done the right thing and put “purpose over profit.”
Per binance.com, Binance P2P charges 0.1% on every trade. This is a small charge that adds up based on the number of trades and Youssef says “Peer-to-peer is one of their biggest earners” in Nigeria.
But Juwon Adebayo, former FTX employee and Founder of Finna Protocol, recently posted on X that while many Nigerians used the now-defunct crypto platform, the volumes they did were not as much as most people thought.
He said it was even less than in the Seychelles, an island with a significantly smaller population than Nigeria.
Youssef disagrees.
“Officially, cryptocurrency volume in Nigeria is around $59 billion a year and that’s just the official volume, everything happening on centralised exchanges. The real volume is ten times more than that.”
He said most P2P transactions happen off the centralised exchange, on platforms like WhatsApp and Telegram.
“Peer-to-peer is probably like a half a trillion dollar business inside Nigeria.”
While P2P might be big business in Nigeria, the clampdown on Binance has coincided with the strengthening of the naira. A Bloomberg article has, however, reported that Nigeria’s foreign reserves are being depleted to achieve this. But Youssef sees an opportunity Nigeria is not capitalising on.
P2P as a revenue source
Cross-border transactions have been one of the biggest real-world use cases for cryptocurrency. Anyone anywhere in the world can receive them as long as they have a crypto wallet and an Internet connection.
This is probably why Nigeria received almost $60 billion in cryptocurrencies between July 2022 and June 2023 according to Chinalysis. Interestingly, the value of remittance received in the country in 2022 was $20.13 billion lower than the crypto received.
Youssef believes that Nigeria can strengthen its currency and make money from crypto P2P instead of trying to stop it.
He said with reasonable regulation and taxation, more dollars would come into the country and the country also make money.
However, the Blockchain Industry Coordinating Committee of Nigeria (BICCoN) has said the Nigerian government’s recent clampdown on crypto platforms might push crypto and other virtual asset activities underground.
When crypto activities go outside centralised exchanges, they are more difficult to track and monitor.
Another danger of this is that it makes Nigerians susceptible to bad actors as the safety railing provided by centralised exchanges is no longer present. Regardless of where these activities are happening, the government needs a tighter grip on crypto as a revenue source and probably a remittance outlet.