Introduction

In recent years, Kenya has emerged as a progressive frontier for financial innovation. With strong mobile-money adoption, expanding fintech infrastructure, and a young, tech-savvy population, the country is well positioned to embrace the next wave of digital payments. One of the most promising developments in this evolution is the rise of regulated stablecoins.

As Kenya rolls out its Virtual Asset Service Providers (VASP) Act, 2025, the regulatory framework is finally catching up, offering potential groundwork for stablecoins to transform cross-border payments.

This article explores how regulated stablecoins, under the new VASP Act in Kenya can reshape remittances, trade, and financial inclusion, while also addressing the risks inherent in virtual asset markets. It demonstrates how the VASP Act provides the guardrails necessary for stablecoins to deliver systemic benefits to Kenya’s economy.

The Current Cross‑Border Payments Landscape in Kenya

A Remittance-Intensive Economy

With Kenyans abroad sending over Ksh 1 trillion back home, remittances remain vital for Kenya’s economy. Yet, traditional remittance channels; such as banks and money-transfer operators, are often slow, costly, and inefficient. High fees, foreign-exchange spreads, and limited access in rural areas limit how effectively remittances serve their recipients.

Trade and Digital Commerce

Kenyan businesses engaging in import-export or e-commerce face similar friction points. Payment settlement across borders can be slow, opaque, and subject to currency risk. For small and medium enterprises (SMEs), these challenges hinder competitiveness and growth.

Limitations of Traditional Payment Rails

Existing payment rails, while reliable, were not designed for real-time, peer-to-peer, low-cost global payments. The reliance on correspondent banking, especially for smaller transactions, creates delays and increases costs, often making micro-payments infeasible.

Why do Stablecoins Matter for Kenya?

By definition, stablecoins are digital tokens that maintain a relatively stable value by pegging to fiat currencies like the U.S. dollar, or other treasury-approved assets. Unlike speculative cryptocurrencies, stablecoins are designed for use in payments, remittances, and as a medium of exchange, not just for investment or trading.

For Kenya, regulated stablecoins can offer significant advantages:

1 .Lower Remittance Costs: By bypassing multiple correspondent banks and leveraging blockchain, stablecoins streamline the remittance journey; shrinking costs for senders and increasing the amounts received by households.

2. Faster Settlement: Transactions can be near-instantaneous, eliminating multi-day delays common in legacy systems.

3. Currency Stability: When pegged to major fiat currencies like the U.S dollar, Euro, or even Kenyan shillings, stablecoins offer remittance recipients protection against local currency volatility.

4. Financial Inclusion: Digital payments via stablecoins can reach underbanked and rural populations, especially when integrated with mobile wallets.

5. Programmability and Innovation: Blockchain-enabled stablecoins can facilitate programmable payments for payroll, business-to-business (B2B) trade, and automated financial flows, supporting new business models.

Realizing these benefits requires infrastructure providers like YoguPay, capable of abstracting blockchain complexity into usable APIs. YoguPay’s settlement and conversion APIs are designed exactly for this purpose; giving PSPs, banks, and fintechs plug-and-play access to stablecoin rails without rebuilding their core systems.

What Does the VASP Act, 2025 Change, and Why Does it Matter?

The Virtual Asset Act Kenya is a structural shift in Kenya’s approach to virtual assets. Its key implications for stablecoins and cross-border payments include:

1. Legal clarity and licensing — The Kenyan crypto Act creates a clear licensing regime for Virtual Asset Service Providers and delegates authority for licensing stablecoin issuers and payment-related virtual assets to the Central Bank of Kenya (CBK), while allocating exchanges and trading platforms to the Capital Markets Authority (CMA) where appropriate. Clear supervision reduces legal risk for banks and PSPs that might otherwise avoid crypto counterparties.

2. AML/CFT alignment — The Act imposes Anti-Money-Laundering and Counter-Financing-of-Terrorism (AML/CFT) responsibilities on licensed VASPs comparable to those of banks. That creates a compliance baseline necessary for correspondent banks and regulated PSPs to rely on stablecoin channels.

3. Prudential and operational requirements — The Kenya VASP Act and related regulations set expectations around custody, reserves, operational resilience, and local banking relationships. These provisions are designed to ensure that stablecoins remain redeemable and operationally reliable for payment purposes.

4. Regulatory coordination and integration — The Act’s transitional provisions and amendments to related financial statutes signal that virtual assets will be integrated into Kenya’s regulated financial ecosystem rather than treated as an external novelty. This integration is essential for stablecoins to interoperate with banks, mobile money providers, and PSPs.

Taken together, these measures convert regulatory uncertainty into a platform for commercial experimentation and institutional adoption; provided that implementing regulations are proportionate and operationally practical.

For PSPs and fintechs navigating these new regulatory requirements, compliance-first API and WaaS stack providers like YoguPay provide a ready-made pathway to launch regulated stablecoin products in alignment with the VASP Act.,

How Can Regulated Stablecoins Power Cross‑Border Payments Under the VASP Act?

1. Enabling Secure, Low-Cost Remittances

Under the VASP regulations, stablecoin issuers will be regulated by the CBK, ensuring that they meet strict solvency and AML/CFT requirements. This regulatory clarity can give both senders and recipients confidence.

Diaspora workers could use stablecoins to send money home quickly, with minimal costs, by converting stablecoins to local currency via licensed VASPs.

Because stablecoins operate on blockchain rails, they eliminate layers of correspondent banking; further reducing friction, and significantly lowering the cost of remittances. With compliant cross-border rails like YoguPay’s, remittance providers can initiate stablecoin transfers and automatically convert payouts through regulated on/off-ramps.

2. Shielding Against Foreign Currency Risk

Many remittance recipients in Kenya are exposed to currency risk. If funds arrive in Kenyan shillings, they may lose value if the shilling depreciates. Stablecoins pegged to a stable currency like the U.S dollar provide a hedge: money arrives in a stable digital asset, preserving its value until converted.

Regulated stablecoin issuers under the Kenya VASP law will likely maintain reserves or an asset structure that backs the stablecoin peg to build trust and reduce volatility concerns for users.

3. Accelerating Business-to-Business (B2B) Trade

Kenyan SMEs, particularly those involved in import/export, stand to gain from stablecoin-based cross-border payments. Traditional cross-border payments can be cumbersome: payments are slow, banking fees high, and reconciliation difficult. With stablecoins, businesses can settle transactions in a digital currency that crosses borders instantly. This reduces settlement risk, improves cash flow, and lowers counterparty risk.

Under the VASP regime, licensed payment gateways or stablecoin issuers would provide the infrastructure for these payments, while being subject to governance, capital, and operational requirements. This reduces counterparty risk and builds trust in the system.

Companies like YoguPay offer B2B APIs that support instant settlement and automated reconciliation for SMEs, reducing dependency on correspondent banks.

4. Strengthening Financial Inclusion via Mobile Wallets

Kenya’s long-standing success with mobile money offers a strong foundation for stablecoin adoption. By integrating regulated stablecoins with mobile wallets, financial services providers can reach populations that are cash- or bank-light.

For instance:

• • Mobile wallet providers could partner with licensed stablecoin issuers to offer “on-ramp” and “off-ramp” services, allowing users to convert fiat in their wallets to stablecoins and vice versa.
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  • People living abroad could send money to family in Kenya via stablecoins, which recipients could spend or redeem into local currency via mobile wallets.
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  • SMEs and gig workers could receive payments from abroad or transact with international clients using stablecoins, settled into local wallets.

Because the Virtual Assets Service Providers Act Kenya requires wallet providers to be licensed and supervised by CBK, users benefit from consumer protection, AML controls, and operational resilience.

5. Facilitating Programmable and Automated Payments

Blockchain-based stablecoins can support smart contracts; these are programmable payments that execute automatically when conditions are met.

Under a regulated framework:

• • Payroll payments for remote workers or international contractors can be settled automatically via stablecoins.
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  • Invoice financing and supply chain transactions can be executed using smart contracts: once goods are verified delivered, payment is triggered.
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  • Conditional remittances or recurring payments (for example, tuition or rent) can be structured to execute automatically, reducing administrative burden.

Regulation makes this possible by ensuring that stablecoin issuers, smart-contract platforms, and wallet services operate under known rules with clear accountability to regulators.

Mitigating Risks: How the VASP Act Guards Against Abuse

Regulated digital assets are powerful, but only as safe as the controls around them. The Kenyan VASP Act gives regulators tools to require these controls; market participants must implement them rigorously.

1. Reserve integrity and transparency

Stablecoin issuers must maintain liquid, segregated reserves in cash, high-quality government securities, equal to redeemable tokens. Transparent, regular attestations or audits are essential so PSPs and deposit banks can rely on the peg. Regulatory requirements should specify acceptable reserve instruments, custody rules, and disclosure frequencies.

2. Redemption and convertibility guarantees

Issuers must commit to on-demand redemption in the relevant legal tender and provide operational mechanisms to ensure redemption works in practice. Partial redemptions, cap rules, or tiered redemptions can be allowed only where disclosed and supervised.

3. AML/KYC and sanctions screening

Embedding AML/KYC processes into issuance and redemption flows is non-negotiable. The VASP bill’s alignment with existing AML frameworks means regulated VASPs will face obligations similar to banks; such as customer due diligence, transaction monitoring, suspicious activity reporting, and must build systems that enable these responsibilities while preserving transactional efficiency.

4. Operational resilience and custody security

Issuers and custodians must meet strict cybersecurity standards, in addition to disaster recovery, and incident response requirements. Given the system-wide effects of a failure at a large issuer, regulators should require third-party resilience testing and clear contingency plans; including protected ring-fenced reserve accounts.

5. Interoperability standards and settlement finality

Technical standards should ensure a stablecoin’s ledger confers settlement finality recognized by local PSPs and trusted by correspondent banks. Where distributed ledgers are used, settlement rules and the legal status of ledger records must be clear.

These provisions mitigate systemic and operational risk, ensuring stablecoins deployed for cross-border payments operate with integrity and trust.

Cross-border settlement partners like YoguPay embed AML/KYC, sanctions screening, and transaction monitoring into its rails, allowing PSPs to operate safely within the VASP regime without building compliance stacks from scratch.

Implementation pathways: How Kenya Can Move from Law to Live Rails

The VASP Kenya Act lays the legal groundwork; the next step is pragmatic implementation. Policymakers, regulators and industry should prioritize the following practical stages.

Stage 1 — Rulemaking and supervisory design

CBK, CMA and the Treasury must issue implementing regulations that define:

• • The categories of stablecoins; whether fiat-backed or asset-backed, permitted reserve assets, disclosure schedules, and audit standards.
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  • Licensing criteria and minimum capital/governance standards for issuers and custody providers.
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  • AML/KYC thresholds, transaction monitoring expectations, and reporting templates.
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  • Operational and cyber resilience standards, including testing and incident reporting.

Clarity during this stage reduces ambiguity for banks and PSPs and attracts high-quality issuer applications. As policymakers shape implementing rules, infrastructure partners like YoguPay can support technical standards, liquidity models, and compliance frameworks aligned with issuer and VASP requirements.

Stage 2 — Pilot corridors and regulatory sandboxes

Regulatory sandboxes or limited pilots let PSPs and issuers test real-world settlement, liquidity, and bank integration without posing systemic risks. Pilots should target corridors with demonstrable demand and partner institutions willing to integrate mobile money and bank APIs for on-ramps and off-ramps.

Stage 3 — Certification and market infrastructure

As pilots prove concepts, regulators should move to certify systems, define custody third-party requirements, and allow PSPs to interconnect through certified settlement hubs or liquidity pools. Established market infrastructure; for example, settlement custodians, audit firms, and standardized KYC data pipelines, will be decisive in scaling usage.

Stage 4 — Open market and broad adoption

Once issuer conduct and reserves are verified, and payment service providers and banks have operational integrations, stablecoins can be permitted for a broader set of flows: remittances, merchant settlement, PSP interbank netting, and cross-border B2B payments. Given Kenya’s mobile money density, an early and pragmatic use case will be cross-border payouts directly into M-Pesa and other mobile wallets.

Challenges and Considerations for Stakeholders

While the regulation under the Kenya VASP regulations is promising, several challenges must be addressed for stablecoins to reach their potential in cross-border payments.

Regulatory Implementation Lag

Although the crypto regulations in Kenya are in force, no virtual asset investors have yet been licensed, pending the publication of implementing regulations by the Treasury. The delay could inhibit early innovators from entering the market, slowing down stablecoin adoption.

Liquidity and Reserve Transparency

Trust in stablecoins hinges on credibility of reserves. Issuers will need to provide transparency about reserve backing, audits, and redemption processes to build confidence among Kenyan users.

On‑Ramp and Off‑Ramp Infrastructure

For stablecoins to be useful, users need reliable ways to convert between fiat (Kenyan shilling or USD) and stablecoins. This requires partnerships between digital wallets, licensed VASPs, banks, and payment providers.

User Awareness and Education

Despite widespread mobile adoption, many Kenyans remain unfamiliar with blockchain or stablecoins. Consumer education, financial literacy, and trust-building will be crucial, especially among rural populations.

Cross-Border Regulatory Coordination

To unlock the full potential of stablecoins for remittances, Kenya will need to coordinate with other jurisdictions. Cross-border regulatory harmonization, especially in East Africa, will be important to enable interoperability, regulatory clarity, and anti-money laundering oversight.

Cyber Risk and Operational Resilience

Blockchain infrastructure is not immune to cyber threats. Ensuring that stablecoin issuers and VASPs remain resilient to operational disruptions, hacks, or infrastructure failures is vital. The Kenya Virtual Asset Service Providers Act’s cybersecurity requirements help, but implementation will be key.

Strategic Opportunities for Kenya

Given the framework in place, Kenya can leverage regulated stablecoins for strategic economic gain:

1 .Remittance Hub

By positioning itself as a licensed stablecoin payments hub, Kenya could attract diaspora remittances via digital rails, reducing leakages and costs.

2. Digital Trade Corridor

Stablecoins could create efficient cross-border trade corridors with East African Community (EAC) partners, especially for SMEs dealing in goods and services across borders.

3. Inclusive Finance Growth

Integrating stablecoins into mobile wallets can deepen financial inclusion, enabling underbanked segments to access digital payments, savings, and cross-border funds.

4. Innovation and Fintech Depth

Kenya’s fintech players, from wallet providers, to payment gateways, and SMEs can build on the regulated environment to deliver new services: payroll, programmable payments, and DeFi-enabled products within a compliant framework.

5. Regulatory Leadership in Africa

By implementing a robust VASP regime and supporting stablecoin innovation, Kenya can lead in the African digital-asset regulation space, attracting global fintech investment and partnerships.

Independent providers like YoguPay can play a critical enabling role across these five strategic areas by supplying the underlying rails for remittance digitization, cross-border trade settlement, mobile-wallet integration, fintech innovation, and compliant digital-asset infrastructure.

Policy Recommendations and Roadmap for Adoption

While the VASP law provides a 12-month transition period for digital asset investors, Kenyan policymakers and regulators must consider the following, to maximize the potential of stablecoins under the new regime.

1 .Expedite Licensing Regulations

Issue clear implementing regulations as soon as possible to jump-start licensing of stablecoin issuers and payment VASPs.

2. Promote Reserve Transparency

Require stablecoin issuers to publish audited reserve reports, redemption mechanisms, and periodic disclosures, building trust.

3. Enable On‑Ramp/Off‑Ramp Networks

Encourage partnerships between licensed VASPs, banks, and mobile wallet providers to create seamless fiat-to-stablecoin conversion.

4. Support Consumer Education

Launch public-awareness campaigns, especially targeting rural and underserved populations, on the benefits, risks, and uses of stablecoins.

5. Foster Cross-Border Regulatory Cooperation

Through regional bodies like the EAC, coordinate regulatory standards and interoperability to enable cross-border stablecoin payments.

6. Strengthen Cybersecurity Measures

Work with VASPs to ensure robust operational resilience, incident response, and cyber hygiene capacity.

7. Monitor and Evaluate

Establish a regulatory sandbox or pilot programs to test stablecoin use cases and evaluate risks, adoption, and economic impact.

Conclusion

Kenya’s financial innovation journey is at a decisive turning point, and the VASP Act, 2025 creates the foundation for regulated stablecoins to become a core part of the country’s cross-border payment system. With strong oversight and modern digital rails, stablecoins can deliver cheaper, faster, and more inclusive remittance and settlement flows; empowering SMEs to transact globally while integrating seamlessly with Kenya’s mobile-wallet ecosystem.

Yet legislation alone is not enough. Realizing this potential requires practical regulatory implementation, reliable liquidity infrastructure, strong consumer awareness, and regional cooperation. These elements will determine whether stablecoins evolve into a trusted national payment utility

As Kenya moves from regulatory clarity to operational reality, YoguPay is building the infrastructure businesses need to use stablecoins as both a payment tool and a driver of financial progress. Our compliant cross-border rails and APIs bridge blockchain’s promise with real-world economic impact. To learn how to integrate stablecoin-powered payments into your operations, contact us or visit our www.yogupay.com.