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What Kenya’s VASP Act Means for the Future of Stablecoins

Phelix K'Teya

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November 20, 2025

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Introduction

Kenya stands at a crossroads for digital money, owing to its changing digital infrastructure. Over the last two decades the country has built one of the world’s most successful mobile-money ecosystems, anchored by M-Pesa, and has leveraged digital payments to expand financial access, lower transaction costs and support remittance flows that are vital to the macroeconomy.

 

At the same time, global interest in stablecoins has intensified among payments innovators and regulators alike. The passage and commencement of Kenya’s Virtual Asset Service Providers (VASP) legislation signals a deliberate shift: Kenya is moving from a posture of caution toward a formal regulatory pathway for virtual assets. The practical consequence for stablecoins will depend on the detailed regulations, supervisory capacity, and the way market participants align operations to meet prudential and anti-money-laundering standards.

 

At YoguPay, we’ve seen banks, fintechs, and payments teams struggle to operate under unclear or fragmented digital-asset regulations. By providing compliant stablecoin rails, automated treasury tools, and regulated on/off-ramp services, we help PSPs and financial institutions deploy faster, lower-cost, and secure payment solutions while staying fully aligned with the VASP framework.

 

Quick policy snapshot: What the VASP Act does

Kenya’s virtual asset service providers act (VASP) establishes a licensing and supervisory framework for digital asset investors operating in or from Kenya. It sets out a clear scope of application that identifies which services fall within the statute. VASP Kenya also assigns supervisory roles to the Central Bank of Kenya and the Capital Markets Authority, while embedding AML/CFT obligations typically required of regulated financial actors.

 

The Kenya VASP law clarifies that crypto asset service providers will be required to seek authorization and operate under license conditions, and imposes powers for supervision, enforcement and sanctions.

 

At the time of signing, regulators emphasized that licensing will only commence after the issuance of supporting subsidiary legislation by the Cabinet Secretary for Treasury. In addition, while the regime is in force, the act gives VASPs a 12-month grace period to ensure continuity as regulations shape up, and the industry prepares for full operationalization.

 

 

Why does this matter for stablecoins?

The Kenya Virtual Asset Service Providers bill 2025, passed in October creates a formal legal path for issuers, custodians, and exchanges to be recognized and supervised. Where regulators previously issued cautionary guidance, the Act signals conditional acceptance, converting uncertainty into obligations that firms can plan for; once implementing regulations and licensing frameworks are published.

 

At YoguPay, we view this clarity as a turning point. By providing compliant rails and treasury tools, we help PSPs navigate these obligations efficiently, turning regulatory alignment into an operational advantage rather than a burden.

 

The key statutory mechanics that will determine outcomes for stablecoins

The Kenya Virtual Asset Service Providers act 2025 covers a wide range of digital assets and tokens; therefore, not all provisions matter equally for stablecoins. The following legal and technical mechanics should be read as the practical levers that will shape market behavior.

 

Licensing and Scope of Activities

The VASP Act defines who qualifies as a Virtual Asset Service Provider and which activities require licensing, assigning supervisory responsibilities between the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK).

 

a.) The issuer/guarantor of a fiat-pegged token may be captured as a VASP or as a closely regulated financial institution.

 

b.) Exchanges, custodians and wallet providers that support stablecoin custody or transfers are likely to require separate authorization.

 

Implementing regulations will highlight the detailed license classes, fees, restrictive covenants and ongoing reporting requirements.

 

Reserve, Custody and Audit Expectations

Global best practice for fiat-backed stablecoins leans on categorical reserve requirements, clear custody arrangements and frequent, independent attestations or audits. Kenya’s Act gives regulators the authority to set sound standards.

 

How those translate into specific reserve ratios, custodial segregation, and audit cadence will be decisive for whether issuers can sustainably operate on a low-cost basis or must bear materially higher funding and audit costs. Expect regulators to prioritize reserve transparency as a consumer-protection imperative.

 

AML/CFT and the FATF Travel Rule

Similar to global crypto and stablecoin regulatory regimes, the Act brings VASPs within the AML/CFT perimeter, aligning them with requirements such as suspicious-activity reporting, customer due diligence, and cross-border information sharing practices that banks and remittance providers already follow.

 

For stablecoins used in remittances or cross-border payments, this may remove one reason counterparties have been wary of crypto flows, but it could also increase onboarding friction and compliance costs.

 

Cross-border and passporting issues

Several stablecoin issuers and liquidity providers operate regionally or globally. The Act’s reach “in or from Kenya” means foreign operators who service Kenyan residents may be captured; conversely, Kenyan-issued tokens will face counterpart regulatory checks elsewhere. Regulators will need to engage in cross-border supervisory cooperation to manage these relationships and avoid arbitrage.

 

YoguPay enables cross-border settlement by partnering with licensed stablecoin issuers and banks, facilitating smooth on/off-ramp operations while respecting local and international regulatory requirements.

 

Regulatory sequencing and sandboxing

Because licensing awaits implementing regulations by the Treasury, there is an opportunity for phased pilots and regulatory sandboxes. Pilot issuers, operating under a conditional and measured roll-out, would allow regulators to observe real-world risks while fostering innovation. Opting for an immediate and rigid set of prudential requirements could force projects offshore or impose costs that make consumer use cases unviable.

 

 

Market impact on Issuance, Custody, Liquidity and Payments Rails

The VASP Act will reconfigure incentives across the stablecoin value chain, impacting stakeholders such as;

 

Issuers

The effect on issuers is a trade-off between gaining regulatory legitimacy and bearing higher compliance and capital costs. Those able to absorb audit, custodial, and licensing expenses, or partner with established financial institutions and custodians stand to gain a first-mover advantage. Smaller or purely speculative issuers may find the compliance burden unsustainable, forcing them to exit or relocate, which could accelerate consolidation toward better-capitalized firms and institutional partnerships.

 

Exchanges and Wallets

The mandatory licensing and KYC/AML guidelines under the VASP Kenya Act will increase onboarding time and operational overheads. However, this also opens the door for mainstream banking relationships and on-ramps; the very rails that stablecoins need to be reliably convertible into Kenyan shillings.

 

Liquidity and Peg Stability

Under the Virtual Asset Service Providers Act, 2025 reserve rules and transparency obligations are more centralized. Well-designed reserve mechanisms with clear fiat custodianship and frequent attestations will strengthen confidence in peg maintenance and support faster fiat conversions, lowering counterparty risk in cross-border flows. Conversely, overly burdensome reserve rules that require slow, illiquid assets as collateral could undermine the very speed and cost savings stablecoins promise.

 

Cross-Border Payments And Remittances

Kenya received roughly USD 4.7 billion in remittance inflows in the 12 months to September 2024, a figure that underscores remittances’ macroeconomic importance and makes efficiency gains especially valuable.

 

Faster, lower-cost settlement using regulated stablecoins can reduce FX layers, lower transfer fees, and accelerate credit to recipients. However, these benefits depend on banking partners and correspondent networks accepting tokenized value, and on liquidity providers efficiently handling on-ramping and off-ramping.

 

 

Systemic Risks and Consumer Protection Regulators Must Not Blink On

Stablecoins are powerful tools but they also create concentrated exposures.

 

Run Risk and Contagion

A loss of confidence in a widely used stablecoin can prompt rapid redemptions and stress the payments system if liquidity is thin or reserves are illiquid. Kenya’s regulators will need to require credible contingency plans, clear redemption rights and possibly resolution frameworks to handle distressed issuers without amplifying systemic stress.

 

Shadow-Banking Concerns

If stablecoin reserves are invested in opaque or risky instruments to extract yield, the system can create hidden leverage. Regulators should demand conservative investment policies for reserves and regular, public attestations to prevent maturity- or liquidity-mismatch risks.

 

AML/CFT and sanctions risk

Embedding VASPs in Kenya’s AML/CFT architecture is a net positive, but implementation will be technical and costly. The travel-rule, enhanced due diligence for high-risk clients and sanctions screening will require robust transaction monitoring, identity verification and cross-border cooperation with foreign supervisors. Weak implementation risks turning regulated entities into channels for illicit flows, while overbearing requirements risk pushing activity into unregulated corners.

 

Consumer Protection and Recourse

Regulators should insist on clear disclosure to users, quick complaint and dispute mechanisms, and protections for customer funds. Where stablecoins are redeemable for fiat, the redemption process must be transparent and operationally reliable. Slow or obstructed redemptions are the fastest path to reputational and systemic damage.

 

Opportunities for Kenya in a Safe, Well-Regulated Stablecoin Ecosystem

Kenya is uniquely positioned to convert regulatory clarity into economic opportunity.

 

Build on M-Pesa’s Infrastructure and User Trust

Kenya’s mobile payments ecosystem is mature and heavily used. Safaricom’s M-Pesa remains a dominant consumer payment service in which regulated digital value is already trusted at scale.

Integrating regulated stablecoins with existing mobile rails could unlock programmable payments, cross-border cash-in/cash-out convenience and novel merchant payment flows while preserving financial inclusion gains.

 

Enhance remittance efficiency

With remittances exceeding billions annually, and supporting foreign-exchange reserves, even modest reductions in transfer cost or speed could have outsized economic benefits for recipients and the currency.

Regulated stablecoins could reduce the number of FX conversions and correspondent banking touchpoints, lowering costs if correspondent banks and clearing partners accept tokenized value.

 

Attract Fintech Investment and Talent

Clear rules reduce regulatory risk for investors. Kenya already attracts substantial startup funding in Africa and hosts a dynamic fintech scene; a practical, proportionate stablecoin regime could make Nairobi a hub for payments innovation and tokenized trade finance.

 

Product Innovation

Programmable money enables conditional payments like escrowed disbursements for supply chains, real-time micro-remittances, and tokenized working capital solutions for SMEs that currently face high banking costs. These are practical, revenue-generating uses that can justify the cost of regulatory compliance.

 

 

Practical Recommendations for Regulators and Firms to Act Now

For regulators – CBK, CMA and Treasury:

 

    • Publish detailed implementing regulations quickly, prioritizing clarity on licensing classes, reserve rules, audit frequency and custody requirements so market participants can plan and invest with certainty.
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    • Use phased piloting and regulatory sandboxes to allow live tests under strict conditions rather than an immediate blanket roll-out. A sandbox approach guards against unintended harm while enabling learning.
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    • Coordinate cross-sectoral supervision: where activities cross payments, securities and banking boundaries, delineate supervisory responsibilities and establish MOUs for information sharing.
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    • Invest in supervisory capabilities such as; tech-enabled monitoring, forensic crypto analytics, international cooperation, and publish clear consumer-protection and resolution frameworks.

 

    For issuers, exchanges and wallets:

     

      • Begin building compliance foundations now. From designing KYC/AML flows, to choosing audit/custody partners, and mapping treasury processes for transparent reserve management. Firms that can demonstrate robust controls will be early beneficiaries when licensing opens.
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      • Prioritize bank partnerships and on/off-ramp relationships. Banking integration reduces settlement risk and supports fiat convertibility; a core value proposition for stablecoins used in everyday payments.
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      • Prepare clear, consumer-facing disclosures and contingency plans for liquidity stress or loss of peg; these will be both regulatory expectations and market differentiators.

     

      For banks and correspondent networks:

       

        • Evaluate custody models and client onboarding processes to support regulated stablecoin flows. Banks that offer safe custody for reserves or fiat on/off-ramp services can capture new revenue and strengthen customer relationships.

       

      YoguPay’s Perspective

      At YoguPay, we view Kenya’s VASP Act as a pivotal step toward a stable, well-regulated stablecoin ecosystem. The law and its implementation can shape the future of digital assets in practice, positioning Kenya to lead in Africa’s stablecoin landscape. By combining regulatory oversight with practical operational frameworks, stablecoins can become a secure, efficient, and widely accepted tool for payments, remittances, and programmable financial services.

       

      YoguPay facilitates this future through API-driven infrastructure that enables partners to:

       

        • Integrate regulated stablecoin operations seamlessly into their platforms.
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        • Issue stablecoins that are fully compliant with regulatory standards.
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        • Provide custody solutions that are secure, auditable, and transparent.
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        • Execute settlements that are fast, resilient, and reliable.
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        • Automate treasury, liquidity management, and AML/KYC compliance.

       

        Through these capabilities, our platform allows organizations to leverage stablecoins efficiently without building complex backend systems from scratch, turning regulatory clarity under the VASP Act into operational advantage.

         

         

        Near-Term Developments to Watch

        Three milestones will tell us whether the VASP Act is a turning point or simply a policy headline:

         

        The implementing regulations — Their speed, detail and proportionality will determine both market entry costs and the feasibility of consumer-facing stablecoin products.

         

        First licenses issued — The nature and profile of initial licensees; whether bank-led consortia, international issuers, or local startups will reveal the practical market structure regulators prefer.

         

        Pilot product outcomes — Measurable improvements in remittance costs and speed, merchant acceptance, and user complaints will reveal whether stablecoins add real value to Kenya’s digital assets landscape.

         

        Regulation as a Facilitator, not a Barrier

        Kenya’s VASP Act, 2025 is significant because it changes the default from “wild-west” to conditional regulation, and for stablecoins, that shift matters more in practice than in theory.

         

        But the cryptocurrency law is only the start. The implementing regulations, supervisory capacity, prudential calibration, and the willingness of industry to partner with regulators will determine whether stablecoins become a pragmatic tool for payment efficiency and inclusion or remain a niche pursued offshore.

         

        At YoguPay, we act as a bridge in this new ecosystem, providing compliant stablecoin rails, automated treasury tools, and regulated on/off-ramp services that help PSPs and financial institutions leverage the VASP framework to deploy faster, lower-cost, and secure payment solutions.