Kenya has concluded public consultations on the Draft Virtual Asset Service Providers Regulations, 2026. The framework is intended to operationalise the Virtual Asset Service Providers (VASP) Act passed last November and, for the first time, bring parts of Kenya’s digital asset economy within a formal regulatory perimeter.
What is often framed as regulatory tightening is more accurately the formal recognition of an already functioning market. Digital assets have moved beyond experimental use cases. They now operate as financial instruments native to distributed ledger systems: cryptocurrencies such as Bitcoin, stablecoins such as USD Coin (USDC), and emerging tokenised instruments including bonds and digital representations of real-world assets.
Since Bitcoin’s introduction in 2008, the sector has expanded from a niche cryptographic experiment into a multi-trillion-dollar asset class with increasing institutional participation. While valuations and transaction volumes fluctuate significantly across reporting methodologies, market observers broadly agree that scale has reached levels that now intersect meaningfully with mainstream finance, rather than remaining peripheral to it.
In Sub-Saharan Africa, adoption is no longer marginal. Data from Chainalysis, as cited in Absa research, indicates that Kenya accounted for over $18 billion of the $205 billion in digital asset value received across the region between mid-2024 and mid-2025, ranking among the leading markets. Survey-based estimates suggest that a significant minority of Kenyans engage with digital assets in some form, primarily for payments, savings, and cross-border transfers. The key constraint to date has not been demand, but regulatory uncertainty and limited consumer protection.
The draft regulations seek to address that gap through licensing requirements, capital adequacy thresholds, governance standards, and provisions on anti-money laundering and consumer protection. In principle, this shifts digital assets from an informal or lightly governed space into a supervised financial activity. If implemented effectively, it could also enable more formal integration with banking systems, including the potential recognition of certain digital assets as collateral under defined conditions.
One emerging use case is credit intermediation. In theory, regulated digital holdings could be used to secure financing without requiring immediate liquidation, converting volatile assets into productive collateral. This remains contingent on risk frameworks, valuation standards, and enforcement mechanisms that are still under development.
The payments challenge remains central.
For many businesses, it is still structurally easier to settle cross-border payments to Europe or North America than within Africa. Transaction costs for remittances into the continent remain elevated, often averaging around 8 percent depending on corridor and provider. The African Continental Free Trade Area (AfCFTA) sets out an ambition of integrated trade, but payments infrastructure continues to lag behind policy ambition.
Stablecoins are increasingly positioned as one possible settlement layer for addressing inefficiencies in cross-border payments, offering near-instant transfer and lower intermediary costs in certain corridors. Estimates of stablecoin-linked flows into Kenya vary; some market analyses suggest multibillion-dollar annual volumes, though data quality remains uneven and should be interpreted cautiously.
At the global level, financial institutions and payment firms are experimenting with blockchain-based settlement systems. JPMorgan Chase & Co. has already deployed blockchain infrastructure for internal settlement processes, while mobile money ecosystems such as Safaricom PLC through its regional expansion of M-Pesa Africa continue to explore interoperability with digital asset rails. The direction of travel is converging toward hybrid financial infrastructure rather than a clean separation between traditional and decentralised systems.
Kenya is not entering this space late. It is entering it at a point where global regulatory models are still forming.
The country has previously demonstrated how financial innovation can scale ahead of regulation. The expansion of M-Pesa, initially ahead of comprehensive regulatory frameworks, materially reshaped financial inclusion and became a reference point for mobile money globally. The current digital asset framework presents a parallel inflection point, though the underlying risks are structurally different and more complex, particularly around volatility, custody, and cross-border illicit finance exposure.
Survey data cited in Absa research across multiple African markets indicates strong perceived utility for digital assets in cross-border payments, with a large majority of respondents expressing confidence in their potential role. Whether this translates into sustained adoption will depend on infrastructure, pricing, and regulatory clarity rather than sentiment alone.
There are, however, constraints that could shape market outcomes. High capital requirements may limit participation by smaller firms and startups. Supervisory capacity will need to evolve rapidly to match the technical complexity of blockchain-based systems. Financial literacy also remains uneven; many users already engage with digital assets without fully understanding risk exposure, particularly in highly volatile segments of the market.
Regulation, in itself, does not resolve these issues. It establishes boundaries. Market stability will depend on enforcement capacity, institutional readiness, and the ability of both regulators and market participants to adapt iteratively.
The passage of the VASP framework therefore represents less a culmination than an institutional starting point. Kenya is effectively defining the perimeter of a new financial sector while it is still forming. The central question is no longer whether digital assets will be used, but how value, risk, and trust will be governed within that system.
About the Author
Stella Mambo is Global Markets Director at Absa Bank Kenya.