NAIROBI, Kenya, Aug 14 – Kenya’s emerging Web3 industry is at a crossroads with the impending passage of the Virtual Asset Service Providers (VASP) Bill, 2025, which aims to bring regulatory clarity, legitimacy, and consumer protection to the country’s rapidly growing digital asset sector.
While the bill is seen as a pivotal step toward formalizing Kenya’s vibrant crypto market, experts warn that its ultimate impact hinges on carefully balancing innovation with oversight.
“The potential benefits are clear. Remittances worth billions flow into Kenya each year, much of it eroded by high transfer fees. A regulated crypto market could slash those costs and put more money directly into households. Small businesses and freelancers could receive payments from anywhere in the world in minutes, not days. Farmers and informal traders could access new financing models through tokenised savings and lending platforms,” said Basil Ogola, a crypto lawyer and director at the Virtual Asset Chamber of Commerce (VACC) in Nairobi.
The bill could also nudge fintech companies and banks, which have been hesitant due to legal uncertainties, to embrace crypto infrastructure.
Ogola explained: “Now, we may finally see banks and PSPs offering rails for licensed VASPs, which could change the game for younger teams with strong ideas but no infrastructure.”
This shift could pave the way for partnerships and financial innovation previously hampered by regulatory ambiguity.
Benjamin Arunda, Africa’s first blockchain-published author and chair of the Africa Blockchain Council, agreed on the bill’s potential to legitimize Kenya’s crypto startups and regain consumer trust.
However, he cautioned that the bill currently “leans more towards consumer protection,” with stringent Know Your Customer (KYC) and Know Your Transaction (KYT) requirements that might compromise one of crypto’s core features — anonymity.
He also raised concerns over the increased compliance and licensing costs that could deter smaller Web3 innovators.
Roselyne Wanjiru, a Nairobi-based Web3 educator and blockchain research analyst, highlighted the risk that the bill could favor larger capital players.
“Given that relatively large capital players have lobbied for the Bill, it could sway away from youth-led startups. Someone starting out in Kenya is up against global exchanges with a strong local presence,” she said.
Experts also expressed concern about the risk of overregulation potentially stifling innovation.
Victor Kyalo, a veteran crypto community manager, echoed this view: “An equilibrium hasn’t been met yet,” adding that issues around privacy, licensing challenges, and limitations on innovation need to be addressed to fully realize benefits such as investor confidence, job creation, and growth.
Wanjiru noted the bill’s heavy focus on anti-money laundering (AML) and counter-terrorism financing (CTF) compliance is driven in part by the goal of removing Kenya from the Financial Action Task Force’s (FATF) grey list.
However, she warned that “prioritizing taxation and multiple layers of compliance over growth” risks making Kenya an unattractive base for Virtual Asset Service Providers (VASPs).
Regarding Kenya’s financial ecosystem readiness, Sande said banks have quietly allowed crypto trading amid occasional bans but are awaiting clearer regulation.
“Banks want the revenue and deposits… but they have been cautiously awaiting regulatory clarity.”
He stressed that effective coordination between the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) will be essential to encourage banking sector participation.
Arunda highlighted a significant knowledge gap within traditional financial institutions, many of which still regard crypto as a passing fad.
“Most traditional banks see crypto as a hype that is passing away,” he said. Some banks have been privately piloting crypto payment solutions but are restrained by existing CBK cautionary notices.
“Fintech startups that embraced crypto early could leapfrog as banks scramble to catch up,” Arunda added.
Kyalo observed that while regulators are advancing regulation and licensing frameworks, banks remain hesitant, noting “all eyes are on them” to integrate crypto services responsibly.
Among the most challenging issues is how to enforce the bill’s provisions on decentralized finance (DeFi) platforms and cross-border actors, which lack clear local jurisdiction.
Sande referred to this as “the elephant in the room,” explaining that “most serious DeFi platforms do not have a local representative,” making direct regulation practically impossible.
He suggested the possibility of requiring domestic intermediaries such as wallets and exchanges to restrict access to non-compliant services, though he acknowledged “that gets thorny fast.”
Arunda also noted regulatory challenges such as the “Fit and Proper” assessments for VASPs demanding deep virtual asset expertise and the potential impracticality of requiring physical offices for providers operating remotely. The bill’s prohibition of anonymity-enhancing services may run counter to core Web3 principles.
Wanjiru pointed to technical literacy gaps in integration between centralized organizations and decentralized apps, emphasizing the need to balance taxation and compliance requirements with incentives for innovation and growth. She advocated for stronger collaboration between legacy financial institutions and VASPs, which could ease onboarding once cautionary notices are revised.
Kyalo highlighted ongoing concerns about data protection and the low trust users have in privacy safeguards, stressing that licensing complexities remain “a big implementation challenge.”
A significant opportunity identified by all experts lies in fostering partnerships between youth-led Web3 startups and traditional financial institutions.
“Cryptocurrency is not the enemy. Fear, misinformation, and inaction are. The VASP Bill is our opportunity to get ahead of the curve, and if we get it right, we will not just regulate a new asset class; we will lay the foundation for Kenya’s next phase of economic growth,” Ogola noted.
Kenya’s VASP Bill represents a pivotal moment in the country’s journey to embrace blockchain and digital assets as part of its financial future.
Its success will depend on nuanced regulatory implementation, extensive stakeholder engagement, and a willingness from traditional institutions to embrace emerging technologies with openness and pragmatism.
The outcome will have significant implications for Kenya’s role as a regional leader in the Web3 and crypto space.
