KENYA Law and Practice Contributed by: Keega Gakuua, Faith Njeri Njaggah and Alphonse Odido, Keega & Company Advocates
Under Kenya’s VASP regime, a “DeFi structure” can- not be set up as a decentralised, autonomous proto- col. The regulatory framework is designed exclusively for centralised, licensed entities with legal personal- ity, identifiable management, a physical presence in Kenya, and the ability to comply with prudential, gov- ernance, and AML/CFT obligations. 5.3 Liability There is no specific judicial or regulatory guidance on how a purely decentralised, autonomous DeFi proto- col would be treated in the event it caused financial harm in Kenya. The newly enacted legal framework (the VASP Act, 2025) does not contemplate DeFi as a regulatory category, and there are no reported enforcement actions specifically against a DeFi pro- tocol. Crypto-asset payments are permitted under the VASP Act, 2025 and Regulations. Any entity offering crypto- payment services “in or from Kenya” must obtain a licence from the CBK (for payments, wallets and sta- blecoins) or the CMA (for exchanges and tokenisa- tion). 6.2 Stablecoins 6.2.1 Fiat Currency and Algorithmic Stablecoins Fiat currency is defined under the VASP Act as “cur- rency that is issued by the relevant body in a coun- try or by a government, that is designated as a legal tender in its country of issuance through legislation”. A stablecoin, on the other hand, is defined as “a vir- tual asset designed to or that aims to have its value fixed or pegged relative to one or more reserve assets, including fiat currency, commodities, or other virtual assets, for the primary purpose of maintaining a stable value of the stablecoin”. Since the statutory definition explicitly ties a stable- coin’s value to “reserve assets”, a stablecoin that uses an algorithmic formula mechanism to maintain its peg without holding a corresponding reserve of liquid assets falls outside this definition. Such instruments 6. Payments and Stablecoins 6.1 Payments
are therefore not recognised as stablecoins under Kenyan law and cannot be issued by a licensed VASP. 6.2.2 Stablecoin Regulation Fiat-Backed Stablecoins Fiat-backed stablecoins are expressly regulated under the VASP Act and Regulations. This regime includes “stablecoin issuance” as a licensable virtual asset ser- vice. The CBK is designated as the primary regula- tor for stablecoin issuers, reflecting their function as payment instruments that interact with the national payments system. Stablecoins in General Stablecoins in Kenya are regulated under a bespoke framework established by the VASP Act, rather than being retro-fitted into the existing payments regula- tory framework. While the CBK is designated as the primary regulator for stablecoin issuers, reflecting their functional similarity to payment instruments, the applicable rules are distinct from and generally more stringent than those governing traditional fiat payment services. In contrast, the pre-existing pay- ments framework in Kenya is primarily governed by the National Payment Systems Act and related CBK regulations, which apply to traditional payment ser- vice providers, money remittance operators, and pay- ment system participants. The bespoke VASP framework creates a dedicated regime for stablecoins that differs from traditional payment services regulation in several key respects. Unlike the more permissive licensing environment for standard payment service providers, stablecoin issu- ers face explicit paid-up capital requirements set at KES500 million, representing the highest threshold among all VASP categories. For context, this signifi- cantly exceeds the capital requirements for traditional payment processors. The framework mandates strict reserve backing and segregation such as full 1:1 reserve backing of all sta- blecoins in circulation, with reserves limited to high- quality liquid assets (HQLA) denominated in Kenyan shillings and at least 30% of reserves must be held in segregated accounts at commercial banks domi- ciled in Kenya, a requirement without direct parallel in traditional payment services regulation. By contrast,
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