Inside Kenya’s race to regulate its Web3 Economy: Opportunity, caution, and the scramble for Africa’s crypto crown

Kenya is racing to bring order to its rapidly growing blockchain and crypto economy by the end of this year. In June, lawmakers began debating the landmark Virtual Asset Service Providers Bill—legislation designed to regulate digital assets, exchanges, and service platforms in a sector that’s already seen over six million Kenyans trading nearly $2 billion in the past year.

With Kenya now ranking third in Africa for on-chain crypto transactions, parliament is moving quickly to formalize the sector, inspired by the lessons of previous collapses and scams.

The bill introduces mandatory licensing, anti-fraud safeguards, and robust consumer protections, aiming to attract at least $1 billion in foreign investment and create 25,000 new jobs.

Yet, while the government pitches Kenya as Africa’s next crypto hub, the bill’s tough compliance requirements are stirring debate—supporters argue it’s necessary to build trust and global competitiveness; critics warn it may lock out young innovators and drive up costs for startups.

As MPs weigh the future of digital assets, Kenya’s push to regulate blockchain could set the standard—not just for East Africa, but for the entire continent.

At the heart of Kenya’s blockchain ambitions is the recognition that crypto is no longer “a passing cloud.” That was the verdict of MP Kuria Kimani (Molo), Chair of the Finance and National Planning Committee, who tabled the Bill amid impressive statistics: “Kenya is ranked third in Africa in on-chain weighted transactions volume.

Last year, Kenya traded US$2 billion in decentralised protocols, liquidity aggregation, and synthetic platforms. We have approximately 6.1 million users,” he told parliament.

The country’s appetite for digital assets is outpacing much of the continent, powered by high mobile penetration, a vibrant developer community, and a tech-savvy youth bulge.

Yet, the scale is only half the story. Kimani’s vision for the Bill goes beyond codifying transactions—he sees blockchain as a potential balm for national maladies. With public debt ballooning and the Controller of Budget estimating pending bills at Ksh.550 billion, Kimani floated a proposal few could have imagined a decade ago: “I look forward to when this can be tokenized.”

Blockchain, in his telling, may someday be pressed into service as a tool for fiscal transparency, accountability, and more efficient government spending.

But ambition cuts both ways. As in any financial gold rush, fortunes have been made and lost, often with little recourse for those left holding the bag. Kenya’s lack of clear oversight allowed platforms like Bitstream Circle to operate unchecked until their dramatic collapse in 2023, wiping out the savings of thousands.

“It was not clear how to get your money back from a virtual asset trader if you need to,” admitted National Assembly Majority Leader Kimani Ichung’wah.

The draft legislation seeks to impose order: anyone engaging in virtual asset services in or from Kenya would be required to obtain a license from regulators—whether the Capital Markets Authority, the Central Bank, or a newly proposed agency.

Enhanced due diligence, robust anti-money laundering (AML) requirements, insurance mandates, scrutiny of owners and executives, and strict consumer safeguards are all on the table.

This is not mere box-ticking. With the spectre of terrorist financing and money laundering looming over the sector, and the proliferation of “wash wash” scams—where fraudsters pivot from fake cash schemes to cryptocurrencies—the risk calculus is real.

“Many are now graduating from their wash wash business into the virtual assets industry and scamming very many Kenyans,” Ichung’wah warned. Regulation, then, is not just about reassurance; it’s about survival in global finance.

But as Kenya sprints to regulate, a key question emerges: can ambitious oversight coexist with grassroots innovation? MP Naisula Lesuuda (Samburu West) struck a thoughtful note of caution.

“The licence and compliance costs are high. Young people who are keen on this will say they are being locked out. Small start-ups may struggle with the financial and bureaucratic burdens, leading to monopolisation by large firms,” she remarked. Is there a danger that the very frameworks meant to foster trust could instead stifle the dynamism Kenya’s digital sector is famed for?

Others point to the risk of privacy erosion, as proposed compliance measures require extensive data collection and local offices for all providers. While necessary for accountability, the burden may be disproportionate for bootstrapped innovators or the digitally native, potentially tilting the playing field toward incumbents or multinationals.

Industry voices are watching closely. “With clear legislation, investor confidence is bound to grow,” says Nairobi-based crypto community moderator Victor Kyalo, highlighting the hope that a level regulatory field could attract foreign direct investment and professionalize the sector. Yet Kyalo warns that “overregulation will create barriers that keep new investors out. Kenya could end up losing its competitive edge.”

Learning From Mobile Money and Avoiding Its Pitfalls

Kenya is no stranger to regulatory leapfrogging. Lawmakers and entrepreneurs alike invoke the remarkable rise of M-Pesa, the mobile money innovation that outpaced Silicon Valley and transformed African finance, as a template. In this telling, Africa’s regulatory uncertainty is both a threat and an opportunity: get it right, and Kenya leads; hesitate or overreach, and the likes of Rwanda, Ethiopia or Nigeria will seize the initiative with their own crypto-friendly rules.

The government’s willingness to revise earlier missteps is notable. The repeal of a controversial 3% Digital Asset Tax, replaced with a more pragmatic excise duty on VASP service fees, signals a receptive, learning administration—one eager not to suffocate an infant sector for short-term gains.

Meanwhile, global players like Binance, holding 23 licenses worldwide, are eyeing Kenya as an African beachhead, with hopes of regulatory “passporting” in the new law.

Kenya’s experiment is being observed far beyond its borders. Policymakers from Tanzania to South Africa are weighing how best to balance the promise of new investment, job creation, and digital inclusion against the dangers of fraud, volatility, and systemic risk.

The country’s developer ecosystem—some of whom are already building products on Ethereum, Solana, and beyond—stands ready to seize new markets if regulatory ambiguity is replaced by clarity, fairness, and openness.

But the challenge is ongoing. As the Bill awaits its final shaping in committee, Kenya must reckon with practical realities. Can it build a regulator with the expertise and agility needed for an industry that moves at internet speed? Will lawmakers resist lobbying from incumbents keen to entrench their positions? How will the promised consumer protections hold up when the next innovative but risky product comes to market?

Ultimately, Kenya’s legislative race is a microcosm of a wider continental—and indeed global—struggle: how to secure the undoubted opportunities of blockchain and digital assets while preempting the shadow side. If it succeeds, the benefits could be transformative: greater financial inclusion, new jobs and career fields, deeper institutional trust, and a future-ready economy serving as a model for East Africa and beyond.

If Kenya fails—by stifling innovation with heavy-handed rules or allowing loopholes to be exploited—then the blockchain’s fabled “trustless” promise may only breed new kinds of mistrust.

The outcome is not yet certain. What is clear, in the words of Kimani, is that “digital assets… are here to stay.”