The Business Daily spoke to Peter Mwangi, the Kenyan country manager for stablecoins exchange platform Yellow Card on the growing crypto linked payment ecosystem, where Kenyans made transactions worth Sh426.4 billion ($3.3 billion) over a 12-month period to June 2024.
Who are the Kenyans transacting in stablecoins?
It began with Kenyans living in the diaspora sending money back home and the choice of stablecoins was driven by minimal transaction costs and the ease of access through decentralised exchanges.
Exchanges like us also allowed the conversion of stable coins into local currency at a cheaper cost relative to going to a Western Union or a local bank.
Businesses are now adopting and accepting stablecoin payments, both for importers and exporters.
For someone selling Maasai shukas to the US, some would prefer payments in stablecoin. That transaction would take five minutes and the conversion into Kenya shillings is easy.
Is the recent passage of the Virtual Assets Bill a step towards the regulation and acceptance of stablecoins as a mainstream payment option?
We are on the right footing because we now have a proper framework and foundation allowing for the regulation of most of the industry. It also shows that regulators are more open to learning more about virtual assets.
The ecosystem is growing quite fast and as observed in other markets like the US, we have banks looking to issue their own stable coins, including JP Morgan and payment service providers such as Western Union and Visa. I expect this trend to be adopted by some of the biggest financial players locally including banks and mobile network operators.
How should traditional players such as banks view and respond to the development of stablecoins as an alternative payment system?
The best way to think about stablecoins is as an alternative. Before, to deposit or withdraw your money, you had to physically visit your bank. With the advent of mobile and internet banking, there was a fear that banks would stop opening more branches, but this did not materialise.
Stablecoins and other cryptocurrencies are just another step in the evolution of the internet and payment services, and as such, banks should adopt this as another channel for carrying out transactions. Banks have already made heavy investments to become the biggest and leading fintechs despite being seen as traditional institutions in the past.
With the most popular stablecoins being backed by the US dollar, does this extend the dominance of green back in global transactions?
From a country’s perspective, there is the risk of dollarising the economy, but this requires that countries manage their currencies properly because one of the drivers of the adoption of dollar backed stable coins has been the unavailability of hard currencies and exchange rate fluctuations.
If we were to see a Kenya shilling backed stablecoin, this would spur tokenisation in the economy. Fintech companies would emerge, tokenising stocks in the Nairobi Securities Exchange (NSE) while the government could itself tokenise its bonds expanding the pool of investors participating in auctions.
What safeguards are there for businesses and individuals looking to hold funds in stablecoins amid risks such as hacks, theft and even fraud?
This is where regulation and licensing come in. One of the biggest issuers of stablecoins-Circle (the issuer of the stable coin USDC) is licensed and regulated in the US. Regulation allows for transparency and accountability as these issuers are required to give a proof of reserves to show that they have fully backed the issued stablecoins.
Governments also play a big part in educating the masses and consumer protection. Our exchange recommends using licensed stablecoins especially for companies and individuals who care for the security of their funds.
The US has been leading in regulation, and the rest of the world is watching how they manage it. In the next five to ten years, I would expect most countries to have laws regulating stablecoins.
Stablecoins are however what I call permissionless finance because whether you regulate it or not, people within various markets will be able to access these stablecoins as money has really gone borderless.
Global financial institutions like the IMF and the World Bank are coming up with standards that will eventually be adopted globally.
What are the individual use cases for stablecoins?
I would say mobile money serves us perfectly for retail transactions within the domestic market, but there are immense opportunities that would arise from the creation of Kenya shilling backed stablecoin.
We have some startups in Kenya looking to tokenise NSE stocks and this would open listed firms to investors from all over the world through the blockchain. If an investor in Brazil wanted to buy into the NSE or hold a government bond today, the process through traditional methods is cumbersome.
