Cross-border traders, Kenyans in the diaspora, and multinationals are increasingly using stablecoins for payments, setting the stage for wider adoption of digital assets in everyday finance in Kenya.
Kenya made Sh426.4 billion ($3.3 billion) worth of transactions in stablecoins in the year to June 2024, according to Chainalysis, a New York-based blockchain data platform that tracks crypto use.
Stablecoin is a type of cryptocurrency backed by assets considered reliable such as the US dollar.
Stablecoins are viewed as a way to more quickly and cheaply make a range of payments— especially cross-border ones—which in the current system can take days to settle and are subject to interchange and other fees.
Local traders are increasingly using the crypto to pay for imports while Kenyans in the diaspora use it to wire cash to family.
Multinationals are also using stablecoins to repatriate billions of shillings, bypassing local commercial banks.
Peter Mwangi, the country manager of crypto startup Yellow Card, says the adoption of stablecoins was first driven by remittances before their acceptance by businesses.
“When it started, the driver was remittances, where people living in the diaspora were sending money home. The reason they used stablecoins was that transaction fees were minimal, while it was also permissionless finance,” he said.
“Businesses are now adopting stablecoins. For instance, an exporter of tea or Maasai shukas to the US would prefer receiving payments in stablecoins as that transaction can only take five minutes at most and converting that to Kenya shillings is much easier and cheaper.”
Yellow Card is the leading stablecoin payments infrastructure provider for Africa and other emerging markets.
Permissionless finance is where transactions require zero approval from a central authority like the Central Bank of Kenya (CBK).
Stablecoins have also become attractive for multinationals doing business across multiple countries on the continent. Internet service provider Starlink, which is owned by tycoon Elon Musk, has converted payments made in Kenyan shillings into stablecoins and repatriated them back to the US, where the stablecoins are then converted into dollars.
Starlink is a client of Yellow Card.
As stablecoins race to become a part of the mainstream financial system, banks are on high alert about how the cryptocurrency could threaten their business.
Chainalysis placed Kenya as the fourth largest recipient of stablecoins in the year to June 2024 behind Nigeria, South Africa and Ghana.
Enablers of stablecoin infrastructure, such as Yellow Card, have integrated with other financial services providers such as banks, fintechs and mobile network operators, allowing the seamless conversion of the digital currencies into cash via mobile money wallets.
The cost of sending stablecoins is lower compared to traditional methods, such a banks and remittances firms like Western Union, averaging between 0.5 and one percent, in contrast to between four and seven percent for other channels, says Yellow Card Gig economy or remote workers in Kenya are now accepting stablecoins as a form of payment in place of services such as PayPal, on cost efficiency and convenience, the firm adds.
“If you think about it, M-Pesa is actually a stablecoin because for every unit, there is a cash advance somewhere and that’s what gives the assurance that if you deposit Sh1,000 today on M-Pesa, you will withdraw the same amount tomorrow,” said Mr Mwangi.
Unlike bitcoin and other cryptocurrencies with volatile values, stablecoins as envisioned in the Genius Act are supposed to maintain a 1:1 exchange ratio with the US dollar or other fiat currencies so they can be easily used for payments.
The so-called Genius Act, designed to create a regulatory framework for the stablecoin industry, passed through Congress in July. Stablecoins have surged in popularity following a change of US regulations over the summer that helped legitimise the asset.
The $300 billion market has grown more than 40 percent this year, twice as fast as the broader crypto industry, according to JPMorgan.
About 99 percent of the stablecoin market is backed by US dollars, the bank said.
Supporters of the legislation say it is aimed at providing clear rules for a growing industry, ensuring the US keeps pace with advances in payment systems.
The crypto industry had been pushing for such measures in hopes it could spur more people to use digital currency and bring it more into the mainstream. Stablecoins remain unregulated in Kenya, but this has not stopped their adoption as Kenyans take up the digital currencies.
Players in the ecosystem view the Virtual Assets Providers Bill, which seeks to license and regulate the activities of service providers, as a signal that Kenya could be moving closer to the regulation of cryptocurrencies and other digital assets.
The adoption of stablecoins has threatened the role of traditional financial institutions, such as commercial banks, which mainly played the role of intermediating global payments.
In the US, the institutions have responded by planning their own stablecoin issuances, including lender JPMorgan, and financial services providers Visa and Western Union.
For Kenya, banks are expected to also embrace the new payment channel as they adapt to disruptions such as internet and mobile banking, which have provided alternative means to customers without ending the role of physical bank branches.
“Stablecoins will also be adopted by some of our biggest financial players in our markets here in Kenya, including banks and mobile network operators (MNOs),” said Peter Mwangi.
Across Africa, local currency depreciation and difficulties in obtaining hard currency have driven the adoption of stablecoins, especially in Nigeria and Ethiopia.
Sub-Saharan Africa, however, accounts for the smallest share of the global cryptocurrency economy at 2.7 percent of the transaction volume worldwide.
Chainalysis, however, says that the region is emerging as a global model for how crypto can drive real-world impact, especially in areas underserved by traditional financial systems.
“Stablecoins have become a key element of Sub-Saharan Africa’s crypto economy. In countries where local currencies are highly volatile and access to US dollars is limited, dollar-pegged stablecoins like USDT and USDC have gained traction, offering businesses and individuals alike a reliable way to store value, facilitate international payments, and support cross-border trade.”
