Author: Shen Jianguang, Zhu Taihui, etc.; Source: Taihui Research
Introduction
In the past month, the UAE has been active in promoting the innovative development of stablecoins and crypto assets, which has attracted widespread attention from policy makers and cryptocurrency markets in various countries.On February 24, stablecoins USDC and EURC under stablecoin issuer Circle became the first stablecoins approved in Dubai. On March 6, Emirates NBD was approved to launch cryptocurrency trading services through its digital banking platform. On March 13, cryptocurrency company Ripple was approved to provide cross-border crypto payment services in the UAE. On March 17, the Dubai Financial Services Authority launched a tokenization regulatory sandbox. On March 20, the Dubai Land Department (DLD) announced the launch of the first real estate tokenization pilot project in the Middle East.
The UAE is a pioneer in promoting the standardized and innovative development of stablecoins and cryptocurrencies (virtual assets). As early as 2020, it formulated special crypto asset regulatory regulations. In recent years, it has taken a unique "federal coordinated regulatory framework (clear bottom line requirements) + local flexible and innovative development (pilot innovation exploration)" model in crypto asset regulation, which has greatly attracted stablecoin and crypto asset issuance and trading institutions. Driven by a good regulatory mechanism, the development of the UAE's stablecoin and cryptocurrency market has shown a good supply-demand linkage development trend. In 2024, the cryptocurrency holding rate exceeded 25%, ranking first in the world, and the next development trend is highly anticipated.
The UAE's "clear bottom line + pilot innovation" regulatory model for the stablecoin and crypto asset market has achieved an organic unity of supporting innovative development and ensuring financial security, which is worthy of reference by other countries. China's financial reform has always adopted the model of "piloting first, accumulating experience, and gradually promoting". China is not unfamiliar with this model. In the future, it can focus on following up on the operating effects of the UAE regulatory model and timely evaluate and adjust the current stablecoin and cryptocurrency policies. Report source: Shen Jianguang, Zhu Taihui, Wang Ruohan, Regulatory policies and development trends of crypto assets in the UAE, "First Financial Daily", March 21, 2025. 1. Unified regulatory framework at the federal level of the UAE As a federal country composed of seven autonomous emirates (including Abu Dhabi, Dubai, etc.), the UAE's regulatory mechanism for stablecoins and cryptocurrencies (virtual assets) has a distinct "federation + emirate" double-layer mechanism. At the federal level, the Central Bank of the UAE and the Securities and Commodities Authority have formulated regulations on stablecoins and crypto assets, regulating crypto assets as securities products and stablecoins as payment tools, clarifying the bottom line of risk management and compliance development. 1. The Securities and Commodities Authority (SCA) regulates virtual assets in accordance with securitiesSCA is the basis of the regulatory framework for investment crypto asset activities in the UAE. The Securities and Commodities Authority (SCA) of the UAE is responsible for coordinating the supervision of securities, commodities and crypto asset markets throughout the UAE, and formulating unified rules such as anti-money laundering and consumer protection. SCA defines virtual assets as a value expression that can be digitally traded for investment purposes, and does not include legal tender, securities and other digital currencies. In terms of virtual asset transactions, SCA's regulatory objects include virtual asset trading platforms, authorized persons who provide virtual asset custody services, and virtual asset intermediaries. Its virtual assets are not issued or guaranteed by any sovereign state or jurisdiction, and it only performs regulatory duties through the agreement of the virtual asset user community. In recent years, SCA has gradually revised and improved its regulatory boundaries to balance federal unified supervision with the independence and innovation needs of each emirate (especially the financial free zones). In November 2020, SCA issued the Virtual Asset Activities Regulations (CAAR) at the federal level, covering services such as initial coin offerings (ICOs), exchanges, platform markets, custody services and derivatives. Its main regulatory requirements include: (1) Virtual asset business providers must be registered and established in the UAE or in a financial free zone; (2) Virtual asset service providers must obtain approval from SCA. In 2021, SCA further standardized the scope of responsibility for virtual asset trading activities, clarifying that SCA's supervision does not include the two financial free zones of Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) and the business regulated by the UAE Central Bank. In September 2024, SCA signed a cooperation agreement with the Dubai Virtual Asset Regulatory Authority (VARA), further clarifying the roles and relationships of the two institutions in supervision, requiring virtual asset service providers from Dubai to apply for a license from VARA, while virtual asset service providers from other emirates need to apply for a license from SCA. 2. The Central Bank of the UAE (CBUAE) regulates stablecoins with reference to payment toolsThe Payment Token Services Regulations regulate stablecoins as payment tools and only accept stablecoins pegged to the dirham. The Central Bank of the UAE (CBUAE) is responsible for the regulation of payment tokens and stablecoins. In June 2024, the Central Bank of the UAE issued the Payment Token Services Regulations, which clarified the definition of "payment tokens" (stablecoins): a virtual asset designed to maintain a stable value by reference to the value of a legal currency or another payment token denominated in the same currency. At the same time, the regulations cover the main activities of the issuance, conversion, custody and transfer of payment tokens (stablecoins), collectively referred to as "payment token services", which need to be included in the regulation. The UAE's new cryptocurrency regulations stipulate that businesses and merchants in the country can only accept stablecoins pegged to the dirham as a form of payment for goods and services. The regulations apply to the entire UAE, but not to DIFC and ADGM. Implementing payment token service entity license management for stablecoins. The Payment Token Services Regulations issued by the Central Bank of the UAE require that any person or entity providing payment token services (stablecoin payments) in the UAE must obtain a license or registration from the Central Bank of the UAE. Specifically, dirham payment token services must apply for a license and 100% of their reserves must be held in a licensed bank in the UAE. Licenses are only issued to companies incorporated in the UAE (excluding companies in financial free zones). Entities that are not registered in the UAE but are located in the UAE (including DIFC and ADGM entities) can apply for registration as a foreign payment token issuer. In addition, companies that obtain licenses issued by the Virtual Asset Regulatory Authority must also comply with the provisions of the regulations. Implementing clear capital regulatory requirements for stablecoin issuers and service providers. The Payment Token Services Regulations of the Central Bank of the UAE clarify the operating requirements for stablecoin issuers from multiple aspects. In terms of capital, strict capital requirements are imposed on licensed payment token issuers, including initial and ongoing capital of AED 1,500 million, and additional ongoing capital, the amount of which is at least equivalent to 0.5% of the legal currency par value of outstanding payment tokens; for licensed custodians, transferors and payment token conversion service providers, regulatory capital requirements of AED 3 million and AED 1.5 million are set respectively when the average monthly payment token transfer value is greater than AED 10 million or less than AED 10 million. In addition, issuers are also required to implement capital adequacy management, liquidity risk management, internal control and other management. Chart 1: UAE Stablecoin and Cryptocurrency Regulatory Framework:2. Innovation of regulatory mechanisms at the emirate level
At the local level, each emirate and its free zone can design and implement distinctive regulatory requirements and innovative mechanisms under federal authorization. For example, Dubai and Abu Dhabi have introduced regulatory mechanisms that are compatible with the development of their regions.1. The Virtual Asset Regulatory Authority (VARA) is specifically responsible for the regulation of virtual assets in Dubai's non-free zonesVARA has become the world's first jurisdiction to establish a dedicated virtual asset regulatory agency. In March 2022, the Emirate of Dubai passed the Dubai Virtual Asset Regulatory Law and established the Virtual Asset Regulatory Authority (VARA), which is linked to the Dubai World Central Authority (DWTCA). As a result, Dubai has become the first and only jurisdiction in the world to establish a dedicated virtual asset regulatory agency. VARA's remit includes coordinating virtual asset regulations at the federal level with the SCA and the UAE Central Bank, supervising virtual asset service providers (including virtual asset exchanges, virtual asset venture capital funds, NFT platforms, etc.) throughout the Emirate of Dubai, and establishing an approval and licensing system for virtual asset businesses, but the financial free zone of DIFC is not subject to VARA's restrictions. VARA assumes the role of an autonomous regulatory agency to ensure the compliance of virtual asset service providers. As an autonomous regulatory agency, VARA has independent legal status and financial autonomy, and has the power to protect and regulate stakeholders in virtual asset services. According to regulations, all entities engaged in virtual asset-related activities must obtain a license from VARA. VARA stipulates four mandatory rules, including corporate governance, compliance and risk management, technology and information, and market behavior. It also has formulated rulebooks for seven specific activities (consulting, broker-dealers, custody, trading, lending, payment and remittance, and management and investment), providing behavioral guidance for market players. VARA aims to promote the UAE as a regional and international center for virtual assets and related services, increase awareness of investments in the field of virtual asset services and products, promote innovation in this field, and encourage companies operating in the field of virtual assets to do business in the UAE. 2. Dubai Financial Services Authority (DFSA) is an independent regulatory agency responsible for Dubai Free ZonesDFSA's supervision of the crypto industry is achieved through two key policies. The Dubai Financial Services Authority (DFSA) is an independent regulatory agency in the United Arab Emirates responsible for regulating entities registered in the Dubai International Financial Center. In October 2021, the "Investment Token Regime" issued by the DFSA provided a preliminary regulatory framework for investment tokens (such as security tokens or derivative tokens). Investment tokens are defined as digital representations of rights and ownership, and are intended to ensure that institutions involved in marketing, issuing, trading or holding investment tokens within the DIFC follow the necessary compliance requirements. At the end of 2022, the Dubai Financial Services Authority implemented the "Crypto Token Regime" to further regulate the cryptocurrency industry and market. The system is very comprehensive, covering not only the anti-money laundering and anti-terrorist financing risks associated with trading, clearing, holding or transferring crypto tokens, but also risks related to consumer protection, market integrity, custody and financial resources of service providers. DFSA limits the types of virtual currencies that can be accepted. Only accepted virtual assets (Accepted Crypto Token) can be included in the supervision and used and circulated in DIFC to mitigate the impact of high risks of virtual assets on existing financial markets. In 2022, DFSA recognized 3 tokens, including Bitcoin, Ethereum and Litecoin, and added 2 more tokens in 2023, namely Toncoin and Ripple's XRP token. In addition, other types of virtual assets, such as utility tokens and NFTs, are explicitly excluded from the scope of financial supervision. 3. Financial Services Regulatory Authority (FSRA) is an independent regulatory agency responsible for Abu Dhabi Free ZonesSince 2020, FSRA has successively issued several key regulatory documents. The Financial Services Regulatory Authority (FSRA) regulates the Abu Dhabi Global Market Free Zone. In 2020, the FSRA issued a document coordinating the operation of digital securities within ADGM, and in 2022, it issued the Guidance on the Regulation of Virtual Asset Activities. These guidelines clarify the regulatory requirements for virtual asset providers, including compliance measures such as capital prerequisites, personnel controls, anti-money laundering (AML) and customer due diligence (KYC). ADGM introduced a formal regulatory framework for decentralized autonomous organizations (DAOs) and other digital asset entities in 2023, allowing DAOs to operate legally and issue tokens to members. FSRA's Fintech Sandbox is a key initiative to promote innovation. The sandbox provides companies with a controlled environment where they can test their crypto-related products and services. Through this sandbox, companies can not only advance innovation quickly, but also ensure that their new products comply with ADGM's regulatory requirements and effectively protect the interests of market participants. Companies joining the sandbox can develop and test new technologies in a low-risk environment, while receiving real-time feedback from the FSRA to help them optimize their products and explore market opportunities. FSRA will release a stablecoin framework based on FRT, which will bring a more open and innovative stablecoin regulatory environment to ADGM. FSRA issued Consultation Paper No. 7 of 2024, proposing a stablecoin regulatory framework based on Fiat Reference Tokens (FRT). FRT is a digital asset pegged to the value of a fiat currency, allowing holders to redeem an equivalent amount of fiat currency. However, the restrictions of the existing rulebook have hindered the effective issuance of FRT. To this end, FSRA plans to revise the relevant rules to allow tokens to be used in multiple scenarios such as payment services and investment services, thereby supporting the widespread use of stablecoins. This marks further openness and innovation in ADGM's stablecoin regulation. III. Development trend of the UAE crypto asset market
As an important financial center in the Middle East, the UAE has attracted the attention of many global crypto market players with its unique flexible regulatory mechanism and demand growth scale. The development trend of its crypto asset (virtual asset) market is worthy of attention. 1. The UAE's dual-tier regulatory mechanism provides exploration space for innovative developmentAt present, the UAE has formulated clear regulations on stablecoins and crypto assets, providing clear guidance for crypto asset services, and the policy has a high degree of certainty. At the same time, through the flexible mechanism of "federal coordination + free zone experiment", UAE regulators such as SCA, DFSA and VARA have effectively ensured financial stability in division of labor and cooperation, and provided a suitable environment for innovative development. For example, the UAE Central Bank only allows the launch of dirham stablecoins, and in October 2024 approved the dirham-backed stablecoin AE Coin launched by local company AED Stablecoin LLC. In February 2025, the DFSA approved Circle's USDC (US dollar stablecoin) and EURC (euro stablecoin) as recognized cryptocurrency tokens within the DIFC. On March 13, Ripple received full regulatory approval from the Dubai DFSA to provide cross-border crypto payment services in the UAE. On March 17, Dubai DFSA launched a tokenized regulatory sandbox for companies that provide tokenized investment products and services. Eligible services include tokenized stocks, bonds, Islamic bonds, and collective investment fund units, preparing for full authorization of corporate innovation. These reflect the superiority and attractiveness of Dubai Free Zone's independent regulatory framework. 2. The UAE's demand for stablecoins and crypto assets is growing rapidlyThe dirham's exchange rate policy pegged to the US dollar has attracted a large amount of international capital inflows, especially from wealthy people in Russia, Iran and other regions. The UAE's active regulatory policy on Web3 and cryptocurrency companies has attracted internationally renowned cryptocurrency exchanges such as Binance, Crypto.com, and Kraken to settle in, consolidating its leadership in global DeFi and cryptocurrency activities. According to Triple A statistics, the UAE's cryptocurrency holding rate exceeded 25% in 2024 (the global average cryptocurrency holding rate was 6.9%), ranking first in the world. At the same time, Chainanalysis data shows that the UAE received more than $30 billion in cryptocurrency inflows from July 2023 to June 2024, making the country among the top 40 in the world in this regard and the third largest cryptocurrency economy in the Middle East and North Africa. This trend also further proves the comprehensiveness of the UAE's digital asset ecosystem. Chart 2: The UAE ranks first in the world in terms of cryptocurrency holding rate:
3. The UAE's crypto asset development ecosystem is rapidly improvingWith the support of regulatory mechanisms, technical improvements, and policy promotion, the UAE's corporate residents, financial institutions, and government departments are also actively exploring the use of blockchain technology and crypto assets. Crypto assets and the financial system and the real economy have shown a clear trend of integration and development.
In terms of financial institutions, on March 6, the Emirates National Bank was approved to launch cryptocurrency trading services through its digital banking platform, where users can buy, sell, and trade cryptocurrencies. The business is provided with technical support by local digital asset company Aquanow, and Zodia Custody, a subsidiary of Standard Chartered Bank, is responsible for custody services. In terms of government departments, the Abu Dhabi Investment Authority, Dubai Financial Management Department, and others have launched their own blockchain projects to improve efficiency and reduce costs. On March 20, the Dubai Land Department, the Virtual Asset Regulatory Authority and the Dubai Future Foundation jointly developed and launched a pilot project for real estate tokenization, becoming the first real estate registration agency in the Middle East to use blockchain technology to manage real estate property rights certificates. The Dubai Land Department expects that by 2033, the transaction volume of tokenized real estate will reach 60 billion dirhams (about 16 billion US dollars), accounting for 7% of the city's total real estate transactions. In terms of real estate investment, in March, MGX, an investment group supported by Abu Dhabi, used stablecoins to invest $2 billion in Binance, the world's largest cryptocurrency exchange, to promote the development of blockchain technology, artificial intelligence solutions, decentralized finance and tokenized digital economy. At present, major countries and regions around the world are actively formulating regulatory policies for stablecoins and cryptocurrencies and improving supporting regulatory mechanisms. The EU Crypto-Asset Market Regulation Act (MiCA) has been implemented, and the United States is accelerating the formulation of stablecoin and crypto asset regulatory bills. As a pioneer in global stablecoin and crypto asset regulation, the UAE has explored a unique regulatory model of "federal clear bottom line + local pilot innovation" in light of its national conditions, and has achieved a good organic unity of supporting innovative development and ensuring financial security. China's financial reform has always adopted the model of "pilot first, accumulate experience, and gradually promote". China is not unfamiliar with this model. In the future, we can focus on following up on the operating results of the UAE regulatory model and timely evaluate and adjust the current stablecoin and cryptocurrency policies.
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