The United Arab Emirates (UAE) has been establishing itself as one of the most advanced centres for digital assets and payment innovations in the Middle East.
It has a more favourable regulatory environment compared to many of its neighbours. It also boasts top-notch digital infrastructure and tech-savvy residents who are eager to adopt innovations.
A Framework for Digital Asset Growth
The UAE has grown into the third-largest market for digital asset transactions in the Middle East and North Africa (MENA) region.
The Gulf nation recorded transactions of $34 billion, registering a 30 percent adoption rate, in the 12 months ending June 2024. It ranks behind Turkey ($170bn – 52%) and Saudi Arabia ($47bn – 20%).
The Central Bank of the UAE (CBUAE) introduced the Payment Token Services Regulation in August 2024 to guide proceedings around cryptocurrencies.
All issuers, distributors and holders must obtain a Payment Token Services Regulation license. They must also have a fiat reserve backing while allowing users to redeem tokens at par value.
There are strict governance protocols around anti-money laundering (AML) and countering the financing of terrorism (CFT) that all parties must follow. Even though the standards are staggeringly high, they ensure the industry is credible and has a long-term future.
Operators must also secure licenses from Dubai’s Virtual Asset Regulatory Authority (VARA), the Financial Services Regulatory Authority (FSRA), and the Dubai Financial Services Authority (DFSA).
They all help to create a firm yet supportive regulatory environment that encourages innovation but leaves no stone unturned in oversight.
All signs point to the UAE being ready to legitimise payment tokens for mainstream finance.
PayPal’s PYUSD and the UAE’s iGaming Evolution
Activities from the market show just how much momentum stablecoins are garnering. AE Coin, a Dirham-backed digital token, secured approval from the CBUAE last year.
AE Coin is now a fully-functional, instant, secure and stable payment method designed for the modern digital economy.
The DFSA approved Circle’s USDC and EURC as crypto tokens in February. This was the first time stablecoins have been authorised under the notoriously strict DIFC crypto regime. They can be used in digital asset services, treasury management and a payment solution.
In another serious move, Abu Dhabi sovereign wealth fund ADQ, giants IHC, and the largest bank by asset in the UAE, First Abu Dhabi Bank (FAB), will launch a new Dirham-backed stablecoin. They have not yet received a go-ahead from the FAB, but it will be regulated by the CBUAE.
These developments come at an interesting time when the big players in traditional finance keep making forays into the stablecoin ecosystem.
United States-founded financial juggernaut PayPal launched the US-dollar-anchored stablecoin PayPal USD (PYUSD) in 2023 for consumer payments and peer-to-peer transfers.
PYUSD comes with the backing of a renowned financial brand in the digital asset space. The iGaming industry has been paying close attention to developments.
The UAE has been working towards regulating commercial gaming via the General Commercial Gaming Regulatory Authority (GCGRA).
Many gamblers use financial tokens to conduct transactions on the betting sites featured on the https://haztayeb-uae.com/en/ comparison platform.
Stablecoins could be the next product to play a massive role for iGaming operators, further strengthening crypto’s influence in the sector.
Cross-Border Payments and Trade Finance
The UAE is already a leader in the finance and trade sectors, and the Gulf nation is also poised to enjoy this mainstream emergence of stablecoins for cross-border transactions.
Stablecoins are not held back by traditional financial issues that hamper international transactions. They also charge cheaper fees than established options such as SWIFT.
Trade finance is another beckoning opportunity. Stablecoins with smart contracts and tokenised collaterals can help modernise traditional processes such as letters of credit and supply chain financing.
This digitisation will bring down overhead costs while ensuring transparency and speed. These small changes can bolster competitiveness for an economy that handles heavy logistics.
Stablecoins can also help the banking sector operate around the clock and reduce avoidable technical glitches stemming from being overworked. They help to manage liquidity effectively.
Elsewhere, multinationals in the Middle East will be delighted to have stablecoins available to move funds across borders and currencies.
