The UAE Central Bank has recently approved a new regulatory framework for stablecoins, set to come into effect in June 2025. This regulation will restrict the use of major cryptocurrencies like Bitcoin and Ethereum for transactional purposes within the UAE, limiting them to trading, investment, and corporate treasury functions. Only dirham-backed stablecoins will be permitted for payments within the Emirates, while foreign stablecoins will only be allowed for purchasing specific virtual assets like NFTs. This new regulation aims to bring clarity and reduce legal uncertainties for businesses, encouraging secure interactions between FinTech companies and virtual asset service providers.
The impact of this new regulation on the market and stakeholders is expected to be significant. By recognizing specific use cases for foreign payment tokens, such as NFTs, collaboration between FinTech firms and VASPs is likely to increase. This move will help to eliminate compliance risks and legal ambiguities, creating a safer and more diverse market environment. With a phased approach to implementing the regulation, stakeholders will have time to develop and adapt to dirham-backed stablecoins, ensuring a smooth transition. Bitcoin and Ethereum will continue to play a role in investment and trading activities, remaining integral to corporate treasuries and investment portfolios.
The global stablecoin market is experiencing rapid growth, with stablecoin purchases reaching $40 billion in March 2024, according to data from Chainalysis. The new UAE regulation highlights the importance of robust oversight in the stablecoin market, drawing lessons from past market collapses. Dirham-backed stablecoins offer price stability, making them suitable for everyday transactions and cross-border payments while leveraging the transparency and immutability of blockchain technology. These stablecoins can be either privately issued entities backed by reserves or function as CBDCs if issued by the UAE Central Bank.
The regulatory framework established by the UAE Central Bank mandates that no entity can issue a payment token without submitting a white paper detailing the technical specifications and operational data of the token for approval. Banks are not permitted to issue payment tokens directly but can do so through subsidiaries or affiliates, provided they meet licensing and regulatory requirements. Amir Tabch, CEO for the Middle East at Liminal Custody, stated that transitioning to dirham-backed payment tokens is feasible, requiring only an adjustment of trading pairs. This change will address issues like the conversion of digital currencies to traditional currencies, enhancing stability and compliance in crypto operations in the UAE.
In conclusion, the UAE Central Bank’s new regulatory framework for stablecoins is set to reshape the cryptocurrency landscape in the country by providing a structured framework for the use of digital currencies. This regulation will restrict the use of major cryptocurrencies for transactional purposes, emphasizing the use of dirham-backed stablecoins for payments within the Emirates. The impact on the market and stakeholders is expected to be significant, promoting collaboration between FinTech firms and VASPs and providing a safer and more diverse market environment. With the global stablecoin market expanding rapidly, the need for robust oversight is crucial, and dirham-backed stablecoins offer a stable option for everyday transactions and cross-border payments. The regulatory framework and compliance requirements set by the UAE Central Bank will ensure a smooth transition to dirham-backed stablecoins, enhancing stability and compliance in crypto operations in the UAE.
