The UAE Central Financial institution accepted a framework for stablecoin regulation which permits solely dirham-backed stablecoins for use for funds.
Cryptocurrency like Bitcoin and Ethereum shall be restricted to buying and selling, funding, and company treasury functions whereas international stablecoins will solely be permitted for buying particular digital belongings like NFTs.
The brand new framework is about to start in June 2025.
The UAE Central Financial institution’s current regulation on stablecoins is poised to reshape the best way cryptocurrencies work within the nation, bringing a structured framework for using digital currencies. Set to take impact in June 2025, this regulation will limit using main cryptocurrencies like Bitcoin and Ether for transactional functions, as a substitute permitting solely dirham-backed stablecoins for funds throughout the Emirates.
The regulation goals to supply readability and scale back authorized uncertainties for companies, encouraging safe interactions between FinTech corporations and digital asset service suppliers (VASPs) equivalent to exchanges and fee processors. Monetary free zones are exempt from this new rule, allowing some flexibility for worldwide enterprise operations.
Influence on the Market and Stakeholders
The popularity of particular use instances for international fee tokens, together with non-fungible tokens (NFTs), is predicted to advertise collaboration between FinTech corporations and VASPs. This transfer will assist eradicate compliance dangers and authorized ambiguities, selling a safer and extra various market setting.
A phased strategy will enable time for the event of a dirham-backed stablecoin, making certain a easy transition for stakeholders. Amid these modifications, Bitcoin and Ether shall be relegated to funding and buying and selling functions, remaining integral to company treasuries and funding portfolios.
Stablecoin Market Developments
The worldwide stablecoin market is increasing quickly. Information from Chainalysis signifies that stablecoin purchases reached $40 billion in March 2024, highlighting their rising significance throughout the cryptocurrency ecosystem. The brand new UAE regulation emphasizes the necessity for sturdy oversight, reflecting classes realized from previous market collapses, such because the $60 billion wipeout following the TerraUSD and Luna crash in Might 2022.
Dirham-backed stablecoins can both be non-public entities backed by reserves or operate as central financial institution digital currencies (CBDCs) if issued by the UAE Central Financial institution. Not like risky cryptocurrencies, these stablecoins provide worth stability, making them appropriate for on a regular basis transactions and cross-border funds whereas leveraging blockchain expertise’s transparency and immutability.
Regulatory Framework and Compliance
The brand new regulation mandates that no entity can challenge a fee token with out submitting a white paper to the Central Financial institution for approval. This doc should element the technical specs and operational knowledge of the fee token, making certain thorough evaluation earlier than market entry. Banks will not be instantly permitted to challenge fee tokens however can achieve this via subsidiaries or associates, offered they meet licensing and regulatory necessities.
Amir Tabch, CEO for the Center East at Liminal Custody, emphasised that transitioning to dirham-backed fee tokens is possible, requiring solely an adjustment of buying and selling pairs. This alteration will resolve current points just like the conversion of digital currencies to conventional currencies, enhancing the soundness and compliance of crypto operations within the UAE.
