UAE Regulatory Environment is Creating a Crypto Hub of Innovation

Crypto markets in the UAE are seeing rapid progress exemplified by figures released in April 2024 that revealed the average daily number of crypto traders in the region reached over 500,000 as reported by Cryptonews.com. This is a 51% increase from the previous year. In the same period the UAE leads crypto adoption per capita with a 68% increase in daily traders.

This rapid adoption rate along with significant inflows of institutional investment can be attributed to the implementation of a progressive regulatory framework that is seen as supportive to the overall crypto and blockchain technology industry.

As Rachel Conlan, CMO of Binance, discussed recently at the Binance Blockchain Week 2024 in Dubai, “With its unique blend of regulatory clarity, national ambition, and global accessibility, the UAE is the natural home for discussions about the future of blockchain and its integration into regional and global economies.” Conlan continued by saying, “The UAE has rapidly emerged as a global hub for crypto, offering an ideal environment to foster growth in a region setting the standard in sustainable regulations and innovation.”

UAE Crypto Growth

While many of the Western countries are seeing the pace of cryptocurrency adoption slow, the MENA (Middle East and North Africa) region is emerging as one of the hot spots in the crypto sector with over 7% of the global transaction volume and an estimated $389.9 billion in on-chain value received between July 2022 and June 2023, reported by Chainalysis.

Several factors contribute to the UAE emerging as a significant cryptocurrency hub:

• Clear Regulatory Environment: Many jurisdictions have tightened crypto restrictions amidst regulatory ambiguity, while the UAE has defined a clear regulatory framework that service as a strong incentive to attract individuals and businesses alike. In addition, the UAE offers a favorable business tax environment which currently sits as 0% in Free Zones.
• Concentration of High Wealth: The UAE is the 6th largest hub for cross-border wealth management with Dubai and Abu Dhabi listed in Bloomberg’s Financial Centres Index 32.
• Personal Incentives: Individuals are incentivized in the UAE with a 0% tax rate on crypto assets and personal income. Company founders looking to relocate their operations to the UAE are offered two visas: a remote work visa (renewable visa which allows someone to liv and work in the UAE) and a golden visa (requires proof of employment or investments in the UAE).

Supporting Crypto Regulations

There are a number of crypto focused laws and regulations aimed at creating a sustainable and well-defined regulatory framework to support business and personal investment.

Dubai’s Crypto Laws – Virtual Assets Regulatory Authority (VARA)

The Virtual Assets Regulatory Authority (VARA) is regarded as the leading regulator in the UAE. VARA is the exclusive authority which regulates digital assets throughout Dubai’s free zones and mainland, with the exception of the Dubai International Financial Centre (DIFC).

For businesses looking to launch in the UAE, there is currently a three stage process for approval:

1. Initial Approval
2. Internal Minimum Viable Product (MVP) Approval
3. Full Market Product (FMP) Approval

Every cryptocurrency company that is subject to VARA regulations is known as a VASP (Virtual Asset Service Provider). There are a number of different VASP categories of entities that fall under VARA regulation. Here are a few examples of categories and the entities that fall under each:

• Custody: Hex Trust, Komainu
• Exchanges: Binance, TOKO
• Investment Services: Laser Digital

While VARA’s process can be thorough and time-consuming, the regulatory body offers comprehensive and clear regulations which creates an unambiguous framework for doing business.

DIFC’s Crypto Regulator – DFSA

The Dubai International Financial Centre (DIFC) is a purpose-built financial free zone in Dubai which has an independent regulator of financial services called the Dubai Financial Services Authority (DFSA). An important distinction is that although DIFC is located in Dubai, VARA laws are not applicable there. Instead, it operates under the DFSA established laws.

DIFC has positioned itself as one of the most prestigious financial regulators and top financial centers in the Middle East. Because of this many of the top global financial houses have chosen it as their headquarters. Many crypt and fintech companies such as Ripple, SoFi and Adyen are hosted there.

Abu Dhabi’s Crypto Laws – ADGM

Back in 2018 the Abu Dhabi Global Market (ADGM) created the world’s first cryptocurrency regulatory framework focused on positioning the UAE as a leader in the space. The framework has evolved since them into a comprehensive structure with clearly defined categories of digital assets with their own characteristics and requirements.

Source

There are two specific activities that attract the most regulatory requirements for licenses to be granted by ADGM, namely:

1. Custodian, Asset Manager, Broker-Dealer, Advisory
2. Exchanges – Operating a virtual asset multilateral trading facility

Some of the first which have Financial Services Permission (FSP) granted by ADGM include: Binance, Matrix, MidChains, SEBA Bank, Laser Digital, Rain.

Wrap Up

The UAE is located at the crossroads of Asia, Africa and Europe making it ideally positioned as a gateway for companies and organizations looking to expand throughout these regions. Combining the UAE’s strategic location, robust infrastructure, business minded reputation and strong governmental and regulatory support make it an incredible attractive destination for internation investors.