The UAE’s role in helping crypto adoption worldwide

Introduction

The global and decentralized crypto community has certain locations that attract more people and companies to establish their Web3 operations, leading to the creation of Crypto Hubs. New York City, Singapore, Hong Kong, Zug, Paris, Bangkok, and Lisbon top the list of global crypto hubs due to a deep talent pool, ease of doing business, and favorable tax systems. Recently, the UAE and specifically Dubai have become a rising addition to this list, quickly climbing the ranks.

MENA (Middle East and North Africa) is a vast and profitable market. The Global Citizens Report shows that the private wealth held in the United Arab Emirates increased by $46 billion between 2019 and 2021 due to the arrival of 5,600 millionaires in the country. Consultant Knight Frank's data indicates that about 25% of Middle East millionaires are already investing in some form of cryptocurrency.

According to a recent report by blockchain researcher Chainalysis, the MENA region is currently the world's fastest-growing crypto market. In June 2022, the volume of crypto received by users in that part of the world reached $566 billion, a 48% increase from June 2021.

Laying Down the Rules

In contrast to years of regulatory uncertainty in Hong Kong, and increasingly hostile conditions in the US, the UAE has created clear guidance for crypto companies that want to operate in the region. The establishment of the Virtual Assets Regulatory Authority (VARA) specifically to oversee the crypto industry is a clear signal that Web3 has a home in the UAE today, and a bright future tomorrow. The emirate’s ambitious framework tackles a broad range of assets and activities, designed to attract firms seeking regulatory clarity - and it’s working.

Besides the trading platforms and custodians, which are the foundation of the crypto economy, lots of other blockchain, Web3, NFT, and DeFi projects have also started setting up shop in the UAE, including a range of metaverse projects.

As of April 2023, the federal securities regulator in the UAE has announced that it will begin accepting applications from companies seeking to provide crypto services in the country. Except for the firms that are already licensed in the UAE's financial-free zones, all virtual-asset service providers in the country are required to apply for approval with the Securities and Commodities Authority (SCA). The licensing regime was endorsed by the SCA following the UAE Council of Ministers' decision last year to regulate the crypto sector.

In March 2023, the Central Bank of UAE (CBUAE) made an announcement that further demonstrates the government's support for the crypto industry. The CBUAE revealed that it expects to finish the first phase of its central bank digital currency strategy by mid-2024. This phase includes proof-of-concept work for a wholesale and retail CBDC. A digital Dirham that is used in daily transactions can only add to the recent finding by YouGov, which indicated that trust in cryptocurrencies was highest among adults in the UAE. Currently, local businesses such as YallaMarket and property firms are accepting payments in crypto, with the former even contemplating the idea of paying salaries in the currency.

Balancing Act

It’s clear that transparent and concrete rules help to attract large companies and institutional investors. And the combination of government approval and guardrails, companies building the infrastructure, and institutional investors bringing in the liquidity, can only mean one thing: mainstream adoption of crypto.

But it’s not all sunshine and rainbows.

The Financial Action Task Force recently stated that the UAE is not doing enough to combat the risks of money laundering. This raises the possibility that a crypto-fueled scandal could tarnish the country's good reputation rather than bolster it.

VARA in Dubai has recently adopted a stricter approach, requiring additional information on ownership, auditing, and board procedures for companies that are registered or in the process of registering. According to Bloomberg, this has caused some issues for Binance's CZ, who resides in Dubai and has made it a key part of the company's expansion in the Middle East. He is facing mounting pressure from US regulators. However, companies that follow proper protocols, such as those on the official VARA register, have been able to meet the new requirements without difficulty.

All in all, the UAE is attempting to strike a balance between promoting innovation and maintaining proper oversight in an industry that has been plagued by notable scandals over the past year. VARA aims to transform Dubai into a hub for the digital-assets economy while ensuring its business ties with Western jurisdictions like Europe, which are implementing stricter crypto regulations. These efforts are just a small part of a larger initiative to remove the UAE from the Financial Action Task Force's "gray list" of jurisdictions that are not doing enough to uncover illicit funds.

UAE Crypto Adoption will Rise

Without the legacy infrastructure that might slow down the development of friendly and logical regulations elsewhere, the UAE poised to become the next major crypto hub, with Dubai leading the way. As with other crypto hubs, Dubai's success is critical to regional crypto adoption.

The enthusiasm and vision of the UAE's leaders for promoting blockchain technology, metaverse projects, and other initiatives are highly encouraging. The emirate's supportive regulatory framework, along with its deep talent pools, ease of doing business, and favorable tax system, has already attracted numerous crypto-related businesses and investors. With the government's continued support, Dubai is set to become a major player in the global crypto economy.