The new regulations on crypto which were issued last month.
The latest regulations on stablecoins by the UAE Central Bank is expected to lay out a new operational framework for the cryptocurrencies. Thai will be implemented next year and introduce the mainstream acceptance of decentralized currencies in the nation.
The new regulations on crypto which were issued last month will exclusively only allow dirham-backed stablecoins to vendors and businesses in the Emirates to accept cryptocurrencies for their goods and services. This will be considered as a kind of virtual payment token.
Bitcoin and Ether which are the world’s biggest cryptocurrencies by market capitalization and US-dollar backed stablecoins like Tether or Binance USD will not be allowed for payments in those terms in the UAE. The financial free zones are not included.
Only for the purchase of specific virtual assets the foreign tokens will be permitted in the UAE such as non-fungible tokens (NFTs). This benefits the company in avoiding legal pitfalls.
The acceptance of foreign currency-backed stablecoin will widen the mode of payments for the consumers and businesses in the UAE. This results in a safe and diverse market and promotes regulatory compliance.
The new provision comes with the possibility of an extension at the discretion of the UAE Central Bank in June 2025. This allows the creation of the dirham-backed stablecoin and in a timely manner giving the stakeholders a smooth transition.
In the middle of this transition the usage of Bitcoin and Ether will shift and be restricted to investment and trading purposes.
Sheltered by MicroStrategy and Tesla in their corporate treasuries, the cryptocurrencies will play a vital role in investment portfolios. The global stablecoin market is growing swiftly which requires robust regulations to govern it.
The total global purchase of stablecoins stood at $40 billion in the month of March. According to data by blockchain analysis firm Chainalysis this highlights the growing demand for stablecoins within the cryptocurrency system.
For the local businesses and consumers to confidently use dirham-backed tokens for transactions, the new crypto law aims at building an ecosystem for the financial institutions. The integration brings out the combination of stability through the dirhams and efficiency through crypto technology to deliver a robust domestic market of stablecoins in the Emirates.
The decentralized cryptocurrencies shoot up innovation, peer-to-peer transactions, enable decentralized finance applications and new financial products that work without intermediaries. The variety in applications gives the users options to decide the best tool for their needs.
Stablecoins such as USDT, Dai, and TerraUSD provide a safe space when compared to other cryptocurrencies since they are linked to the value of traditionally stable assets such as the US dollar. The stability of the stablecoin is dependent on the quality and transparency of the assets that are held in the issuer’s reserve to hold its value.
Risk management techniques, as well as the issuer’s competence and reputation to maintain the peg under changing market conditions, all play important roles in ensuring the stablecoin’s stability.
The new implemented law that mandates dirham-backed stablecoins for transactions will prominently affect the crypto business in the UAE. As per the regulations, the businesses or entities cannot issue a payment token without submitting a white paper to the Central Bank and receiving its acceptance and publishing it.
The white paper serves as a document that details the technical specifications and operational data of the payment token. It provides important details to the Central Bank to evaluate the liability and security of the token before granting approval.
The regulations mentions that the banks might not be allowed to act as a payment token issuer directly. It is a body that converts fiat money into stablecoin. A bank, on the other hand, can make a subsidiary which is associated with the organization that undertakes the functions of a payment token issuer, as long as the new entity meets the necessary licensing and regulatory standards.