Trading volume in crypto products surged to an all-time high of $17.5 billion in the second week of January following regulatory clarity over spot Bitcoin exchange-traded funds (ETF) in the United States.
While several countries are still in discussions over regulations for the new-age digital assets powered by blockchain technology, increasing trading volume and institutional participation indicate a positive future. The regions providing a favourable market and regulatory clarity could emerge as digital hubs globally.
And this is where Dubai has outstripped other regions to put itself as a digital asset powerhouse on the global map. An enabling business environment for investors, regulatory transparency and emerging technology companies help Dubai gain from increasing investment flows into digital assets.
A valuable that exists only in the digital form is called a digital asset. Various types of digital assets have emerged, which include financial instruments such as cryptocurrencies like Bitcoin, stablecoins, and tokens used in decentralised finance (DeFi). The digital assets also include intellectual property like digital artworks, music, ebooks and gaming items like in-game currencies and collectibles.
A forward-thinking approach and Dubai’s vision to create a fully digitised government have given a thrust to the development of blockchain technology over the years.
In 2016, the Dubai government announced an ambitious initiative to use blockchain for all government processes and documents. The emirate also set up the Global Blockchain Council comprising government agencies, technology companies and banks to implement and scale blockchain technology which was at the fledgling stage then.
Crown Prince His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum launched the Dubai Blockchain Strategy to explore the latest technology innovations for delivering seamless, safe, efficient and impactful city experiences.
According to Anthony Butler, who was then IBM Chief Technology Officer for Middle East and Africa and now Senior Advisor to Saudi Central Bank on emerging technologies, Dubai brought together the private and public sectors with a view to using blockchain to improve government efficiency; making Dubai as an international leader in the space and supporting the creation of new blockchain-based industries.
The use of blockchain technology across sectors, infrastructure creation and regulatory support put Dubai on the global map as a leading financial services centre for digital assets.
According to Navin Gupta, the Managing Director for South Asia and MENA at Ripple, enabling regulation, easy capital for tech startups and companies, and a pro-business visa program to attract intelligent people have put Dubai at the forefront of the digital asset boom.
Gupta explains that setting up of organisations like VARA for regulating virtual assets, capital for startups, golden visa rules to attract hundreds of thousands developers and an enabling environment where people from different nationalities can work together to create something bigger and better for the world are the main pillars of Dubai’s digital asset ecosystem.
Virtual Asset Regulatory Authority
In 2022, Dubai launched the Virtual Asset Regulatory Authority (VARA), the world’s first independent regulator for virtual assets. VARA is responsible for the regulation of use, exchange and provision of virtual assets. Since its launch the agency has brought several rules, framework to protect investors and create global standards for the governance of digital assets while supporting the vision for a borderless economy. It has also released regulations on advisory services, broker-dealer services, custody services and exchange services among others.
While announcing the launch of VARA, Dubai’s ruler HH Mohammed bin Rashid Al Maktoum said that the agency was aimed at establishing the United Arab Emirates and Dubai as a major player in designing the future of virtual assets globally.
Binance CEO Changpeng Zhao (CZ) had welcomed the regulatory set up as in Dubai is “a great step forward”.
Currently, VARA regulates several exchange service providers such as Binance, and management and investment services providers like Laser Digital.
Dubai International Financial Centre
The Dubai International Financial Centre, a tax- free zone which allows 100% foreign ownership, has also been another major pillar of the expansion of Dubai’s digital asset footprint. The financial centre, regulated by the Dubai Financial Services Authority (DIFC), serves as a hub to develop a proactive framework to protect investors as well as facilitate innovation and new digital products.
DIFC has been working on regulations on the control, transfer and trading of virtual assets. The agency approved Tocoin TON and Ripple XRP as recognised tokens, putting them on the list of global rivals like Bitcoin and Ether.
The regulatory clarity has facilitated a large number of funds in the region to invest in digital assets.
The Co-founder of Islamic Coin Mohammed AlKaff AlHashmi says that the institutional support in Dubai and visionaries within the establishment have helped in the development of technological innovations originating in Dubai.
In October 2023, another emirate, Ras Al Khaimah launched the new RAK Digital Assets Oasis (RAK DAO), an economic free zone dedicated to businesses involved in digital and virtual assets, blockchain, Web3 and artificial intelligence (AI). Going forward, collaboration with all emirates and aligning policies with UAE’s vision of a robust regulatory environment for virtual assets would propel Dubai’s journey to emerge as the most reliable destination for crypto assets.
“The golden opportunity now lies in establishing a harmonised layer across all Emirates, ensuring consistency and collaboration. This approach will solidify the UAE’s position as a competitive, innovative hub for the future of finance. The UAE’s comprehensive and adaptive regulatory environment, coupled with its strategic vision, positions it ideally to capitalise on the next growth phase of the digital asset industry,” says Sheereen Khan, a Toronto-based regulatory affairs consultant and compliance strategist.