The Central Bank of the United Arab Emirates (CBUAE) has granted in-principle approval to AED Stablecoin on October 14, making the firm the first issuer of a fully regulated dirham-pegged stablecoin in the region. This development falls under the CBUAE’s Payment Token Service Regulation framework and aligns with the UAE government’s Digital Government Strategy 2025. The recent licensing framework released by the central bank restricts the use of cryptocurrency for payments unless it involves licensed dirham-pegged tokens. The approval of AED Stablecoin is a significant milestone that signals a more inclusive approach to cryptocurrency in the UAE.
AED Stablecoin aims to launch the AE Coin, a dirham-pegged stablecoin intended to function as a local trading pair and a payment method for everyday transactions within the UAE. However, the stringent regulations outlined by the CBUAE present challenges for AED Stablecoin. The licensing framework mandates that stablecoins must be fully cash-backed and prohibits the use of algorithmic stablecoins and privacy tokens. Issuers must ensure that their stablecoins are backed by cash held in a separate escrow account denominated in dirhams within a UAE bank, or maintain reserve assets in a secure manner.
The approval of AED Stablecoin marks its entry into the stablecoin market, where it will compete against established players such as Tether, which issues USDT, the world’s largest stablecoin by market capitalization. Tether has also announced partnerships with local firms in Dubai to introduce its dirham-pegged stablecoin, indicating a growing interest in this segment of the market. Dubai’s Virtual Assets Regulatory Authority (VARA) has implemented regulations to ensure responsible service delivery by virtual asset providers and enhance transparency and trust in the market. VARA has fined seven businesses for violating marketing regulations and operating without necessary licenses, with fines ranging from 50,000 to 100,000 UAE dirhams for each entity.
The UAE’s regulatory environment for cryptocurrencies is evolving, with the approval of AED Stablecoin representing a step towards greater acceptance and integration of digital assets within the country. The licensing framework established by the CBUAE sets clear guidelines for stablecoin issuers to operate within, ensuring that stablecoins are backed by cash reserves held in secure accounts. The entry of AED Stablecoin into the market will provide residents and traders with a simplified way to engage with digital assets and facilitate day-to-day transactions through the use of stablecoins.
The partnerships between Tether and local firms in Dubai, along with the emergence of AED Stablecoin, indicate a growing interest in stablecoins within the UAE. The enforcement actions taken by VARA against businesses violating regulations demonstrate the government’s commitment to ensuring a responsible and transparent crypto market. By imposing fines on businesses that do not comply with regulatory requirements, VARA aims to create a safer environment for virtual asset investments and promote trust among market participants. The evolving regulatory landscape in Dubai and the UAE will shape the future of the crypto industry in the region, influencing how digital assets are utilized and regulated.
