The United Arab Emirates is at a financial crossroads, where technological innovation merges with monetary tradition. The recent move by the UAE Central Bank has opened the doors to a new horizon in the world of stablecoins, particularly with the introduction of AE Coin.
AED Stablecoin, a startup in the financial sector, has received the green light to advance its ambitious project. The creation of AE Coin, a stablecoin linked to the dirham, promises to revolutionize daily transactions and position the UAE as pioneers in the adoption of digital currencies backed by traditional assets.
PRELIMINARY APPROVAL FROM THE UAE CENTRAL BANK
The Central Bank of the United Arab Emirates (CBUAE) has granted preliminary approval to AED Stablecoin, marking a milestone in the country’s financial landscape. This decision makes AED Stablecoin the first fully regulated issuer of a stablecoin linked to the dirham in the region, paving the way for future innovations.
This advancement is framed within the new Payment Token Service Regulation established by the CBUAE. The initiative aligns with the Digital Government Strategy 2025, which seeks to drive digital transformation and strengthen the country’s economy. However, the path toward the full implementation of AE Coin is still fraught with challenges. The preliminary approval is a crucial step, but it does not grant full authority for the immediate launch of the stablecoin in the market.
Regulatory challenges for AED Stablecoin
The strict regulations imposed by the CBUAE present hurdles that AED Stablecoin must overcome. The licensing framework prohibits the use of cryptocurrencies for payments unless they are licensed dirham-linked tokens, significantly restricting unregulated operations. Additionally, stringent rules have been established for stablecoins. There is a strong emphasis on the need for assets to be fully backed by cash, prohibiting algorithmic stablecoins and privacy tokens.
Issuers like AED Stablecoin must ensure that their coins are backed in a separate escrow account within a UAE bank and in dirhams. Alternatively, they can maintain at least 50% of their reserve assets in cash, investing the remainder in secure options such as government bonds and CBUAE monetary bills.
Implications of the new legislation in Dubai
The Dubai Virtual Assets Regulatory Authority (VARA) has intensified its efforts to regulate the cryptocurrency market. On September 26, VARA announced that companies promoting investments in virtual assets must include clear warnings about the volatility and value fluctuations associated. Matthew White, CEO of VARA, emphasized that these measures aim to ensure responsible service provision. Transparency and trust are fundamental pillars for the sustainable development of the virtual asset market in the region.
Recently, VARA imposed fines on seven companies for violating regulations and operating without the necessary licenses. Although the identities of these entities have not been disclosed, they have been ordered to cease all activities related to cryptocurrencies, reflecting a firm stance against irregularities.
COMPETITION IN THE DIRHAM-BACKED STABLECOIN MARKET
The launch of AE Coin positions AED Stablecoin in direct competition with established players. Tether, issuer of USDT and the largest stablecoin by market capitalization, has shown interest in the UAE market. Tether recently announced partnerships with local companies such as Phoenix Group and Green Acorn Investments. This move indicates a growing interest in dirham-backed stablecoins, pointing to a possible expansion in the regional market.
The entry of AE Coin could simplify interaction with digital assets for residents and merchants. The widespread adoption of stablecoins in everyday transactions could boost the use of cryptocurrencies in the United Arab Emirates, fostering a more digitized and efficient economy.
