The Central Bank of the United Arab Emirates (CBUAE) has granted in-principle approval to AED Stablecoin under its Payment Token Service Regulation framework, as announced in a recent news release. This preliminary license positions AED Stablecoin as a frontrunner to become the first issuer of a regulated dirham-pegged stablecoin in the UAE.
This approval alleviates concerns regarding potential restrictions on crypto payments, which had emerged following the CBUAE’s release of its licensing framework. That framework prohibits the use of cryptocurrencies for payments unless they involve licensed dirham-pegged tokens. If fully approved, AED Stablecoin’s AE Coin could serve as a local trading pair for cryptocurrencies on exchanges and decentralized platforms, enabling merchants to accept it for goods and services.
CBUAE’s Licensing Framework
The CBUAE’s licensing framework establishes strict guidelines for stablecoin issuers. Notably, it bans algorithmic stablecoins and privacy tokens, favoring fully cash-backed assets. Issuers are required to back their stablecoins with cash held in a separate escrow account denominated in dirhams within a UAE bank. Alternatively, they can hold at least 50% of their reserve assets in cash, with the remainder invested in UAE government bonds and CBUAE Monetary Bills that have an average duration of up to six months. This stringent framework is designed to enhance the stability and reliability of stablecoins in the UAE, fostering confidence among users and investors.
AED Stablecoin will likely face competition from established players like Tether, the issuer of the world’s largest stablecoin by market capitalization, USDt. Tether has announced partnerships with local firms Phoenix Group and Green Acorn Investments to introduce its own dirham-pegged stablecoin, intensifying the competition in the market.
UAE’s Crypto-Friendly Environment
The UAE’s regulatory environment is becoming increasingly crypto-friendly, attracting major players in the industry. For example, OKX recently launched a retail and institutional trading platform in the UAE after obtaining a full license that includes derivatives trading for qualified institutional investors. Additionally, the crypto exchange M2 has introduced a new system allowing residents to convert dirhams directly into Bitcoin and Ether. This growing infrastructure reflects the UAE’s commitment to fostering a robust cryptocurrency ecosystem.
The approval of AED Stablecoin by the CBUAE represents a significant step forward for the cryptocurrency market in the UAE. If successful, it could pave the way for greater acceptance and integration of digital currencies in everyday transactions. A regulated dirham-pegged stablecoin could encourage merchants to accept cryptocurrency payments, broadening the market for digital assets in the region. This could enhance local trading activities and drive more businesses to adopt blockchain technology, potentially stimulating economic growth.
The in-principle approval of AED Stablecoin by the Central Bank of the UAE marks a pivotal moment in the country’s efforts to establish a regulated cryptocurrency environment. As the first potential issuer of a dirham-pegged stablecoin, AED Stablecoin could significantly influence the way cryptocurrencies are utilized in the region. With growing interest from major players like Tether and a favorable regulatory framework established by the CBUAE, the UAE is poised to become a leader in the global cryptocurrency landscape. This development not only demonstrates the country’s commitment to innovation but also highlights the increasing importance of stablecoins in facilitating digital transactions.
Featured image credit: Jim Hoffman via Flickr
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