ABU DHABI (The Thursday Times) — The Central Bank of the United Arab Emirates (CBUAE) has granted in-principle approval to AED Stablecoin under its Payment Token Service Regulation framework. This initial greenlight marks a significant milestone in the development of digital assets in the UAE, positioning AED Stablecoin as a leading contender to issue the country’s first regulated dirham-pegged stablecoin.
This approval comes in the wake of the CBUAE’s licensing framework, which prohibits the use of cryptocurrencies for payments unless they are licensed and pegged to the dirham. Concerns had surfaced regarding potential restrictions on crypto payments following the release of the new framework, but the approval of AED Stablecoin indicates a clear path forward for regulated digital assets in the UAE.
A future contender in the UAE’s crypto landscape
Once fully approved, AED Stablecoin’s AE Coin could play a pivotal role in the UAE’s growing crypto market. It could be used as a trading pair on crypto exchanges and decentralised platforms, offering a local alternative to the US-dollar-pegged USDT. Additionally, merchants could adopt AE Coin for payments, allowing customers to use it for goods and services, creating a new avenue for digital transactions in the UAE.
The regulatory framework established by the CBUAE ensures a stable and secure foundation for AED Stablecoin. The bank prohibits the use of algorithmic stablecoins and privacy tokens while mandating that issuers fully back their stablecoins with cash held in escrow at UAE banks, denominated in dirhams. Alternatively, issuers may hold 50% of reserves as cash and the other 50% in UAE government bonds and CBUAE Monetary Bills, with a maximum average duration of six months.
Tether’s entry into the Emirati market
While AED Stablecoin’s AE Coin could become the first regulated dirham-pegged token, it will likely face competition from Tether, the world’s largest stablecoin issuer by market capitalisation. Tether has already announced plans to launch its own dirham-pegged stablecoin, leveraging partnerships with Phoenix Group and Green Acorn Investments.
Tether’s entry into the UAE’s stablecoin market is poised to further cement its dominance in the global crypto ecosystem. The company already offers a range of fiat-pegged tokens, including USDT (pegged to the US dollar) and EURT (pegged to the euro). By introducing a dirham-pegged token, Tether aims to expand its offerings in the UAE’s increasingly crypto-friendly regulatory environment.
Crypto innovation in the UAE
The UAE has become an attractive destination for crypto innovators and platforms, thanks to its progressive approach to digital asset regulation. Major players like OKX and M2 have already set up operations in the country, taking advantage of the crypto-friendly regulatory landscape.
OKX recently launched a retail and institutional trading platform in the UAE after receiving full licensing approval. The platform offers a range of services, including derivatives trading for qualified institutional investors. Meanwhile, M2 has introduced a system that allows residents to directly convert dirhams into Bitcoin (BTC) and Ether (ETH), further promoting the integration of cryptocurrency into the local economy.
