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Gulf Press > Business > Crypto > UAE Grants Initial License to First AED Stablecoin Issuer
Crypto

UAE Grants Initial License to First AED Stablecoin Issuer

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Last updated: 2024/10/14 at 10:07 PM
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The Central Bank of the United Arab Emirates (CBUAE) recently granted in-principle approval to AED Stablecoin on October 14, making it 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 approval of AED Stablecoin signifies a more inclusive approach to cryptocurrency within the UAE, as the central bank has released a licensing framework that restricts the use of crypto for payments unless it involves licensed dirham-pegged tokens.

While the initial approval does not grant full authority to implement stablecoin plans immediately, it is a crucial step in realizing AED Stablecoin’s ambitions. AED Stablecoin plans to launch AE Coin, a dirham-pegged stablecoin intended for local trading pairs and everyday transactions within the UAE. However, the CBUAE’s stringent regulations for stablecoins present challenges for AED Stablecoin, as it emphasizes the need for stablecoins to be fully cash-backed and prohibits algorithmic stablecoins and privacy tokens. Issuers must ensure that stablecoins are backed by cash held in a separate escrow account denominated in dirhams within a UAE bank or maintain a reserve with cash and secure investments like government bonds.

The approval of AED Stablecoin positions it to compete with established players in the stablecoin market, such as Tether, which issues USDT, the world’s largest stablecoin by market capitalization. Tether has also announced partnerships with local firms to introduce a dirham-pegged stablecoin, indicating growing interest in this market segment. In Dubai, the Virtual Assets Regulatory Authority (VARA) has implemented regulations to ensure responsible service delivery by virtual asset providers, enhancing transparency and trust in the market. Recently, VARA fined seven businesses for violating marketing regulations and operating without necessary licenses, signaling the authority’s commitment to enforcement within the crypto landscape.

The approval of AED Stablecoin marks a significant milestone in the UAE’s crypto market, offering a more regulated and secure option for individuals and businesses looking to engage with digital assets. With the possibility of simplifying crypto transactions for residents and traders and facilitating day-to-day transactions, AE Coin could pave the way for wider acceptance of stablecoins in the UAE. As the regulatory landscape continues to evolve in Dubai and the UAE, the enforcement actions taken by authorities like VARA demonstrate a commitment to ensuring compliance and accountability within the crypto industry, ultimately promoting trust and stability in the market. With the introduction of fully regulated stablecoins like AED Stablecoin, the UAE is poised to become a key player in the global crypto market, attracting investors and businesses seeking a secure and compliant environment for digital asset transactions.

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News Room October 14, 2024
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