At a gathering held in Abu Dhabi on June 3, the UAE Central Financial institution’s board of administrators accepted the publication of guidelines on the licensing and supervision of stablecoins, paving the best way for the nation to determine a regulatory framework for stablecoin issuance.

The regulation will enable solely dirham-backed stablecoins for funds, restrict cryptocurrencies corresponding to Bitcoin and Ethereum to buying and selling, funding and company treasury functions, and permit worldwide stablecoins just for the acquisition of sure digital belongings corresponding to NFTs. The brand new framework is scheduled to go reside in June 2025.

How will this regulation affect the market and stakeholders? The brand new guidelines goal to make clear and eradicate authorized difficulties for companies by facilitating safe interactions between fintech firms and digital asset service suppliers (VASPs) corresponding to exchanges and cost processors. Monetary free zones will not be topic to this new legislation, permitting higher flexibility for worldwide enterprise actions.

General, the worldwide stablecoin market has been on an upward development just lately, with knowledge from Chainalysis exhibiting stablecoin purchases reaching $40 billion in March 2024. Over the previous two years, the UAE has made clear its intention to change into a hub of well-regulated blockchain and crypto asset exercise and a world and regional chief in monetary innovation.

This new regulation proves that the nation is dedicated to reaching its plans and objectives of turning into a well-regulated blockchain and cryptocurrency hub, but in addition highlights the necessity for robust oversight.

A dirham-backed stablecoin may very well be a non-public entity backed by reserves, or a Central Financial institution Digital Forex (CBDC) issued by the UAE Central Financial institution. In contrast to risky cryptocurrencies, stablecoins provide value stability, making them appropriate for on a regular basis transactions and cross-border funds, whereas leveraging the transparency and immutability of blockchain know-how.

A number of key questions stay in regards to the central financial institution's plan, together with what necessities cost service suppliers already licensed by the central financial institution will face in the event that they select to challenge or deal with stablecoins, and whether or not the licensing necessities will overlap with these already overseen by Dubai's Digital Asset Regulatory Authority (VARA).

The brand new guidelines stipulate that no group could challenge a cost token with out first submitting a white paper to the central financial institution for approval. This doc, offered by the corporate, should embrace the technical specs and operational knowledge of the cost token and make sure that a radical analysis is carried out earlier than it’s launched available on the market. Banks can not challenge cost tokens immediately, however can accomplish that via subsidiaries or associates that meet licensing and regulatory necessities.

The central financial institution's proposed regulation of dirham-backed stablecoins marks an essential step in direction of making a complete regulatory construction that provides market contributors confidence in future guidelines.