Dubai and Abu Dhabi have become the mecca of energy commodity deals and social media influencers. They might soon become the mecca of digital assets and cryptocurrencies, too.
According to The News International
, an English-speaking Pakistani newspaper, 25 percent of Middle East millionaires already invest in digital assets
. CoinDesk reports
that Luxury real estate developer Damac will soon accept payments in Bitcoin (BTC
) and Ethereum (ETH
). It aims to "accelerate the new economy for newer generations, and for the future of our industry," according to Ali Sajwani, its GM of Operations in charge of digitalization. Local grocery delivery service YallaMarket has hopped onto the crypto train and is accepting payments in cryptocurrency. Furthermore, a global YouGov survey says two-thirds of UAE adults
are interested in crypto.
This special report will shine a light on how the United Arab Emirates — particularly Dubai and Abu Dhabi — are making a play to become the new global crypto hub. It will look into how Dubai and Abu Dhabi differ and argue that both emirates' regulatory approach, although imperfect, makes sense. It is no surprise that many crypto exchanges set up shop in Dubai and Abu Dhabi, and the amount of blockchain-related events in the region is truly staggering.
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On February 28, 2022, Sheikh Mohammed bin Rashid Al Maktoum, Minister of Finance and Deputy Ruler of Dubai, made history. He approved the Virtual Assets Law
(VAL) and established the Virtual Assets Regulatory Authority
(VARA), thereby regulating the status of cryptocurrencies in Dubai. Sheikh Al Maktoum tweeted
"The future belongs to whoever designs it. Today, through the virtual assets law, we seek to participate in the design of this new and rapidly growing global sector."
The VAL is applicable only in Dubai and not in any other emirate. It stipulates that blockchain companies and exchanges that want to be licensed in Dubai have to open a headquarter and adhere to strict AML regulations. The VARA, which is related to the Dubai World Trade Center Authority, the city's financial center, will promote Dubai as a digital assets hub, increase its awareness and attract foreign direct investment.
Industry heavyweights welcomed the decision. Changpeng Zhao tweeted
that the new law is a "great step forward." On April 8, 2022, Binance announced that it has been given approval to operate as a broker-dealer in digital assets in Abu Dhabi. Binance duly has a regional office in the city, and CoinTelegraph
reported that CZ even owns an apartment in Dubai. This presence has resulted in a hiring spree — with the company reportedly hiring to fill over 100 roles.
But Binance is far from the only exchange that is posted up in Dubai. In fact, a whole heap of crypto exchanges are based in Dubai
, such as Bitoasis, Bybit, Crypto.com and FTX Europe. Add to that Ripple, which has a regional office in Dubai, and metaverse
But what exactly makes Dubai so popular among crypto companies?
Let's circle back to CZ, who has a fair bit of experience dealing with regulators, considering Binance's long track record of problems
getting regulatory approval. He told the Financial Times
that Dubai boasts an "open mindset and a business-friendly attitude." But isn't this just code for "the regulators in Dubai leave us alone"?
Amrit Dhami, Thematic Analyst at GlobalData, a leading data and analytics company, said
"The UAE's regulation is more about overseeing the development of the crypto sector than curbing it. By accepting the inevitability of mainstream cryptoassets and helping the domestic crypto sector grow, the UAE will continue to attract a flock of crypto firms. The country is showing that crypto regulation doesn't have to be a deterrent, and can actually reassure private firms and investors."
Indeed, Dubai stands out for its diverse investment landscape and its light-touch approach to digital assets. VARA established a virtual headquarter in the metaverse as its primary channel for crypto companies of all sorts to initiate applications, welcome new licensees, and cooperate in the city. Dubai has no less than three major financial hubs:
- Dubai World Trade Center free zone, where Binance will set up its Middle East headquarters.
- The Dubai International Financial Center, a financial hub free zone.
- The Dubai Multi Commodities Center, established in 2002 as a hub for the global commodities trade.
It is thus unsurprising that crypto exchanges flock to Dubai and that industry bigwigs love the crypto-friendly vibes in the desert. Su Zhu, co-founder of Three Arrows Capital, one of the biggest crypto venture capital firms
, moved his fund's headquarters from Singapore to the Middle East. He told CoinDesk
"The energy in Dubai's digital asset industry is electric right now. We have decided to move our Three Arrows headquarters to Dubai and I'm looking forward to meeting more technology startups."
Dubai has poached a fair bit of business from Singapore, which itself was well-known for its crypto-friendly regulatory approach. However, the tide in the Asian city-state seems to have changed, as it receives many applications but approves only a few of them. Exchanges have therefore pivoted to the Middle Eastern rival, which has "the smartest regulators and government officials any place in the world," according to Changpeng Zhao.
But Dubai and its digital metaverse twin city called One Human Reality are not the only darlings of the crypto industry. Abu Dhabi, another emirate, has been shown some love, too.
Oddly, part of the Abu Dhabi appeal seems to be the exact opposite of Dubai: getting regulated in Abu Dhabi is, in fact, difficult.
Richard Teng, CEO of the Abu Dhabi Global Market (ADGM) regulatory authority, told CoinDesk
that only five percent of applicants are approved for a license
in Abu Dhabi's financial center. Given that approval can take more than 14 months
, it is all the more surprising that exchanges like Huobi and Kraken
have received the regulatory green light from Teng and his colleagues.
A reason for choosing Abu Dhabi over Dubai may be strategic. Tim Aron, director of decentralized exchange DeversiFI, said that Abu Dhabi's regulatory regime is "lifted from the UK," which appeals to players that want to get subsequent regulatory approval in the UK or deal with British financial institutions. Christopher Flinos, co-founder of crypto over-the-counter and custody platform HAYVN told CoinDesk:
"All I care about is that the regulatory framework in which HAYVN operates is good enough so that when I'm sitting with a U.K. pension fund, and I'm trying to allocate a small percentage of their overall portfolio into cryptocurrency, they appreciate HAYVN is regulated as if we are a financial institution."
"We could all be sitting in the Seychelles and providing these services. But having a regulator "looking over your shoulder and essentially giving a stamp of approval generally gives customers a little bit more comfort."
Smaller crypto companies may look for regulation in Abu Dhabi as a stamp of approval — if you can make it there, you can make it anywhere.
According to Shorafa Al Hammadi, chairman of the Abu Dhabi Department of Economic Development, the blockchain ecosystem in Abu Dhabi is working together to develop "a very strong robust regulatory framework" for the industry. That keeps attracting exchanges like Matrix Exchange and Midchains, both licensed in Abu Dhabi.
But crypto regulation in the UAE is not a recent fad. How exactly then do the Emirates plan to ascend to the digital assets throne?
The United Arab Emirates has been following a conscious plan to position itself at the forefront of digital asset innovation. It started in 2018 with the Blockchain Strategy 2021, a multi-year plan aiming to "save time, effort and resources and enable individuals to conduct most of their transactions in a timely manner that suits their lifestyle and work," according to statements made at the time by Vice President and Prime Minister Mohammed bin Rashid Al Maktoum.
According to CoinTelegraph
, the plan targeted $3 billion per year in savings
in paperwork by implementing blockchain technology. For instance, public authorities would use blockchain-based vehicle lifecycle management systems and put B2B processes on the blockchain. Although its success is unclear, one tangible effect has been the emergence of many different regulatory frameworks across the UAE.
Each emirate has several regulatory bodies, totaling 30 regulators across the UAE
. That creates a messy but overall crypto-friendly legislation, overseen by the Securities and Commodities Authority (SCA), the UAE's equivalent of the American SEC. The UAE announced
the issuance of federal licenses
for the first quarter of 2022, although the exact status of this plan remains unclear at the time of writing.
However, the Emirates didn't stop at crypto regulation. In summer 2021, the country's central bank announced
a trial of a CBDC as part of its three-year plan to become one of the world's top 10 central banks between 2023 and 2026
. It also involves the use of the UAE Pass, a digital identity system for keeping track of citizens.
All of this is part of the UAE's strategic diversification away from exporting oil and towards digital services. Brad Yasar, co-founder and CEO of automated liquidity pool aggregator EQIFi, told CoinTelegraph that the government was quick to recognize and pounce on the opportunity that emerged from the rise of digital assets. Furthermore, the UAE is in a good geographic location, well-placed between European and Asian financial centers, and in a tolerable time zone for traders on both continents. Playing both sides politically in conflicts that put Western countries and their authoritarian rivals at odds certainly helps, too.
However, it isn't all smooth sailing for crypto in the UAE
. The Financial Action Task Force, a global money-laundering watchdog, recently put the country on its "gray list" and will monitor procedures for preventing the flow of illicitly-obtained money more closely. Already, Russian clients are reportedly
looking to liquidate cryptocurrency worth billions in the UAE. That is not going to sit well with crypto sanction
Another potential vulnerability could be the patchwork of crypto regulation
across different emirates. If, say, Dubai were to grant a license to a not-so-clean crypto firm, and if this firm were to get into trouble of some sorts — the LUNA crash
comes to mind — that would certainly be less than ideal for the UAE's reputation as a crypto hub.
For now, all of those are just a blip on the radar of the juggernaut that is the UAE in the crypto industry. Its popularity has become abundantly clear by the sheer amount of blockchain events hosted there.
Some of the most popular crypto and blockchain events in Dubai and Abu Dhabi are:
- World Blockchain Summit: a "global series of elite gatherings" for investors, exchanges and others.
- Blockchain Dubai Summit: a three-day international conference of "senior decision-makers."
- Gulf Blockchain Week: a week-long event for crypto and NFTs.
- Crypto Expo Dubai: a two-day event for crypto traders and investors.
- DeFi Investment Summit: a two-day DeFi-oriented investment summit.
- Wow Summit: a web3-oriented series of summits with a week in Dubai to discuss innovation in DeFi and NFTs.
Crypto in the UAE is growing, and fast. The desert state has made the most of its geographic location and full government coffers to attract some of the fastest-growing companies in one of the fastest-growing sectors in the world. One of the UAE's strategic advantages over other locations is the robust state of its public finances. Dubai and Abu Dhabi certainly do not rely on crypto money in times of rising commodity prices, so they are happy to attract companies now and can ride out a bear market without blinking.
Even though the influx of potentially dirty money and shady exchanges is something to monitor, other jurisdictions should observe the Emirates' approach closely. There is much to learn from them. As they say: bear markets are for building.
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