How the UAE’s Blockchain Ecosystem Emerged from the Sand
The UAE is drafting new ICO regulations, several crypto exchanges have launched in the country, and government authorities and private businesses are working on a blockchain-based remittances system.
The Middle East has not always been a friendly environment for cryptocurrencies. Many countries in the region had initially banned digital currencies altogether. However, despite a slow start, the region is now becoming a global blockchain player.
In particular, the United Arab Emirates (UAE) have emerged as a staunch blockchain supporter. The government has launched the “Emirates Blockchain Strategy 2021,” which aims to transfer 50% of all government transactions onto a blockchain-based platform. As part of the Emirates Blockchain Strategy, Dubai’s SEED group has just signed a partnership agreement with Liechtenstein-based blockchain investment firm INVAO.
New ICO regulations in 2019
The UAE’s regulatory environment is mainly divided into two separate regulatory frameworks: There are the financial free-zones, which include Abu Dhabi Global Markets (“ADGM”) and Dubai International Financial Center (“DIFIC”). These free-zones create their own laws and regulations. Federal regulatory authorities regulate the rest of the UAE.
ICOs are currently regulated in both, the ADGM and the DIFIC, but not in the rest of the UAE.
The ADGM has issued comprehensive guidance on ICOs and crypto trading, distinguishing on a case-by-case basis whether tokens are regulated as a security or as a commodity. If a token is considered a security, financial markets regulations apply, if it’s classified as a commodity, the ICO remains unregulated. In Dubai, tokens are considered commodities.
However, the rest of the UAE has been left in legal limbo regarding cryptocurrencies. That’s why the UAE’s Securities and Commodities Authority (SAC) has now announced that it will introduce regulations for initial coin offerings in the country by the end of the first half of 2019. The SCA is said to work with Abu Dhabi Securities Exchange and Dubai Financial market to develop an ICO token trading platform.
Reportedly, SAC’s chief executive, Obad Al Zaabi stated that they have also “signed agreements with law firms to come up with the sandbox and rulebooks for the issuance of ICOs.”
Crypto exchanges have set up shop
The UAE’s shift to a welcoming crypto policy has not gone unnoticed. South Korean-based crypto exchange Bithumb has announced plans to launch a licensed fiat-to-crypto exchange in the UAE. If the license gets approved, the UAE-based exchange could be ready to launch in mid-2019.
The platform would be developed in partnership with Nvelop, an Abu Dhabi based firm as part of a joint project between UAE’s E11 Investment Fund and the Taiwanese Trill Venture Group. The venture’s objective is to fund and develop blockchain initiatives in the MENA region. By partnering with Nvelop, Bithumb diversifies their businesses and joins other crypto exchanges that are pursuing international expansions.
Other crypto exchanges have also set up shop in the UAE. In November 2018, the Crypto Bulls Exchange was the first official crypto exchange to begin operations in the UAE. Bitex has also opened their services in the region. The Dubai-based trading platform offers Bitcoin Cash, Ethereum, Litecoin and Bitcoin Core, as well as multiple payment options.
“Recent changes in UAE regulation have made today the perfect time to seize the opportunity to introduce a new, secure, professional trading platform,” said Bitex UAE CEO.
Blockchain to support remittances to Asian countries
Remittances to low- and middle-income countries have grown by 10.8% in 2018 and reached $528 billion, setting a new record. This level follow a considerable growth felt in 2018, of 7.8%. The rise could be felt in Europe and Central Asia (20%) and South Asia (13.5%). According to the World Bank, remittances are expected to grow by 4% in 2019, reaching $549 billion.
Blockchain technology is expected to positively disrupt this industry by cutting down costs of transfers, which are of average, around 6.9%. Last week, the UAE-based payments and foreign exchange company Finablr announced that it will partner with Ripple to offer cross-border remittances to Thailand via blockchain.
Although cross-border money transactions are usually processed through foreign exchange outlets, an increasing portion is being sent through apps and websites. Blockchain-based systems are especially attractive, because of lower transaction costs. Considering that Asia is one of the primary recipients of remittances from expat workers in the Middle East, Finablr addresses an urgent market need.
This is not the first time that Ripple’s technology is being used in the area for cross-border payments. In January, the National Bank of Kuwait launched the “NBK Direct Remit”, a blockchain-based cross-border platform that uses RippleNet. Initially, the product should only support payments to Jordan, but they plan to expand to 15 other countries.
Similarly, RAKBANK, located in the UAE, began using the Ripple platform to secure money transfers to Sri Lanka’s Cargills Bank last year. The RAKMoneyTransfer (RMT) services will enable instant services, allowing money to be sent to Asia in a quicker, more efficient and cheaper way.
UAE to become the leading destination for blockchain and crypto innovation
The government has also unveiled more information about the project “Aber,” a digital currency the Saudi Arabian Monetary Authority (SAMA) is developing together with the United Arab Emirates Central Bank (UAECB).
Six commercial banks in Saudi Arabia and the UAE have recently joined the project, which aims at using a cryptocurrency to settle cross-border transactions between the two counties. It is currently in a proof-of-concept stage.
The recent developments in the UAE in both, the regulatory space and the private sector, look promising. The government, banks, and blockchain startups are working together to get innovative projects off the ground. Coupled with ICO regulations coming out this year as well as the Emirates Blockchain Strategy 2021, the country is set to lead the way for further blockchain development in the Middle East.
Also, the groundwork has been set to make digital assets more accessible to UAE residents. By having access to local exchanges, customers aren’t required to use foreign platforms. UAE is likely to become the destination of choice for crypto industries as they join the rank of top financial markets regulating crypto assets. The expectations are that other countries might follow.
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