UAE Grants Approval to National Stablecoin

The Central Bank of the United Arab Emirates (CBUAE) has given in-principle approval to AED Stablecoin under its Payment Token Service Regulation framework, according to a company press release.

With this preliminary license, AED Stablecoin is positioned as a leading candidate to become the first regulated issuer of a dirham-pegged stablecoin in the UAE.

This development helps address concerns about possible restrictions on crypto payments, which surfaced after the CBUAE introduced its licensing framework.

The framework prohibits the use of crypto for payments unless it involves licensed dirham-pegged tokens.

If fully approved, AED Stablecoin’s AE Coin could function as a local trading pair for cryptocurrencies on exchanges and decentralized platforms, and merchants could accept it for goods and services.

The licensing framework also bans algorithmic stablecoins and privacy tokens, giving preference to fully cash-backed assets.

Issuers are required to back their stablecoins with cash held in a separate escrow account fully denominated in dirhams at a UAE bank.

Alternatively, they can hold at least 50% of reserve assets as cash, with the remainder invested in UAE government bonds and CBUAE Monetary Bills, with an average duration of up to six months.

AED Stablecoin is likely to face competition from Tether, the world’s largest stablecoin issuer by market capitalization, USDT.

Tether recently announced a partnership with local companies Phoenix Group and Green Acorn Investments to launch its own dirham-pegged stablecoin.

At the same time, the UAE’s crypto-friendly regulatory landscape has been drawing significant players.

OKX recently rolled out a retail and institutional trading platform in the UAE after securing a full license, including derivatives trading for qualified institutional investors.

Additionally, the crypto exchange M2 has introduced a new system allowing residents to directly convert dirhams into Bitcoin and Ethereum.

Sources:

https://cointelegraph.com/news/uae-central-bank-aed-stablecoin-approval

https://www.zawya.com/en/aed-stablecoin-llc-nmn0rfrh

https://rulebook.centralbank.ae/en/rulebook/article-22-management-and-safekeeping-reserve-assets