The Central Bank of the United Arab Emirates (CBUAE) has granted AED Stablecoin in-principle approval under its Payment Token Service Regulation framework, positioning it as a frontrunner to become the first issuer of a regulated dirham-pegged stablecoin in the UAE.
This move is a significant development in the UAE’s growing crypto ecosystem and provides clarity for the future of crypto payments in the region, especially in light of the CBUAE’s recently introduced regulatory framework, which imposes restrictions on the use of crypto for payments unless it involves a licensed dirham-pegged token.
AED Stablecoin’s Role in the UAE Market
The AED Stablecoin, also known as AE Coin, could soon serve as a local trading pair for cryptocurrencies on exchanges and decentralized platforms in the UAE. If fully approved, it could also enable merchants in the UAE to accept it for goods and services, potentially leading to a broader adoption of digital assets in everyday transactions.
The UAE’s regulatory framework for stablecoins requires issuers to back their tokens with cash reserves, either fully denominated in dirhams and held in an escrow account with a local UAE bank, or at least 50% in cash, with the remainder invested in UAE government bonds or CBUAE Monetary Bills. This ensures that the stablecoin is fully backed by traditional assets, giving users confidence in its stability.
Restrictions and Competition
While AED Stablecoin is now in a strong position to launch, it faces competition from Tether, the issuer of the world’s largest stablecoin by market capitalization, USDt. Tether has already partnered with local firms like Phoenix Group and Green Acorn Investments to introduce its own dirham-pegged stablecoin, creating a potential rivalry for AED Stablecoin’s market share.
In addition to Tether, the UAE’s increasingly crypto-friendly regulatory environment has attracted other major players in the crypto space. For example, OKX recently launched both retail and institutional trading platforms in the UAE after securing a full license that includes derivatives trading for qualified institutional investors.
Impact on the UAE Crypto Ecosystem
The UAE’s decision to grant preliminary approval for AED Stablecoin highlights the country’s commitment to creating a regulated and secure environment for crypto assets. The region’s progressive approach has already seen the launch of several crypto-related services, including M2, a platform that allows users to directly convert dirhams into major cryptocurrencies like Bitcoin and Ether.
The success of AED Stablecoin could pave the way for more regulated stablecoins to operate in the region, positioning the UAE as a key player in the global digital assets market. As the UAE continues to embrace crypto, its regulatory framework could serve as a model for other nations looking to balance innovation with security in the cryptocurrency space.
