The United Arab Emirates risks losing its status as a cryptocurrency paradise. New regulations would ban payments in digital assets not backed by the dirham, jeopardizing the growth of the cryptocurrency sector in the country.
UAE Could Lose Cryptocurrency Haven Status
While the world's politicians seem to be gradually adopting the use of cryptocurrencies and Bitcoin payments, the government of the United Arab Emirates (UAE) could well take the opposite path by considering banning them.
This is what Irina Heaver, a lawyer specializing in the regulation of cryptocurrencies and blockchain, assumes after studying the new regulations passed by the government.
In early June 2024, the country's Central Bank approved a new system to supervise and license stablecoins. At a meeting in Abu Dhabi, the board discussed the Financial Infrastructure Transformation (FIT) program, aimed at promoting digital transactions.
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However, these new regulations require that payment tokens be backed by the dirham and not other currencies or digital assets. Meanwhile, the Dubai Financial Services Authority (DFSA) has updated its rules to recognize certain stablecoins and allow limited investments in unrecognized tokens.
For lawyer Heaver, this new regulation is clear: it prohibits any payment made with digital assets that are not backed by the dirhamIn an interview with the newspaper CoinTelegraph, she specifies:
“The Central Bank of the United Arab Emirates (CBUAE) prohibits the acceptance of cryptocurrencies for goods and services unless they are licensed dirham payment tokens or registered foreign payment tokens, neither of which currently exists. »
According to Heaver, The UAE government appears to contradict its own liberal policies, which has allowed the country's economy to grow considerably in recent years. This new law could therefore slow down the country's progress in the cryptocurrency sector.
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What about stablecoins in Europe?
Although European regulation is different, The situation of stablecoins remains uncertain with the arrival of MiCA regulation. Exchanges like Binance have already announced that they will delist stablecoins that do not comply with the new standards, forcing them to comply in order to remain on the European market.
Moreover, Demand for euro-backed stablecoins is on the risewith weekly trading volumes increasing for tokens like EURT, EURS and AEUR, indicating growing interest in European markets.
However, Dollar-backed stablecoins, while dominant, could be restricted if they don't comply with new standardsaffecting their availability in Europe.
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The MiCA regulation imposes strict standards, influencing the availability and stability of stablecoins on the European market and making their future uncertain and riskier.
The new capital reserve requirements, stipulating that stablecoins must be backed at a 1:1 ratio with cash, complicate operations for issuers like Tether and especially for smaller stablecoins, while posing challenges for algorithmic stablecoins.
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First attracted by the lure of gain, I am now trapped deep into the rabbit hole. With no way out, I have no choice but to share my knowledge and transmit the passion I have for the blockchain universe. I am also the creator of Adopt a Block, an educational site dedicated to Bitcoin.
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