UAE Central Bank Grants Conditional Approval for First Dirham-Pegged Stablecoin

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

The in-principle license positions AED Stablecoin as a leading candidate to become the first regulated issuer of a dirham-pegged stablecoin within the UAE.

The greenlight addresses concerns about potential crypto payment restrictions, following CBUAE’s recent framework that bans crypto payments unless linked to licensed dirham-backed tokens. If fully approved, AED Stablecoin’s AE Coin could be used as a trading pair on exchanges and decentralized platforms, enabling merchants to accept it for transactions.

The CBUAE’s regulations also ban algorithmic stablecoins and privacy tokens, favoring fully cash-backed assets.

Issuers are required to hold stablecoins against cash reserves kept in an escrow account within a UAE bank, fully denominated in dirhams. Alternatively, they can maintain at least 50% of the reserves in cash, while the remainder can be invested in UAE government bonds and CBUAE Monetary Bills with an average duration of up to six months.

Competition in the UAE Stablecoin Market

AED Stablecoin is expected to face competition from established stablecoins like Tether’s USDT and USD Coin (USDC). 

Tether recently partnered with UAE-based companies Phoenix Group and Green Acorn Investments to introduce their dirham-pegged token. The collaboration aims to ensure that the new stablecoin is fully backed by liquid reserves in UAE Dirhams. Tether aims to offer a stable and transparent digital asset that users can trust, similar to their existing USDT stablecoin, which is pegged to the US dollar.

Seyedmohammad Alizadehfard, the co-founder of Phoenix Group, expressed optimism about the impact of this collaboration on the local market. 

“We are thrilled to be working with Tether on bringing a UAE Dirham-pegged stablecoin to the market and are confident in its potential to transform the digital economy for users across the region and beyond,” he said.

Crypto-Friendly Environment Encourages Growth

The UAE’s favorable regulatory environment has been attracting major industry players. 

OKX, for example, recently launched a trading platform for retail and institutional clients in the UAE, having secured a full license that includes derivatives trading for eligible institutional investors. In addition, M2, a UAE-based crypto exchange, introduced a system that enables residents to convert dirhams directly into Bitcoin and Ethereum.

The increasing activity in the region suggests that the UAE could play a significant role in the future of crypto innovation and adoption.