The Central Bank of the United Arab Emirates (CBUAE) has granted in-principle approval to AED Stablecoin under its Payment Token Service Regulation framework.
AED Stablecoin is now a leading contender in the competition to become the first issuer of a regulated dirham-pegged stablecoin in the UAE, following the preliminary license approval.
The recent release of the CBUAE’s licensing framework, which prohibits using crypto for payments unless they involve licensed dirham-pegged tokens, has led to concerns regarding prospective restrictions on crypto payments. This development has alleviated these concerns.
If approved, AED Stablecoin’s AE Coin could function as a local trading pair for cryptocurrencies in exchanges and decentralized platforms, enabling merchants to accept it as payment for goods and services.
The licensing framework of the central bank also prohibits algorithmic stablecoins and privacy tokens in favor of entirely cash-backed assets.
The stablecoins issued by the issuers must be backed by cash in a separate escrow account that is entirely denominated in dirhams and located within a UAE bank.
Alternatively, they may maintain at least 50% of their reserve assets in cash. At the same time, the remaining fraction is invested in UAE government bonds and CBUAE Monetary Bills with an average duration of up to six months.
Tether, the issuer of the world’s largest stablecoin by market capitalization, USDT, is anticipated to compete with AED Stablecoin.
Tether has recently announced that it has partnered with Phoenix Group and Green Acorn Investments, two local firms, to introduce its stablecoin anchored to the dirham.
In contrast, the UAE’s regulatory framework has attracted significant participants due to its crypto-friendly nature.
After obtaining a full license, OKX recently launched a retail and institutional trading platform in the UAE. This platform features derivatives trading for qualified institutional investors.
Furthermore, the crypto exchange M2 has implemented a new system that enables residents to convert dirhams directly into Bitcoin (BTC) and Ether (ETH).
