Over the past decade, the UAE has pursued a highly ambitious and successful digital transformation strategy. This has accelerated the growth of the nation’s financial services industry, with crypto being lined up as the next major frontier. However, it will take collaboration between service providers and infrastructure providers to maintain the UAE’s Web3 financial market leadership trajectory.
Institutional blockchain adoption
Today, the UAE is home to 5,641 tech startups, including 686 fintech companies. Of 136 fintech companies, 7.35% are blockchain/crypto-focused.
Renowned institutional exchanges such as M2 exchange have entered the UAE market in the past year obtaining a Financial Services Permission (FSP) from the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM). The traction of these institutional exchanges in the UAE showcases the growing adoption of blockchain in the region, where international industry players are recognising the underlying opportunities and choosing to expand their operations.
Interest in Web3 is not limited to the private sector. Being at the forefront of building a holistic Web3 ecosystem, ADGM recently proposed a comprehensive regulatory framework for the issuance of fiat-referenced tokens, also known as stablecoins to enhance transparency, accountability, and governance in the rapidly evolving digital assets space. The framework is poised to solidify the UAE’s position as a leader in digital finance and blockchain adoption, ensuring a secure and robust environment for institutional blockchain activities.
In 2023, the Central Bank of UAE launched its Central Bank Digital Currency (CBDC) Strategy, introducing the blockchain-based ‘Digital Dirham’ to allow real value domestic and cross-border transactions. In January 2024, the first 50 million ‘Digital Dirhams’ (approximately $13 million) were sent to China on the mBridge platform, promoting digital currency payments between the two nations.
UAE regulations pave the way for digital assets
The throughline of institutional blockchain adoption has been a favourable regulatory environment in the UAE.
- In 2018, the Financial Services Regulatory Authority (FSRA) of ADGM established a first-of-its-kind comprehensive regulatory framework for Digital Assets and a specific framework for Virtual Assets (VA).
- In 2022, the FSRA of ADGM followed the earlier introduction of the VA Framework by issuing comprehensive guidelines to regulate VA activities and introduced amendments to these guidelines in 2023.
- In 2023, ADGM introduced the world’s first DLT Foundations Regime, a legislative structure designed to provide a comprehensive framework for DLT Foundations and Decentralized Autonomous Organisations (DAOs), enabling them to operate and issue tokens recognising the unique needs of the Blockchain industry.
- In November 2022, the Dubai Financial Services Authority (DFSA) implemented the Crypto Token Regime, providing a structured approach to the regulation of cryptocurrencies.
- Founded in 2022, Dubai’s Virtual Asset Regulatory Authority (VARA) is considered to be the world’s first tailor-made regulator for virtual assets. It is driven in part by the Dubai D33 Economic Agenda, which aims to effectively double Dubai’s economy by 2033.
Such regulatory clarity is essential for accelerating regional innovation and institutional adoption.
Andrew Vranjes
Institutional infrastructure providers
While favourable regulations and early market adoption are prerequisites for market success, sustained and accelerated growth of institutional adoption will be fueled in part by critical infrastructure provider partners that minimise the learning curve and costs of institutional market entry and scale.
Connecting to and providing services on blockchain networks requires access to physical nodes in each network. If an institution is supporting services to the top 20 protocols, it may need access to nodes providing connectivity to up to 20 different networks. Deploying, operating and maintaining nodes for each network can be daunting with a steep learning curve. Fortunately, blockchain infrastructure providers can facilitate access to institutions for infrastructure services such as cloud service providers, giving institutions connectivity and usage without taking on the burden and logistics of hosting and maintaining infrastructure directly.
Similarly, data gathering and reporting tools are required for accessing, monitoring, and sharing critical market data in real time. Once again, blockchain infrastructure providers can provide APIs and other resources that make it easy for institutions to access the information they require without having to build their own data-gathering and reporting systems.
Perhaps one of the most fundamental requirements of accessing or providing digital asset services is wallets, which maintain accounts, enforce policy controls, and provide critical protection of private keys used to authorise the transfer of digital assets from one party to another. Institutional-grade wallets range from cold wallets providing physical isolation of private keys to online wallets with advanced security features and policy controls to provide the appropriate balance between accessibility and security.
Institutional infrastructure providers will play a critical role in helping institutions navigate various infrastructure needs in a timely and cost-effective manner, with partners helping them to understand key considerations, best practices, and available options.