The UAE has carefully positioned itself as a hub for digital goods. Can the good times last?
The United Arab Emirates (UAE) is positioning itself as a hub for digital goods, a market that could be worth as much as $500 billion in the next few years according to some estimates. Dubai and Abu Dhabi are already recognized as global hubs, based not only on the quality of regulatory oversight but their early strategic bets on tokens as the basis of a new financial infrastructure.
But the UAE’s pioneering moment may soon be over. The US-Israeli war against Iran, launched in February, has cast doubt on whether the Persian Gulf kingdom is the center of stability it claims to be. And in all the regional talk of tokenization and fintech, long-established financial institutions elsewhere are leading the way in drawing up a unified set of rules to regulate crypto. If a clear regulatory framework emerges, it could change the dynamics of the crypto market at the expense of the UAE.
In January, the New York Stock Exchange (NYSE), the world’s largest stock market, said it was launching a 24×7 trading platform and settlement of tokenized securities, a development that some analysts predicted would spark a revolution in capital markets. The NYSE’s move could leave other financial institutions behind as liquidity and institutional investors shift to more efficient, permanent markets.
Financial institutions, including London, Singapore, and Hong Kong, are also evaluating tokens.
And other member states of the Gulf Cooperation Council (GCC), notably Saudi Arabia, Qatar, and Bahrain, are increasingly accepting tokens, supported by financial war chests of various sizes.
Management consultant Kearney earlier this year estimated that by 2030, about 500 billion rands across the GCC could be placed on the chain, the most fertile area being in the private markets, government bonds, sovereign wealth fund (SWF), commodities, real estate and bank deposits. Tokenizing these assets will unlock some of the GCC’s most valuable but hard-to-access assets, such as SWF assets and family offices. Tokenization of listed securities, for example, could facilitate cross-border transactions and open markets to partial ownership, a move that would attract global investors looking to participate in smaller ticket sizes.
UAE real estate is already on the way to broader tokens. Last year, Dubai launched a sandbox pilot for real estate tokenization, the first regulatory body in the region to receive a blockchain-based token for ownership of a share. The program works with the emirate’s Virtual Assets Regulatory Authority (VARA), which monitors issuance, trading, and custody, and the UAE Central Bank, which ensures compliance with national financial regulations.
For some analysts, the holy grail will be the GCC oil exit. In January, the Bahrain and UAE-based Gulf Energy Exchange announced plans for the first oil-backed stablecoin, aptly named OIL1, subject to regulatory approval by the Central Bank of Bahrain (CBB). OIL1 will be collateralized by proven reserves of Persian Gulf crude oil and paid in US dollars, creating a link between the energy sector and digital assets.
Oases of control
However, to remain competitive, the UAE will need to continue to innovate, as the adoption of tokens and digital assets is accelerating. Tokenization market growth “looks like a straight ride to the top of the Burj Khalifa,” Kearney noted, referring to the tallest building in the world, Dubai.
Dubai and Abu Dhabi operate offshore financial centers—Dubai International Financial Center (DIFC) and Abu Dhabi Global Market (ADGM)—both of which have taken leading roles in ensuring the UAE remains at the forefront of digital asset innovation, said Jason Barsema, president and founder of Chicago-based Halo Investing. “The UAE’s rise as a destination for digital goods is based on a unique approach to production policy that distinguishes it from purely speculative markets,” he notes.
The UAE’s Securities and Commodities Authority provides a comprehensive regulatory regime that navigates the central bank while Dubai’s offshore VARA, Abu Dhabi’s Financial Services Regulatory Authority (FSRA), and Dubai Financial Services Authority (DFSA), which are offshore companies, operate at the local emirate level.
This regulatory environment provides international investors with a level of comfort that management standards are consistent with international legal standards. Its main advantage is a complex but “effective regulatory framework that offers something emerging markets still lack: transparency,” says Shivkumar Rohira, CEO of EMEA at financial services firm Klay Group.
“Dubai’s VARA, alongside the DFSA at the DIFC, has created a tiered, task-based framework that sets clear permissions for exchanges, custodians, and token issuers, while strengthening standards around AML, investor protection, and market integrity,” he adds.
Abu Dhabi’s ADGM has moved on to establish itself as an institutional-level facility with a regime that enables securities, currencies, token derivatives, and growth, holdings, among other yield-generating activities.
“This merger keeps Dubai and Abu Dhabi the default GCC hub for global digital goods players as regional rivals race to catch up,” Rohira said.
Even within the UAE, however, there are fundamental differences between Dubai and Abu Dhabi, notes Martin Leinweber, director of Digital Asset Research and Strategy at MarketVector. The result is a layered system that gives firms the flexibility to structure licenses around their business model, not the other way around.
“What concerns me the most from an institutional perspective,” Leinweber said, “is how the UAE is deliberately building its architecture at a time when many financial institutions are still debating whether crypto is a good fit for the framework.”
In creating VARA, Dubai established a purpose-built regulator with its own mandate, regulations, and enforcement powers rather than grafting physical asset surveillance onto an existing regulator. In comparison, Abu Dhabi has taken a more consistent approach with FSRA’s ADGM, he notes.
Other GCC States are Rising
While the UAE may be at the forefront, other GCC states are finding room to tokenize their financial markets as well.
Bahrain’s regulatory framework is very close to the UAE, but with the CBB as the sole authority for physical assets. That includes a regulatory sandbox where firms can test and adjust digital asset models; Rain became the first crypto-asset company to be accepted into the system, in 2017.
Bahrain FinTech Bay, the island kingdom’s fintech center, acts as an incubator, bringing together startups, regulators, and financial institutions.
Qatar is taking a slow approach; The Qatar Financial Center (QFC) has been recognized by the QFC Regulatory Authority, which has recognized tokenized assets, custody, and transfers within the framework of physical assets under the QFC’s jurisdiction.
The GCC’s largest economy, Saudi Arabia, remains underdeveloped when it comes to digital asset readiness, Kearney found, but authorities have shown openness to other use cases, including deposit tokens and stablecoins. More announcements are expected this year as tokenization enters major geomarkets. The Kingdom is home to buy-now-pay-later juggernaut Tabby, which is valued at $4.5 billion following a recent secondary share sale.
Oman, which recently announced that it is establishing a financial institution, is moving towards a digital asset framework under the Central Bank of Oman, in line with existing AML standards. In contrast, Kuwait has adopted a more restrictive GCC digital goods policy. Several crypto activities that are increasingly accepted in other markets, including payments, trading, mining, and tokenization, are prohibited. The government cites market stability and risk as the main reasons; Kuwait’s stock market has a history of instability and volatility.
Although the NYSE threatened to jump ahead of the competition, it did so against a backdrop of regulatory uncertainty; there has yet to be a definitive set of rules on how tokenized assets are classified, issued, held, and sold in the US. Dubai and Abu Dhabi may be ahead of that curve, but they too have work to do to mitigate broader concerns, as does the rest of the GCC.
Those concerns, accentuated by the conflict with Iran, center on the question of whether the GCC is a stable long-term destination for global investors. And with the US close to approving the CLARITY Act, creating a comprehensive regulatory framework for digital assets, and Europe moving toward unified regulation, investors may prove more inclined to choose the safety of more established financial markets. If so, the UAE’s dominant position in the digital goods market may not be as secure as we would like.
