In a key milestone for digital finance, the Central Bank of UAE (CBUAE) has granted AED Stablecoin LLC in-principle approval to issue the Middle East region’s first regulated stablecoin. The exchange wants to launch a dirham-pegged cryptocurrency called AE Coin on regional platforms. The approval was granted pursuant to the Payment Token Service Regulation framework that recently took effect in the UAE, reflecting a significant milestone in which cryptocurrency adoption is afforded regulatory status. AE Coin, launching October 14th, 2024, will serve as a pivotal piece in the UAE’s financial ecosystem, delivering stability, security and efficiency that digital transactions lack.
The Road to Regulated Stablecoins
The in-principle Approval is a significant step, however it does not provide an immediate operational authorisation for AED Stablecoin to launch AE Coin. The company can now provide this AED Stablecoin with regulatory clearance in the realm of digital assets, making it one of few that have been given such a green light for crypto-asset regulation through to 2025 as part of the UAE Digital Government Strategy.
AE Coin is now to be fully backed by dirham-held cash reserves in segregated escrow accounts at banks based in the UAE, as prescribed under the stricter new regulations. Stablecoins issuers must ensure that stablecoins are backed by 100% fiat or follow a reserve structure where at least 50% is in cash and the rest invested into safe investments akin to UAE government bonds, as well CBUAE Monetary Bills.
All of this heavy regulation highlights how serious the UAE is about creating a regulatory-backed safe space for digital finance. It also disallows risky token (algorithmic stable coins, privacy tokens) to reinforce the idea of transparency & stability in their digital finance space.
AE Coin’s Potential in the Market
Upon being fully licensed, AE Coin will seek to introduce a new standard for everyday transactions in the UAE with a local and regulated digital stable coin that is suitable both as currency of payment and as trading. Such a development would put an AE Coin in the hands of customers and merchants alike across the UAE, making retail as well as commercial transactions faster than ever before.
In the same blog post announcing this concept, AED Stablecoin also said that one of its key goals is to elevate AE Coin as a major trading pair in domestic crypto exchanges and enable integration with decentralised finance (DeFi) platforms. Al Maryah Coin claims that its design will fuel economic growth by delivering fast, low-cost digital payments for consumers and businesses within the regulated environment of CBUAE.
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Competition in the Stablecoin Market
However, the road to supremacy in market distribution is not smooth for AED Stablecoin. A dirham-pegged coin is also set to be introduced in partnership with Tether — the world’s biggest issuer of stablecoins by market capitalisation, as it teams up with local companies such as Phoenix Group and Green Acorn Investments. The possibility of Tether entering the UAE market would intensify competition for a share, but AED Stablecoin enjoys an edge with its cracking nod from DFSA.
Both upcoming project launches reiterate the broader regulatory stakes of stablecoins in the United Arab Emirates. The UAE is also working against the financial future system of the country where digital currencies will be used by everyone, and they want to secure their own fi-nancial stability with this step.
Conclusion
The approval of the AED Stablecoin LLC’s AE Coin by CBUAE represents an important step towards facilitating greater adoption of digital currency within the UAE economy. The approval is not a full operational clearance yet but it symbolizes as an important step towards the realization of regulated digital payments. As Tether sets sights on the UAE, more competition is sure to spark innovation in the stablecoin landscape of that region.
Nevertheless, with its governing structure and road-map AE Coin is in a solid position to compete directly within the UAE region as one of the leading digital payments platform for greater inclusivity & economic participation across Dubai.
The launch of a stable and government-backed currency such as AE Coin will also bode well for the UAE’s digital economy, part of their ongoing efforts to be globally relevant in this space.
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