Gulfs

The UAE has carefully crafted a position for itself as a hub for digital assets. Can the good times last?

The United Arab Emirates (UAE) positions itself as a center for digital assets, a market that may be worth up to $500 billion over the next few years by some estimates. Dubai and Abu Dhabi are already acknowledged as global hubs, based not only on quality of regulatory oversight but their early strategic bet on tokenization as the basis of a new financial infrastructure.

But the UAE’s pioneering moment may soon end. The US-Israeli war against Iran, launched in February, has sown doubts as to whether the Persian Gulf monarchies are the haven of stability they claim to be. And for all the regional talk of tokenization and fintech, longestablished financial centers elsewhere are taking the lead in drawing up a unified set of rules to govern crypto regulation. If a clear regulatory framework emerges, it could reshape crypto market dynamics at the UAE’s expense.

In January, the New York Stock Exchange (NYSE), the world’s largest financial market, said it was launching a platform for 24×7 trading and on-chain settlement of tokenized securities, a development some analysts predict will spark a revolution in capital markets. The move by NYSE could leave some other financial centers behind as liquidity and institutional investors shift to more efficient, always-on markets.

Financial centers, including London, Singapore, and Hong Kong, are also evaluating tokenization.

And other Gulf Cooperation Council (GCC) member states, notably Saudi Arabia, Qatar, and Bahrain, are increasingly embracing tokenization, backed by financial war chests of various sizes.

Management consultancy Kearney earlier this year estimated that by 2030, close to $500 billion of assets across the GCC could be placed on-chain, the most fertile ground being in private markets, public equities, funds of tokenized sovereign wealth fund (SWF) assets, commodities, real estate, and bank deposits. Tokenizing these assets would unlock some of the GCC’s most prized but difficult-to-access holdings, such as SWF assets and family offices. Tokenizing listed securities, for example, could simplify cross-border transactions and open markets to fractional ownership, a move likely to attract global investors looking to participate at smaller ticket sizes.

UAE real estate is already on the road to wider tokenization. Last year, Dubai launched a real estate tokenization sandbox pilot, the first regulatory body in the region to adopt blockchain-based tokenization for fractional ownership. The initiative coordinates with the emirate’s Virtual Assets Regulatory Authority (VARA), which monitors issuance, trading, and custody, together with the Central Bank of the UAE, which ensures compliance with national financial regulations.

For some analysts, the holy grail would be the tokenization of the GCC’s oil output. In January, 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 is to be collateralized by verified reserves of Persian Gulf crude oil and pegged to the US dollar, creating a link between the energy sector and digital assets.

Regulatory Oases

To stay competitive, however, the UAE will need to continue innovating, given that adoption of tokenization and digital assets is moving at breakneck speeds. Tokenization’s market growth “looks like an express ride to the top of the Burj Khalifa,” Kearney noted, a reference to the world’s tallest building, located in Dubai.

Dubai and Abu Dhabi operate offshore free-zone financial centers—the Dubai International Financial Center (DIFC) and Abu Dhabi Global Market (ADGM)—both of which have taken leading roles in ensur ing the UAE remains at the forefront of digital-asset innovation, says Jason Barsema, president and co-founder of Chicago-based Halo Investing. “The UAE’s ascendancy as the destination for digital assets is rooted in a unique policy-to-production approach that separates it from purely speculative markets,” he notes.

The UAE’s Securities and Commodities Authority offers a comprehensive regulatory regime straddling the central bank while Dubai’s onshore VARA, Abu Dhabi’s Financial Services Regulatory Authority (FSRA), and the Dubai Financial Services Authority (DFSA), which are offshore entities, operate at the local emirate level.

This regulatory landscape gives international investors a degree of comfort that governance standards are aligned with global legal standards. Its core advantage is a sophisticated yet “pragmatic regulatory architecture that offers something most emerging markets still lack: clarity,” says Shivkumar Rohira, CEO of EMEA at financial services firm Klay Group.

“Dubai’s VARA, alongside the DFSA in the DIFC, has built a tiered, activity-based framework that sets out clear permissions for exchanges, custodians, and token issuers, while tightening standards around AML, investor protection, and market integrity,” he adds.

Abu Dhabi’s ADGM has gone further in positioning itself as an institutional-grade venue with a regime that accommodates tokenized securities, funds, derivatives, and increasingly, staking, among other yield-generating activities.

“This integration keeps Dubai and Abu Dhabi the default GCC base for global digital-asset players even as regional rivals race to catch up,” says Rohira.

Even within the UAE, however, there are fundamental differences of approach 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 licensing around their business model, not the other way around.

“What strikes me most from an institutional perspective,” Leinweber says, “is how deliberately the UAE constructed its regulatory architecture at a time when most major financial centers were still debating whether crypto deserved a framework at all.”

In creating VARA, Dubai established a purpose-built regulator with its own mandate, rulebooks, and enforcement capacity rather than grafting virtual asset oversight onto an existing regulator. In comparison, Abu Dhabi took a complementary path through ADGM’s FSRA, he notes.

Other GCC States Wake Up

While the UAE may be in the lead, other GCC states are finding a place for tokenization in their financial markets as well.

Bahrain’s regulatory framework is closest to the UAE’s, but with the CBB as sole authority for virtual assets. That includes a regulatory sandbox where firms can test and modify digital asset models; Rain was the first crypto-asset firm to be accepted into the program, 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 more gradual approach; the Qatar Financial Center (QFC) is over seen by the QFC Regulatory Authority, which has recognized tokenized assets, custody, and transfer within a virtual assets framework under the QFC’s jurisdiction.

The GCC’s largest economy, Saudi Arabia, remains underdeveloped when it comes to digital asset readiness, Kearney found, but the authorities have signaled openness to some use cases, including tokenized deposits and stablecoins. Further announcements are expected this year as tokenization becomes embedded in regional capital markets. The Kingdom is home to the buy-now-pay-later juggernaut Tabby, which was valued at $4.5 billion following a recent secondary share sale.

Oman, which recently announced it was establishing a financial center, is moving toward a digital assets framework under the auspices of the Central Bank of Oman, in compliance with existing AML standards. Conversely, Kuwait has adopted the GCC’s most restrictive digital assets policy. Several crypto activities increasingly accepted in other markets, including payments, trading, mining, and tokenization, are banned. The government cites market stability and risk as the primary reasons; the Kuwaiti stock market has a history of instability and volatility.

Although the NYSE threatens to jump ahead of the competition, it has done so against a backdrop of regulatory uncertainty; there is yet to be a definitive set of laws as to how tokenized assets are classified, issued, held, and traded in the US. Dubai and Abu Dhabi may be ahead of that curve, but even they have work to do to allay wider concerns, as does the rest of the GCC.

Those concerns, underscored by the conflict with Iran, center around the question of whether the GCC is a long-term stable environment for global investors. And with the US on the cusp of approving the CLARITY Act, creating a comprehensive regulatory framework for digital assets, and Europe moving toward unified regulation, investors may prove more inclined to opt for the safety of more established financial markets. If so, the UAE’s outsized position in the digital assets market may not be as secure as it would like.