2022 was a brutal year for crypto. From the complete failure of FTX to the total collapse of Terra, the crypto market lost over $2 trillion last year. Top cryptocurrencies such as Bitcoin and Ethereum have lost more than 60% of their value, and consumer confidence in the sector has plummeted. 2022 marked the beginning of the second crypto winter. And yet, despite a turbulent period for the global cryptocurrency sector, with major digital currencies experiencing significant losses in 2022, Dubai has managed to position itself as a bastion of crypto innovation and resilience. This success is largely due to the emirate’s strategic policy, which has focused on creating a regulatory environment conducive to growth, attracting top talent and fostering a robust ecosystem for virtual asset businesses.
The establishment of the Virtual Asset Regulatory Authority (VARA) and subsequent introduction of a new licensing regime has been instrumental in providing clarity and security to investors and businesses. Furthermore, efforts to attract top-level talent and startups, exemplified by initiatives such as the Dubai Multi Commodities Center’s (DMCC) accelerator program, have ensured a steady inflow of expertise into the region.
Based on various data points, including research and development as a percentage of gross domestic product (GDP), crypto ownership, crypto-specific events, capital gains tax rate and the number of crypto companies in a location, Dubai is expected to attract future investment. and is becoming a hub for crypto startups, a recent report by Recap said.
Regulation and the policy pressure
Policymakers in Dubai have led the charge to position the Emirate as a global crypto hub. According to Mohammed AlKaff AlHashmi, the co-founder of Islamic Coin, the institutional support in Dubai is significant. He credits visionaries within the company for developing advanced technology initiatives that originated in Dubai.
Anas Bhurtun, co-founder and CEO of Arts DAO, said: “What I like about what they (the UAE government) have done here is that they have allowed the germination of crypto to happen.”
Suzana Obradovic, the regional director of Chainalysis, shared similar sentiments. She said: “The UAE government has been upfront in providing practical innovation. They have been very vocal about their support for the industry, to regulate it in general, thus making it accessible to all. y They are at fully involved with crypto companies at different levels, to make sure everything is watered down in a safe way.
Regulation in the virtual asset space helps prevent market manipulation, money laundering, online fraud and other cyber security risks, apart from protecting investors, and identifying the greater risks associated with the technology. Policy and regulation also help ensure that good crypto actors are promoted and mainstreamed.
Last March, the Prime Minister of the UAE and the Ruler of Dubai, HH Mohammed bin Rashid Al Maktoum, established the Virtual Assets Regulatory Authority (VARA), the world’s first independent regulator for virtual assets. VARA is tasked with overseeing the growth of the virtual asset business environment, including regulation, governance and licensing. The aim of VARA is to position Dubai as the international hub for virtual assets.
When it was originally announced, HH Mohammed bin Rashid Al Maktoum said that the aim was to “establish the UAE and Dubai as a key player in designing the future of virtual assets worldwide.” Commenting on the move, Binance CEO Changpeng Zhao (CZ) said: “Regulatory clarity is so important. This new virtual assets law in Dubai is a huge step forward.”
The creation of VARA and its initiatives sparked international interest in the UAE’s developing crypto market. This is evidenced by the entry of global players such as Binance, Kraken, Bybit, FTX and Web3 Holdings FZE, an NFT investment holding company.
The establishment of VARA and Dubai’s enactment of the Virtual Assets Law are part of the UAE’s efforts to foster a supportive environment for the growth of its crypto industry. While the industry was largely unregulated a few years ago, these recent legislative measures indicate the government’s interest in mitigating the risk of potential financial crimes in the emerging industry.
Earlier this year, in the midst of the crypto winter, VARA introduced a new licensing regime. The crypto industry in Dubai welcomed the new framework. Talal Tabbaa, founder of local crypto exchange, CoinMENA praised it as elegantly designed.
Under Dubai’s new rules, all entities planning to offer one or more crypto-related services in the jurisdiction must seek the relevant authorization and licenses. The framework is accompanied by four mandatory rulebooks for service providers and seven activity-based rulebooks that outline requirements according to the type of service offered.
Attract crypto talent
Dubai has gone out of its way to attract the best crypto talent. The Dubai World Trade Center (DWTC) has become a dedicated free zone for regulated virtual asset businesses. The specialized zone for virtual asset businesses allows for: foreign ownership; zero corporate tax; business start-up packages; co-working and office spaces, and access to a community of over 1,400 companies.
Recently, Dubai Multi Commodities Center (DMCC) and TDeFi, a global Web3 incubator and consulting company, entered into a partnership aimed at offering a new accelerator program for Web3 and blockchain companies at Dubai’s DMCC Crypto Center. The month-long program will offer companies mentoring sessions and is expected to attract a new wave of crypto firms to the emirate.
Within a year, there will be two sessions and companies will get guidance and services from DMCC to formally establish themselves at the crypto center. Crypto Center currently has over 550 members, making it one of the region’s largest concentrations of Web3 and blockchain companies. In addition to the value-added services that DMCC provides, it is the ecosystem that is most important for Web3 and blockchain companies.
DLT infrastructure provider Blockchain Smart Technologies CEO Eva Porras said: “We are excited to be part of the blockchain ecosystem in Dubai. This expansion represents an important milestone for our company as we continue to grow and our presence in the Middle East and expanding further.
ByBit, a crypto exchange with 15 million users, recently moved its headquarters to Dubai. Ben Zhou, CEO and co-founder of ByBit, said: “We are going to be hiring massively here in the UAE and the region. We have already spoken to universities to host hackathons and provide internships for the local children.” Additionally, Dubai has attracted some of the world’s largest cryptocurrency companies, including Crypto.com and Hex Trust, among others.
Due to special zones such as Dubai Financial International Center (DIFC), there are a large number of financial firms and financial activities taking place in the region, this allows for greater opportunities for cooperation between traditional finance and the virtual sector.
The Indian link
Dubai has become the crypto capital of India. Many Indian virtual asset companies have started moving to Dubai due to the more favorable policy environment that does not restrict any innovation along with all the other perks that Dubai has to offer such as access to talent, high quality of life, no taxes, access to global markets, transparency and ease of doing business.
The UAE’s favorable geographical position offers opportunities for businesses in the form of large markets. The UAE’s proximity to billions of people in various markets offers businesses great opportunities to grow in the Middle East, North Africa and even the wider Asian region. Another reason why so many Indian startups are moving to Dubai.
Closure
The establishment of VARA and a new licensing regime has provided the crypto industry with some much-needed operational clarity and security for businesses, which is now driving the innovations and investments in the space. Dubai’s welcoming attitude towards crypto has also extended to international markets, with many Indian virtual asset companies relocating to the emirate to take advantage of its favorable policy environment.
Dubai’s proactive approach to crypto regulation and its commitment to nurturing the sector have enabled the city to weather the crypto winter and cement its position as a hub for virtual asset innovation and investment.
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(Originally published on May 29, 2023)
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