The Central Bank of the United Arab Emirates (CBUAE) has granted in-principle approval to the AED stablecoin under the Payment Token Services Regulatory Framework.
This preliminary approval positions AED Stablecoin as a strong candidate to become the first issuer of a regulated dirham-pegged stablecoin in the UAE.
The green light is also a response to concerns about potential restrictions on crypto payments that arose after the CBUAE announced its licensing framework. Under these rules, it is prohibited to use cryptocurrencies for payments unless authorized dirham-pegged tokens are used.
Once fully approved, AED Stablecoin’s AE coin will be available for use as a local trading pair of cryptocurrencies on exchanges and decentralized platforms. It may also be possible for sellers to accept it as a product or service.
The CBUAE framework prohibits algorithmic stablecoins and privacy tokens. Stablecoin issuers must fully back their coins with dirham-denominated cash held in escrow in UAE banks. Alternatively, you can keep 50% of your reserves as cash and invest the rest in UAE government bonds and CBUAE notes. The average duration is up to 6 months.
The AED stablecoin is expected to face competition from Tether, the issuer of USDT, the world’s largest stablecoin by market capitalization. Tether recently announced that it is partnering with local companies Phoenix Group and Green Acorn Investments to launch its own dirham-pegged stablecoin.
The dirham-pegged stablecoin joins Tether’s existing fiat pegged tokens, including USDT and EURT, and will further strengthen Tether’s position as the largest issuer of stablecoins by market capitalization. Tether, which is owned by Hong Kong-based Ifinex, also provides a breakdown of its reserves and a complete list of reserve managers.
The UAE’s crypto-friendly regulatory environment is attracting major companies. OKX recently launched a retail and institutional trading platform in the UAE, including offering derivatives trading for qualified institutional investors, after receiving full license. Additionally, cryptocurrency exchange M2 has introduced a system that allows residents to directly exchange dirhams for Bitcoin (BTC) and Ether (ETH).
