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Dubai Aims to Establish Itself as a Promising Hub for Cryptocurrency with VARA

Amidst the ongoing scrutiny and assessment of the cryptocurrency industry, Dubai’s crypto business landscape is experiencing a surge in activity. However, this is not just a coincidence. The recent introduction of Dubai’s virtual assets framework law and the establishment of the Virtual Asset Regulatory Authority (VARA) as a dedicated regulator for virtual assets on the mainland of Dubai, alongside the Dubai International Financial Centre’s (DIFC) development of its own investment and crypto token regulations, have sent a clear message about Dubai’s ambitions to position itself as a trustworthy and safe environment for virtual asset-related businesses.

VARA has diligently pursued its mission, and on February 7, 2023, it published long-awaited regulations for virtual asset businesses conducted in Dubai, excluding the DIFC. Dubai’s rapidly growing and flourishing virtual asset ecosystem has eagerly awaited these regulations. They demonstrate the seriousness with which the emirate regards the world of Web3 and establish a transparent regulatory framework for virtual asset service providers (VASPs) and any traditional companies seeking to incorporate blockchain or virtual assets into their current operations.

What businesses does VARA supervise?

The VARA regulations have a broad reach, applying to all virtual asset service providers (VASPs) operating in Dubai (excluding the DIFC), and are designed to establish clear and specific rules for the expanding range of digital assets, including utility tokens and NFTs. All financial services activities involving issuing, exchanging, or controlling a pass in Dubai (excluding the DIFC) now fall under VARA’s supervision.

The regulations consist of 13 separate rulebooks, with five applicable to all VARA-regulated businesses, addressing fundamental matters such as virtual assets and related activities, company structure and formation, compliance and risk management, technology and information management, and market conduct.

The remaining eight rulebooks are activity-specific and cover advisory, broker-dealer, custody, exchange, lending and borrowing, payment and remittance, and management and investment services. Any entity offering such services will need to register with VARA.

Notably, VARA has also established a voluntary registration process for entities that do not fall into the categories of regulated services mentioned above but could benefit from oversight by a reputable regulator. These may include providers of technology services related to or utilizing distributed ledger technology or businesses and companies actively investing their portfolios in virtual assets.

Voluntary registration is expected to be popular, especially among crypto businesses with pioneering business models that may not fit within the traditional categories of financial services recognized by regulators. Such entities can demonstrate their commitment to regulation and supervision by a specialized virtual assets regulator, providing investors and counterparties with greater comfort in dealing with these businesses.

VARA innovations

VARA has introduced innovative solutions and requirements in its regulations that are not commonly seen in other jurisdictions. One of these innovations includes ESG requirements for VASPs, aligning with the UAE’s commitment to building a sustainable and eco-friendly future.

Furthermore, VARA has recognized that decentralized autonomous organizations (DAOs) are a crucial aspect of corporate structures used by Web3 companies and, therefore, must be acknowledged and regulated accordingly. This is a pioneering move by VARA as it is one of the first regulators to recognize the importance of DAOs.

Finally, VARA has established a specialized set of rules for companies that issue tokens, whether or not they offer financial services. These regulations aim to instill confidence in private, unregulated issuers by providing a clear regulatory framework for permit issuance.

What does the future hold?

As prominent VASPs, such as Terra Luna and FTX, collapse, and others face scrutiny from regulators like the SEC in the US, Dubai has taken a pragmatic approach and positioned itself as a destination for responsible crypto business.

In a world where the Web3 ecosystem is rife with unsavory opportunists, VARA’s regulations serve as a sieve to separate reputable companies from those not. Dubai is striving to establish itself as the premier location for trustworthy, resilient, and respected businesses of the future.

Dubai’s move towards embracing the evolution and adoption of decentralized systems alongside central acceptance signals a forward-thinking approach. Only time will tell how successful this approach will be, but Dubai is undoubtedly establishing itself as a growing global crypto capital for now.

Also Read: Legacy Virtual Asset Operators in Dubai Given April 30 Deadline to Submit IDQs under VARA Regulations

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