The Central Bank of the United Arab Emirates (CBUAE) has approved an in-principle license for AED Stablecoin. This approval comes under the central bank’s Payment Token Service Regulation framework.
This preliminary license gives AED Stablecoin an edge in becoming the first regulated issuer of a dirham-pegged stablecoin in the UAE.
It reduces the concerns of possible restrictions against crypto payment in the country, which stem from the CBUAE’s new licensing framework.
CBUAE Approval of AED Stablecoin Eases Crypto Payment Concerns in the UAE
According to a press release, the CBUAE has granted initial approval to AED Stablecoin under its new Payment Token Service Regulation. This increases AED Stablecoin’s chances of becoming the first licensed issuer of a dirham-pegged stablecoin.
The development helps reduce worries about a possible ban on crypto payments. These concerns arose after the CBUAE released its licensing framework.
This framework prohibits using cryptocurrencies for payments unless the transaction involves licensed dirham-pegged tokens. By approving AED Stablecoin, the CBUAE has supported regulated digital currencies.
Therefore, this approval may help ease fears and encourage the use of crypto in the United Arab Emirates.
If AED Stablecoin receives full approval, its AE Coin could become an essential local trading pair. Consequently, users could use it alongside other cryptocurrencies on exchanges and decentralized platforms.
With this approval, merchants could accept AE Coins as payment for goods and services. This would make it easier for people to use digital currency in everyday purchases, boosting the use of cryptocurrencies in the local market.
However, the central bank’s licensing framework has strict rules. It does not allow algorithmic stablecoins or privacy tokens. Instead, it prefers stablecoins that fully back their value with cash.
Issuers must support their stablecoins with cash held in a separate escrow account. The escrow account must be fully in dirhams and held within a UAE bank. These rules ensure that the stablecoins remain secure and reliable.
Alternatively, issuers can also invest in CBUAE Monetary Bills. However, these investments must last an average of up to six months. This approach allows issuers to keep some cash on hand while making investments, helping ensure the stability and reliability of the stablecoins they issue.
AED Stablecoin Faces Competition from Tether in the UAE Market
AED stablecoin will likely compete with Tether. Tether is the company behind the world’s largest stablecoin, called USDT.
Recently, Tether announced a partnership with two local firms, Phoenix Group and Green Acorn Investments. Together, they plan to create a dirham-pegged stablecoin.
This new stablecoin from Tether could give AED Stablecoin a tough challenge in the market. The competition could impact how stablecoins perform and how users and businesses accept them.
At the same time, the UAE has created a welcoming environment for cryptocurrency. This friendly regulatory setup is attracting prominent crypto players. For example, OKX recently launched a trading platform for retail and institutional traders in the UAE.
OKX received a full license to operate in the region. The license allows them to offer derivatives trading for qualified institutional investors.
Similarly, the crypto exchange M2 has launched a new service that lets UAE residents convert dirhams into Bitcoin and Ether. This system allows people to buy these popular cryptocurrencies using their local currency easily.
This new feature makes it more convenient for residents to invest in cryptocurrencies. It shows that the UAE is becoming more accessible for crypto trading and investment.