United they Stand – how the UAE is embracing digital assets and blockchain 

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Collectively, the Emirates have pioneered a fruitful environment for these industries to do business. But how is the Middle East developing when it comes to digital assets and blockchain, and what comes next for the region?

In the UAE, three key emirates stand out, each of which has focused on growing a piece of the technology pie tailored to its strengths. In combination, the proximity of Dubai, Abu Dhabi and the new Digital Assets Oasis in Ras Al Khaimah has attracted interest and excitement from both entrepreneurs and investors.

Dubai – the blockchain pioneer

As early as 2016, Dubai announced plans to use blockchain for all government documents aiming to create the world’s first fully digitised government by 2021. The same year, it formed the Global Blockchain Council to bring together the private and public sectors to start imagining how blockchain could be used. This led to the creation of the Dubai Blockchain Strategy, focused on establishing Dubai as an international leader in this space.

VARA (the Virtual Assets Regulatory Authority) in Dubai is the entity responsible for overseeing and regulating all activities related to virtual assets within the emirate. The establishment of VARA in 2022 formed part of Dubai’s broader strategy to become a global hub for innovation. It also aligned with its aspirations to develop a comprehensive legal and regulatory framework for emerging technologies.

Abu Dhabi – a fintech leader

The capital of the emirates is recognised as the top FinTech hub in the Middle East-North Africa (MENA) region, with the Abu Dhabi Global Market (ADGM) actively championing the development of a sustainable and vibrant FinTech ecosystem. It has achieved many firsts for the region, including the first FinTech Regulatory regime and the first FinTech RegLab, the world’s second most active FinTech sandbox after London.

As a home to an offshore legal centre and sovereign wealth funds, Abu Dhabi has succeeded in pulling in an attractive mix of investors, talent and fund management skills. To give a recent example, ADQ, the Abu Dhabi-based investment fund mandated to accelerate the transformation of the emirate into a knowledge-based economy, recently invested in Further Ventures. The venture builder, also based in Abu Dhabi, incubates start-ups developing next-generation financial infrastructure. These ventures include virtual asset payments products, blockchain-based asset custody and security solutions, marketplaces, wallets and other infrastructure aimed at the institutional market.

Ras Al Khaimah – the Digital Assets Oasis (RAK DAO)

In October 2023, Sheikh Saud bin Saqr Al Qasimi inaugurated the launch of the RAK Digital Assets Oasis, the UAE’s economic free zone focusing on crypto, blockchain and AI. The DAO is a tailored ecosystem aimed at making it easy to set up a virtual assets business.

Between them, the trio of Emirates have created a kind of pincer movement, covering all the key elements needed to encourage the digital assets industry to the region. A further element is the race to launch Central Bank Digital Currencies, as well as regulated stablecoins compliant with the new CBUAE Payment Token Services Regulation, both of which could further accelerate the market for real-world asset tokenisation. Combined with a favourable regulatory regime, the key UAE cities are working towards making MENA one of the top areas in the world to locate digital assets’ activities.

A growing hub for bitcoin mining

Perhaps less widely known is how prominent the region has recently become in bitcoin mining. Last year, bitcoin miner Zero Two, which is supported by Abu Dhabi’s sovereign wealth fund, joined forces with Marathon, one of the biggest crypto-mining firms in the United States, to build the Middle East’s first large-scale sustainable Bitcoin mining operation. The mining operations use excess energy from Abu Dhabi to power the sites and purchase clean energy certificates to offset any non-sustainable energy use. As the region transitions away from its dependence on oil, such projects look likely to grow further in future.

Current challenges and future prospects

As with many other jurisdictions courting blockchain and digital assets businesses – the region’s banking sector has sometimes been tentative in embracing the crypto industry, with crypto firms situated there reporting that they still struggle to access banking services. This hurdle is now starting to be removed as some players are beginning to offer digital asset-friendly services. Major financial institutions are also requesting proposals and seeking providers for virtual asset services.

Nevertheless, while the UAE – and the MENA region more broadly – are becoming an epicentre for the digital assets industry, others are jostling to take that crown. Both Presidential candidates in the United States have demonstrated support for the industry and it remains to be seen whether, after the upcoming elections, America will become more crypto-friendly and challenge the UAE’s current popularity. All eyes are also on Saudi Arabia, the giant of the region, to see which way they will swing.

For now, however, the combination of a positive regulatory framework, access to capital and the clustering of multiple industry-friendly locations so close to one another, suggests the UAE will remain significant in digital assets for the foreseeable future.

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