UAE becoming an ideal hotspot for blockchain startups

The cryptocurrency market saw a boom during the pandemic, with retail and institutional investors flocking to this new investment class, as the risks of inflation and quantitative easing became a reality worldwide.

Where corporations have been hesitant to get into crypto and blockchain, compelling use cases that solve real-world issues may be able to ease them in. The UAE has come a long way to successfully provide a business-friendly and healthy environment for crypto and blockchain-based businesses.

The tax-free business environment accompanied by innovative regulations make it an ideal destination for block-chain companies. The Abu Dhabi Global Market was the first freezone in the UAE to issue guidelines and a
regulatory framework for virtual assets.

It provides a licencing regime for crypto-focused businesses such as a framework for digital securities offerings, virtual asset custodians, multi-lateral trading facilities exchanges, digital settlement facilities for clearing and settlement of digital securities.

The UAE’s Securities and Commodities Authority (SCA)has issued regulations and guidance on crypto assets. The regulations provide certainty and have opened new opportunities for blockchain-based startups who want to do business in the UAE. The regulations issued by the SCA have opened new doors and opportunities.

For example, Dubai Multi Commodities Centre (DMCC), a freezone that falls under the regulatory remit of SCA issued special licences such as the distributed ledger technology service provider licence and proprietary trading in crypto commodities licence for businesses interested in setting up and operating from DMCC.

The Financial Action Task Force (FATF) came up with new recommendations for virtual assets and virtual assets service providers (VASPs). The regulator lifted the soft-ware veil behind decentralised fi nance (DeFi) based protocols and observed that even though such protocols are decentralised in nature, if there is a commercial nexus between the legal entity (which launches or releases the software protocol) and the software (DeFi solutions provider), then they could be defined as a VASP.

This is groundbreaking in nature as several regulators will now adopt these recommendations as part of their national regulations, which will soon make DeFi, a largely unregulated sector, a regulated one. In 2021, the UAE incorporated FATF recommendations concerning VASPs in its anti-money laundering regulations where the penalty for operating an unregistered or unlicenced VASP is a minimum of six months of imprisonment or a fine of Dhs200,000 to Dhs5,000,000.

We may soon see the block-chain and crypto industry operating in a regulated environment similar to other sectors and industries. This has been compounded by the fact that blockchain companies are understanding the need for compliance and providing an investor protection framework for retail investors.

Amidst this, the UAE will be one of the leading destinations for setting up a business with the mainland and the special freezones catering to the needs of entrepreneurs and investors.

News Source: Gulf Business