Dubai’s move to oversee stablecoins should ‘bring certainty’ to regulatory grey area

Dubai’s Virtual Asset Regulatory Authority (VARA) has updated its virtual asset rulebook, adding regulations related to fiat referenced virtual assets (FRVAs). These are designed to keep a fixed value in relation to a traditional currency and are commonly known as stablecoins.

The rules separate virtual assets into two categories and apply differing levels of regulation to each. FRVAs are ‘category 1’ assets which means that anyone issuing them must be authorised and licensed by VARA and must comply with all its regulations and rules. They must also comply with the newly-issued FRVA Rules.

“While other jurisdictions have sought to classify and regulate forms of stable coins, VARA’s approach of incorporating FRVAs within its comprehensive rulebook provides certainty across the life cycle of stable coin issuance, management and redemption,” said financial services expert Tom Bicknell of Pinsent Masons.

“The global crypto market relies heavily on the steady means of payment stable coins provide, USDC and USDT being two of the highest market cap virtual assets currently listed and traded today,” he said. “There are then numerous lower cap, ‘alt’ stable coins that use varying means of pricing stabilisation and asset reserving. Even the biggest stable coins are subject to worryingly limited regulatory oversight given they represent multi-billion dollar layers of the virtual asset industry.”

“The introduction of the FRVA rules is welcome and needed; the hope is that one or more of the current leading stablecoins sees the rules as an opportunity to be regulated in a jurisdiction designed for web3,” said Bicknell.

The new FRVA rules sit within the existing Virtual Asset Issuance Module of the Rulebook, meaning that the issuing of FRVAs is also governed by VARA’s wider issuance requirements.

The guidance defines FRVAs as “a type of Virtual Asset that purports to maintain a stable value in relation to the value of one or more fiat currencies but does not have legal tender status in any jurisdiction”.

It also says that VARA will not give approval for any stablecoin that claims stability in relation to Dubai’s currency, the dirham, because that currency is the domain of the Central Bank of the United Arab Emirates.