The MENA region, particularly the UAE, has emerged as a leading market for stablecoin and established itself as a dominant virtual asset hub in the region. With the UAE’s national strategic goal to establish itself as a leader in blockchain and cryptocurrency innovation, it benefits from an early-mover advantage in positioning itself as a market leader. The UAE could be considered a major player in the virtual assets space. In the year ending June 2024, the UAE received US$30bn in digital assets, making it the third-largest digital asset destination in the MENA region, following Turkey and Saudi Arabia.
Yet, while the opportunities are immense, potential adoptions depend on overcoming hurdles such as regulatory clarity, price volatility, system readiness and interoperability.
- Price volatility: When reserve assets backing stablecoins fluctuate significantly, their reliability weakens – particularly in use cases like cross-border payments or corporate treasury where stability is essential. In the MENA Region, by leveraging on USD, AED, and potentially SAR-backed stablecoins (pegged to the USD), volatility is offset by global currency dominance.
- Regulatory clarity: In the UAE, the CBUAE has issued a clear and comprehensive regulatory framework for the issuance of AED-pegged tokens. Yet, institutional uptake depends on licensing, compliance, and redemption rules. Other markets in the region are heavily reliant on USD stablecoins and are still looking into regulatory frameworks.
- Cross-border complexity: Even if the UAE enables stablecoin-based transactions, partner countries like India remains hesitant, creating friction in corridors vital for remittances and trade.
- Fragmented MENA landscape: While the UAE is pro-innovation and mostly market-led, neighbouring markets like Saudi Arabia continue to take a measured and risk-based approach to digital currencies, with a focus on foundational infrastructure such as CBDC.
- Operational readiness: Financial institutions must overhaul systems and upgrade core banking infrastructure to securely and compliantly integrate stablecoins.
Cross-border value flows: Stablecoins transforming trade and remittances in MENA
Eliminating legacy inefficiencies with next-gen rails
As a leading financial hub facilitating substantial international trade, the UAE is well-positioned to advance cross-border payments through regulated stablecoins, particularly within GCC. These digital assets could streamline international payments by offering near-instant transfers at lower costs than traditional SWIFT channels, while maintaining compliance with the CBUAE’s anti-money laundering and counter-terrorism financing (AML/CFT) regulations.
Fuze’s role in providing real use cases
With the UAE and Saudi Arabia’s large expatriate population, remittance services are a critical part of the region’s financial ecosystem. Banks and fintech firms have an opportunity to strengthen their market position by incorporating stablecoins into their offerings, potentially streamlining transfers to key corridors such as India, Pakistan, and the Philippines, by reducing excessive exchange fees and settlement times.
Trade finance
As a major global trade centre, the UAE has an opportunity to transform trade finance through stablecoin integration. Smart contracts and tokenised collateral can streamline traditional processes such as letters of credit and supply-chain financing, reducing manual intervention and operating costs. Stablecoins are a perfect means of payment for large trades that need faster settlement. The inherent transparency aligns well with CBUAE’s regulatory requirements, enabling more auditable trade finance solutions.
Interbank settlements
Inspired by systems like JPM Coin – which enables real-time blockchain-based transfers between institutional accounts – banks with wide geographical presence could use stablecoins for faster, round-the-clock settlements among themselves and with partners and suppliers. This could improve liquidity management and reduce counterparty risks. The CBUAE’s regulations on reserve backing and redemption guarantees would provide necessary stability for interbank operations.
Why stablecoins, why now? The case for adoption
We believe stablecoins will integrate with existing financial systems, driving widespread adoption, transforming the payment landscape. Traditional payment rails will become utilities, with stablecoins forming the foundation of a new financial stack. To enable this revolution, the CBUAE regulatory framework has created a prime opportunity for UAE institutions to adopt stablecoin technology.
Chainalysis’ 2024 Geography of Crypto Report highlights significant growth in the UAE’s stablecoin market, with exchanges handling US$9.8bn in H1 2024 – a 55% increase from H1 2023.
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