Stablecoin issuance and use is rising around the world, with the market projected to reach $3 trillion within the next five years. This, according to an update from Fintech firm Ripple.
Key to this continued growth are crypto regulations that will help advance the use of stablecoins and usher in a new era of “financial innovation,” the team at Ripple noted.
Enterprise blockchain firm Ripple added that governments are recognizing this opportunity and working hard to “launch frameworks that provide further clarity.”
Ripple also mentioned that new regulations from the Central Bank of the United Arab Emirates (CBUAE) designed to integrate dirham-backed stablecoins and as well as non-AED backed stablecoins into its financial systems are “emblematic of this shift.”
Ripple further noted that they not only help cement the UAE’s position as a global leader in the digital asset space, but also reflect a “broader trend of progressive crypto regulation in the country.”
Ripple pointed out that by embracing stablecoins, the UAE is laying the groundwork for “safer, more efficient financial systems.”
As stated in the update from Ripple, the UAE has made no secret of its ambition to be “a global hub for well-regulated blockchain activities.”
Ripple further revealed in its update that it is already one of the most advanced jurisdictions when it comes to “offering clear regulations for digital asset services, with Dubai’s Virtual Assets Regulatory Authority (VARA), the Abu Dhabi Global Market and the DIFC all contributing to a robust regulatory ecosystem.”
The CBUAE’s framework for stablecoins adds a “critical layer of clarity, allowing market participants to issue AED-backed stablecoins that can be used for payments and register non-AED stablecoins that can be used for virtual asset payments.”
Ripple added that this fosters the development of stablecoin “use cases within a safe, structured environment.”
As noted in the report from Ripple, it is expected that the framework will focus on enabling payments “through AED-backed stablecoins, and bar businesses and vendors from accepting tokens that do not offer the same guarantees.”
Combined with the registration approach for foreign currency-backed stablecoins, this measured approach would also “manage risks around liquidity, market volatility, compliance and operational challenges.”
Ripple pointed out that regulators around the world “all dictate that a stablecoin must be licensed for use within a jurisdiction, but the UAE’s approach is different from many other frameworks.”
For example, the proposed Clarity of Payment Stablecoins Act in the U.S. focuses more on “requirements and enforcement versus the currency to which a coin is pegged. And while MiCA in the European Union caps stablecoins backed by non-EU currencies to one million transactions per day, it does not ban them outright.”
The update from Ripple further explained that the UAE’s approach aims to allow the use of both “dirham-backed and non-dirham backed stablecoins without any caps, but limits the use of non-dirham backed stablecoins to payments for virtual assets and their derivatives.”
The CBUAE hopes that this will “foster innovation and collaboration between different providers.”
With a tech-forward citizenry and a government eager to foster innovation, the UAE is fertile ground for the integration of digital banking and blockchain into its financial sector.
At the heart of this transformation is the Dubai International Finance Centre (DIFC), home to the largest innovation community in the region.
From growth-stage tech firms to digital labs and venture capital firms, the DIFC is a “thriving hub” for blockchain and digital asset development.
This potent mix of the DIFC, the UAE’s status as a global home for expatriates and the obvious benefits of blockchain for payments, have spurred banks and financial institutions across the region to rapidly deploy the technology to modernize remittances and cross-border payments. In part, it’s why the MENA region now ranks as the sixth largest crypto economy globally, processing nearly $400 billion in on-chain value between July 2022 and June 2023.
Ripple has also been a prominent player in the region.
The National Bank of Abu Dhabi was the first Middle Eastern bank to use Ripple Payments to provide “immediate, secure and cost-effective remittance solutions—a key advantage in a country that sent close to $80 million in outbound remittances in 2022. And the digital asset XRP was approved late last year under the Dubai Financial Services Authority (DFSA) for use within the DIFC.”
The CBUAE’s aim is to proactively promote a “well-regulated stablecoin ecosystem, specifically dirham-backed stablecoins, to offset more volatile cryptocurrencies and better protect investors.”
It also seeks to make the country “an attractive option for providers and businesses, opening the door to innovations that could revolutionize cross-border payments, enhance financial inclusion and streamline digital transactions.”
Notably, Tether has announced plans to launch a UAE stablecoin, “tapping into the dirham as an alternative to the U.S. dollar.”
The UAE’s “forward-looking” stablecoin regulations help cement the country’s role as a global supporter of crypto frameworks and digital financial innovation.
The update from Ripple concluded that stablecoins are now set to play a crucial role in the country’s “economic diversification alongside its broader plans to launch a Central Bank Digital Currency (CBDC) through its Financial Infrastructure Transformation program.”