The Central Bank of the United Arab Emirates (CBUAE) has given in-principle approval to AED Stablecoin, setting the stage for the country’s first regulated dirham-pegged digital currency. This announcement positions AED Stablecoin as the frontrunner in a competitive race to launch a stablecoin backed by the UAE dirham.
AED Stablecoin Takes the Lead Amid Regulatory Changes
The preliminary license, issued under the CBUAE’s Payment Token Service Regulation framework, is a key milestone in the UAE’s efforts to regulate crypto payments. It addresses growing concerns about restrictions on digital currency use, which surfaced after the CBUAE’s new licensing framework prohibited crypto for payments—except for licensed dirham-backed tokens.
If AED Stablecoin receives full approval, its AE Coin could serve as a vital trading pair on exchanges and decentralized finance (DeFi) platforms. Additionally, merchants across the UAE would be allowed to accept it for transactions, creating new opportunities for crypto adoption.
Regulatory Framework: Strict Backing Requirements
The CBUAE’s framework prioritizes fully cash-backed stablecoins and bans both algorithmic stablecoins and privacy tokens. To comply, issuers like AED Stablecoin must meet stringent reserve requirements:
- Escrow Cash Requirement: Stablecoins must be backed 100% by dirham-denominated cash held in a segregated escrow account within a UAE-based bank.
- Partial Reserve Option: Alternatively, issuers can hold at least 50% in cash, with the remainder invested in UAE government bonds and CBUAE Monetary Bills with a maximum maturity of six months.
These safeguards are designed to ensure the stability and trustworthiness of dirham-pegged tokens.
Tether’s Arrival Looms as Competition Builds
With Tether (USDT) eyeing a potential entry into the UAE’s stablecoin market, AED Stablecoin’s in-principle approval gives it a competitive edge. However, Tether’s arrival could intensify competition, as the UAE positions itself as a hub for regulated digital finance.
