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The Central Bank of UAE has approved plans for a dirham-pegged stablecoin. The license grants the issuer, AED Stablecoin LLC, authority to launch its own currency, AE Coin.
The initial approval aligns with the CBUAE’s vision for an emerging future spearheaded by the city’s Digital Government Strategy 2025. Should the authority grant final approval, AED Stablecoin LLC will roll out the AE Coin as a local trading pair for crypto-based transactions and enable local merchants to accept it as a means of exchange for goods and services.
A New Licensing Framework
The primary approval of plans to create a Dirham-pegged stablecoin will place the AE Coin developer ahead of a pack of any other interested parties seeking to develop a regulated stablecoin. The issuance of an initial license comes hot on the heels of emerging concerns regarding potential restrictions of digital asset-based payments following the release of a new licensing framework from the CBUAE. The new rules proposed a prohibition of crypto as a form of payment unless it was tied to a Dirham-pegged token.
The Central Bank of UAE’s framework also went further to outlaw privacy tokens and algorithmic stablecoins. Companies planning to issue stablecoins had to fully back them up with cash reserves held in escrows at local banks and denominated in the EAD. The alternative would be holding a 50% cash reserve and investing the other portion in CBUAE Monetary bills or United Arab Emirates government bonds for at least six months.
Reacting to the development, AED Stablecoin LLC General Manager Ramez Rafeek said the approval of the first-ever CBUAE-regulated stablecoin backed by the AED would transform the city’s digital currency landscape and provide “users with an unparalleled blend of financial freedom, unwavering stability, and top-tier security.”
Simplify Digital Payment Integration
Should the plans for a Dirham pegged stablecoin come to fruition, the AE Coin will join stable containing leaders like the USDT issued by Tether, which currently leads the pack in market capitalization. Tether is among international companies that are eyeing the Dirham pegged stablecoin market in partnership with two local firms, Green Acorn Investments and Phoenix Group.
The EAD stablecoin issuer would aim to forge strategic partnerships with technology providers, payment gateways, and leading financial institutions to enhance its widespread adoption. The firm has unveiled an ambitious roadmap that incorporates listing the Coin on major crypto exchanges, integrating decentralized applications (DApps), and a dynamic plan for ongoing technological development. The firm foresees the new stablecoin simplifying digital payments by integrating mobile wallet capabilities to have real-world use for day-to-day transactions to foster the island’s economic growth.
Towards the Acceptance and Integration of Crypto
According to AED Stablecoin LLC, the AE Coin is poised to transform the financial service sector through a stable, secure, and efficient payment instrument. The firm intends to integrate the reliability of the AE Dirham’s stability and the flexibility of blockchain technology to produce an AED stablecoin. The company’s regulated stablecoin will aim to facilitate seamless payments that will positively contribute to the growth of the Emirate’s digital economy. Further, the firm believes that creating an AE Coin will introduce a cost-effective financial product promoting payments and decentralized finance (DeFi) applications.
The issuance of a green light to the Stablecoin issuer is a positive move that could open floodgates toward the acceptance and integration of cryptocurrencies in day-to-day use. A regulated stablecoin could encourage the business community to accept crypto payments, broadening the local crypto asset market. The result could be the additional adoption of blockchain technology to stimulate the region’s economic growth.
Conclusion
The initial step by CBUAE marks a significant moment for the city’s efforts to establish itself as a regional hub for crypto development with countries like Switzerland and Hong Kong. AED Stablecoin LLC could also capitalize on the opportunity granted to establish itself ahead of market leaders like Tether, who are also eyeing the same market. The latest development is another clear demonstration of UAE’s commitment to support the emerging crypto industry.
