Global: Abu Dhabi Unveils Proposed Regulatory Framework for Fiat-Referenced Tokens

Abu Dhabi’s Financial Services Regulatory Authority (FSRA) has introduced a proposed regulatory framework for fiat-referenced tokens (FRTs), a type of stablecoin backed by liquid assets denominated in the same currency as the token. FRTs are designed to maintain stability and can be liquidated with minimal adverse price effects, making them an attractive option for stakeholders in the digital asset space.

In response to growing interest from potential issuers, the FSRA has opened a public consultation on the proposed framework, inviting feedback from industry participants and other interested parties. The regulatory authority has set a deadline of October 3, 2024, for submissions, after which it will review the comments and consider any necessary modifications before finalizing the framework.

Key Provisions of the Proposed Framework

The FSRA’s proposal outlines several operational requirements for FRT issuers, aimed at ensuring the stability and integrity of these digital assets. One key requirement is that the market value of reserve assets must be at least equal to the par value of all outstanding FRTs at the end of each business day. Additionally, FRTs must be valued on a mark-to-market basis daily to reflect their true market value.

The framework also stipulates that issuers of multiple FRTs must maintain segregated pools of reserve assets for each token and manage these pools independently. This segregation is intended to protect the value of each FRT and prevent cross-contamination of assets.

In defining FRTs, the FSRA proposes that these tokens be recognized as digital assets whose transfer and storage are facilitated through distributed ledger technology. The value of an FRT would be pegged to a fixed amount of a single fiat currency, with holders having the right to redeem their tokens for the corresponding amount of fiat currency from the issuer upon request.

Broader Implications and Future Considerations

The FSRA’s initiative is part of a broader effort to position Abu Dhabi as a leading center for digital assets and blockchain innovation. In addition to regulating FRTs, the FSRA is reviewing its existing suite of regulated activities to assess whether amendments are needed to accommodate the use of FRTs in various financial services, including payments and investments. These potential changes will be addressed in a separate consultation paper.

The UAE’s Growing Appeal as a Crypto Hub

Abu Dhabi’s move to regulate FRTs reflects the United Arab Emirates’ (UAE) broader strategy to establish itself as a global hub for cryptocurrency and digital assets. The UAE has already taken significant steps in this direction, including the Central Bank of the UAE’s approval of a new stablecoin licensing and monitoring system in June. This system is designed to enhance digital transactions, support the growth of the digital economy, and encourage innovation in the region.

The UAE’s crypto-friendly regulatory environment has already attracted significant attention from investors and industry players. For instance, in May, QCP Capital, a Singapore-based crypto market maker and broker, received in-principle approval for regulated digital asset activities from the Abu Dhabi Global Market (ADGM), marking a significant milestone for the region.

As Abu Dhabi continues to refine its regulatory approach, the proposed framework for FRTs could play a crucial role in shaping the future of digital assets in the region, offering a stable and secure option for both issuers and investors.