The Central Bank of the United Arab Emirates (CBUAE) has given initial approval to AED Stablecoin under its Payment Token Service Regulation framework, as announced in a press release.
AED Stablecoin’s provisional license approval positions it as a frontrunner to be the first issuer of a regulated dirham-pegged stablecoin in the UAE.
This development alleviates concerns about potential restrictions on crypto payments following the CBUAE’s recent release of its licensing framework, which prohibits crypto payments unless they involve licensed dirham-pegged tokens.
If fully approved, AED Stablecoin’s AE Coin could be used as a local trading pair for cryptocurrencies on exchanges and decentralized platforms, as well as accepted by merchants for goods and services.
The central bank’s licensing framework also prohibits algorithmic stablecoins and privacy tokens, instead favoring fully cash-backed assets.
Issuers must back their stablecoins with cash held in a separate escrow denominated in dirhams at a bank in the UAE, or they can delay at least 50% of the reserves in cash while investing the remainder in UAE government bonds and CBUAE monetary bills with an average maturity of up to six months.
AED Stablecoin is expected to face competition from Tether, the issuer of the world’s largest stablecoin by market capitalization, USDt (USDT).
Tether recently announced a collaboration with local companies Phoenix Group and Green Acorn Investments to introduce their own dirham-pegged stablecoin.
The UAE’s crypto-friendly regulatory environment is attracting major players, such as OKX launching a trading platform in the UAE and M2 opening a system for residents to convert dirhams directly into Bitcoin (BTC) and ether (ETH).
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