The Central Bank of the United Arab Emirates (CBUAE) announced that it has approved in principle the AED Stablecoin under the Payment Token Services Regulation. This approval enabled the company to take a major step towards becoming the first entity to issue a regulated dirham-pegged stablecoin in the UAE.

Pre-licensing approval of AED Stablecoin eases concerns about possible restrictions on crypto payments. CBUAE’s recently published licensing framework prohibits the use of cryptocurrencies for payments but accepts transactions in licensed dirham-pegged tokens.

While this regulation opens the door to licensed and fully cash-backed tokens, it prohibits algorithmic stablecoins and privacy-focused tokens.

If fully approved, AED Stablecoin’s AE Coin can be used as a trading pair for cryptocurrencies on local exchanges and decentralized platforms. It can also be accepted by merchants as a method of payment for goods and services.

CBUAE’s licensing framework requires stablecoin issuers to back their tokens entirely with cash in a separate escrow account opened in a UAE bank.

Alternatively, issuers can hold at least 50% of their reserve assets in cash, with the remainder invested in UAE government bonds and CBUAE Currency Bills. This regulation aims to increase investor confidence and ensure that the stablecoin market is based on more solid foundations.

AED Stablecoin is expected to compete with Tether. Tether currently operates USDt, the world’s largest stablecoin issuer, and recently announced it will introduce its own dirham-pegged stablecoin in collaboration with Phoenix Group and Green Acorn Investments.

The launch of this new stablecoin could lead to serious competition in the stablecoin market in the UAE.

The UAE’s crypto-friendly regulatory environment continues to attract the attention of major players. OKX has recently obtained a full license and launched a trading platform for both retail and institutional investors in the UAE.

This platform also covers derivatives trading for qualified institutional investors, increasing OKX’s effectiveness in the region. This step by OKX is considered as an indicator of the UAE’s efforts to become an important center in the crypto world.

Additionally, a crypto exchange called M2 has launched a new system that allows users living in the UAE to convert dirhams directly into Bitcoin and Ether. This system provides greater access to crypto users in the UAE while strengthening the country’s crypto ecosystem.

These developments show that the UAE’s interest in cryptocurrencies and blockchain technology is increasing and the country is trying to become a major player in this field. The launch of AED Stablecoin could be an important step in this process.

If successful, dirham-pegged tokens could be integrated into the UAE’s financial system, creating new opportunities both locally and globally.