Increase in 2024 Adoption of Stablecoins
For stablecoins in the United Arab Emirates, 2024 has been a significant turning point. Stablecoins made a substantial contribution to the cryptocurrency ecosystem in the first half of this year alone, with services receiving over US$9.8 billion, a 55% increase over US$6.3 billion in the same period in 2023. Stablecoins currently account for 51% of cryptocurrency activity in the United Arab Emirates, surpassing two of the most well-known cryptocurrencies worldwide, Bitcoin (19%) and Ether (9%).
Clarity in Regulation Encourages Innovation in Stablecoins
The Central Bank of the UAE (CBUAE) introduced the Payment Token Services Regulation, which lays out precise rules for issuing, holding, and converting payment tokens, which has further fueled the rise of stablecoins. It is anticipated that this regulatory framework will encourage further involvement and innovation in the stablecoin industry, according to Arushi Goel, Head of Middle East & Africa Policy at Chainalysis.
Transaction Patterns in Retail and Institutions
While professional-sized transfers (US$10,000 to US$1 million), institutional-sized transfers (US$1 million to US$10 million), and large institutional-sized transfers (above US$10 million) contributed 40%, 34%, and 20% of the transaction value, respectively, retail-sized transfers (less than US$10,000) made up only 6% of the value received.
Retail transfers, on the other hand, led when looking at transaction volume, accounting for an overwhelming 93%, indicating a thriving market for smaller investors. As evidence of their active participation in the cryptocurrency ecosystem, these regular users probably use stablecoins to trade other virtual assets.
Stablecoin transfers are dominated by centralized exchanges.
Centralized exchanges (CEXs) accounted for an astounding 78% of all stablecoin transfers in the United Arab Emirates in the first quarter of 2024, demonstrating their dominance as preferred platforms. In contrast, the Chainalysis 2024 Geography of Crypto Report found that during the broader period from July 2023 to June 2024, CEXs were involved in just 47% of all cryptocurrency transactions in the UAE.
“Centralized exchanges are becoming crucial for onboarding users and businesses unfamiliar with virtual assets,” Goel said, highlighting this trend. They are providing a smooth gateway into the cryptocurrency market by enabling business payments, remittances, and settlements. Decentralized exchanges (DEXs), on the other hand, have continued to concentrate on trade activities.
The market is led by dollar-pegged stablecoins.
The market is naturally dominated by dollar-tied stablecoins because the UAE Dirham is pegged to the US dollar. Through H1 2024, 61% of all stablecoin transactions in the United Arab Emirates were made with Tether (USDT), the largest stablecoin by market capitalization worldwide. In terms of transaction volumes, USD Coin (USDC) came in second, and Dai (DAI), an Ethereum algorithmic stablecoin, came in third.
Possible Effects of Stablecoins Backed by Dirham
It is projected that the possible introduction of stablecoins backed by dirhams, like the AE coin, will further transform the financial environment in the United Arab Emirates. Such stablecoins could open up applications in government services, eCommerce, real estate, and remittances with CBUAE’s in-principle approval. Goel underlined that the launch of a local stablecoin has the potential to propel the industry to previously unheard-of heights, as the UAE’s crypto environment has continuously spurred innovation and change.
