The leading lights of digital assets are clustering in this global finance hub. But exactly what does that mean for the digital economy?
Crypto adopters have long known that DeFi (decentralized finance) will be significant to the future of money, and the rest of the world appears to be catching up.
Legacy institutions have started to offer investors access to crypto assets, and central banks around the globe are seriously exploring digital currencies. The combined value of all crypto coins, like Bitcoin and Ethereum, currently sits at around $1 trillion USD.
How cryptocurrencies will integrate into mainstream society still remains an open question. Certain territories have opted for full-scale adoption, but others remain more cautious. The uncertain tangle of responses can be difficult for crypto companies to unpick and acts as a barrier to the sector’s maturation, leaving investors hesitant.
Dubai has taken a progressive stance, leveraging its existing qualities as a finance and technology hub in order to cultivate a stable environment that can nurture DeFi innovation, while smoothing crypto’s volatility in the hopes of building a framework that will work for everybody.
Bridging The Gap
Web3 organizations, such as those in crypto and blockchain, have begun forming clusters. According to a study by Forex Suggest, the UAE is among the top three regions with the most blockchain startups.
Investors are looking for places that have the required infrastructure as well as the forward-thinking momentum to be able to sustain their ambitions. Locations such as Dubai, with its established financial hub and progressive environment, have been attracting attention. For a long time, this city has been a gateway between east and west and is currently acting as a conduit for trillions of dollars in capital. Seventeen of the world’s twenty biggest banks have got a base in the DIFC (Dubai International Finance Centre) economic free zone. This setup is part of a wider network of web3 that enables ecosystems including the Dubai Future District, Dubai Multi Commodities Centre, Dubai World Trade Centre, and Dubai Internet City, which are all designed to support growth and investment.
Those banks are being joined by some of the biggest names in digital finance – Coinbase, Binance, and crypto.com have all relocated to Dubai. The traditional institutions with DeFi offerings like Brevan Howard, Komainu, and Galaxy Digital have also made their base in the emirate.
Companies are attracted by the same qualities that would bring any other business to Dubai – 0% income tax, 0% corporation tax in free zones, and comprehensive bi- and multilateral tax treaties. But those in the crypto world have also been drawn to the advantages of clustering with the wider business and financial ecosystem.
Having such a close proximity to established investors offers a plethora of opportunities for funding and a route to gaining mainstream partnerships. DIFC-based portfolio managers invested a total of $151.4 billion in 2021. 32% of FinTech deals and 49% of funding across North Africa (MENA) and the Middle East was focused in the UAE in the same year.
But capital isn’t the only reason the crypto community is embracing Dubai. The emirate is also cultivating a supportive regulatory environment.
Regulating cryptocurrencies will be a major challenge. On the one hand, it’s a rapidly developing, innovative sector that needs support. On the other hand, assets are volatile and unpredictable – investors need protection. VARA (the Virtual Assets Regulatory Authority) was established to thread that needle.
VARA is the world’s first dedicated virtual assets regulator. The organization acts as a single regulatory contact for digital assets actors across the emirate’s mainland and free zones, excepting the region’s financial hub, the DIFC, where oversight sits under the established Dubai Financial Services Authority. VARA works closely with the dedicated Crypto Centre in the DMCC (Dubai Multi Commodities Centre) free zone, home to over 400 crypto firms, and the DWTC (Dubai World Trade Centre).
In keeping with digital finance best practice, VARA utilizes a blockchain ledger to ensure market transparency, accountability, and cybersecurity. Blockchain is the underlying technology of cryptocurrencies and maintains an immutable record of every transaction.
VARA is working in close collaboration with digital finance leaders like AnChain, Chainalysis, Elliptic, and Confirm to develop a regulatory framework through a tech-friendly ‘Test-Adapt-Scale’ model. The goal is to establish a replicable, evidence-backed template that would become the gold standard in establishing global digital economy regulations.
The regulatory ecosystem forms a supportive environment that allows crypto companies to flourish. But capital access and progressive regulations can only go so far. For tech companies to thrive, they need talent.
Investing In Technology
Dubai has a knack for attracting tech talent from across the world. In the 2022 Digital Cities Index, The Economist placed Dubai in the top 10 for digital finance. It is currently home to over 1,000 companies in the metaverse and blockchain sector, contributing more than $500 million to the UAE economy. The city hosts major blockchain, AI, and web3 events such as Binance Blockchain Week.
The Dubai Metaverse Strategy’s aim is to capitalize on this momentum, growing the sector to support over 40,000 jobs by 2030, adding $4 billion to the economy in five years. Dubai also stands to benefit from the UAE’s National Program for Coders, which should attract 100,000 entrepreneurs, owners of enterprises, and start-ups specialized in coding over the next five years.
These programs promise to grow an already deep pool of talent for virtual asset companies to draw from.
Forging The Future Of Digital Assets
The digital asset sector remains nascent. But 13 years on from the launch of Bitcoin, it is clear that it’s here to stay. With interest growing from established finance and government, crypto may well deliver on its promise to change the face of money.
For this to happen, the boundaries between traditional and digital, finance and tech, and public and private need to come down to encourage cross-pollination. And that is why the crypto world is embracing Dubai.