Issuing Stablecoins in the UAE: Jurisdictions, Stablecoin Types, and the Regulators Involved

The UAE offers three distinct pathways for issuing “stablecoins,” each with different regulatory objectives and supervisory expectations:

1. Mainland UAE (CBUAE) – Payment-focused regime for “Payment Tokens,” including AED-referenced (Dirham Payment Tokens) and non-AED tokens used as means of payment; algorithmic and anonymity-enhanced tokens are prohibited; robust reserve, segregation, and audit obligations apply.
   
2. Dubai (VARA – outside DIFC) – Virtual-asset ecosystem regime for Fiat-Referenced Virtual Assets (FRVAs); AED-pegged coins are expressly outside VARA’s approval scope and remain under CBUAE; redemptions must complete within one working day and no redemption fees are permitted; reserve assets must be legally segregated and bankruptcy-remote.
   
3. ADGM (FSRA) – Payments-grade regime for Fiat-Referenced Tokens (FRTs); “Issuing a Fiat-Referenced Token” is a regulated activity; redemption at par no later than T+2 post-CDD; monthly independent attestations and an annual external audit of reserves are required.

DIFC (DFSA) and the SCA continue to supervise crypto within their respective remits (securities/markets in DIFC; federal securities perimeter), but neither provides a payments-issuance framework like CBUAE or FSRA. Within DIFC, only recognised tokens may be used in regulated business.

1) Stablecoin taxonomy used in the UAE

While the market uses “stablecoin” generically, UAE rules are term-specific:

• CBUAE – Payment Tokens. Payment Token Services cover issuance, conversion, and custody/transfer of tokens used as digital payment services in the UAE. Categories include Dirham Payment Tokens (DPTs) and Foreign Payment Tokens (FPTs) once designated by the CBUAE. Algorithmic tokens and anonymity-enhanced coins are prohibited.
  
• VARA – FRVAs. A Fiat-Referenced Virtual Asset is a VA that purports to maintain a stable value by referencing a VARA-approved fiat currency; AED-referenced coins are not approved under VARA’s FRVA Rules and remain under CBUAE. FRVAs may be used within the VA ecosystem and not as general means of payment in the UAE.
  
• ADGM – FRTs. A Fiat-Referenced Token is a digital asset used as a medium of exchange with a stable store of value by referencing a fixed amount of a single fiat currency and providing on-demand redemption from the issuer. ADGM distinguishes accepted FRTs for use in regulated activities.

2) Jurisdictional scope and supervisory objectives

Mainland UAE (CBUAE)

The Payment Token Services Regulation 2024 is a central-bank payments regime. It sets licensing and registration conditions for Payment Token Issuers, Converters, and Custody/Transfer providers operating in the UAE outside the financial free zones (i.e., outside ADGM and DIFC). The Regulation lays down prohibitions, reserve, segregation, and disclosure rules.

Key scope features:

• Prohibitions: anonymity-enhanced cryptos and algorithmic payment tokens are banned; tokens shall not be represented or used as legal tender; promotions are tightly constrained.
  
• Licensing categories (Article 5): CBUAE may grant Payment Token Issuer licences (including FPT Issuer), among others.
  
• Designation (Article 12): CBUAE may designate Dirham Payment Tokens or Foreign Payment Tokens as “Means of Payment,” triggering specific obligations and promotional restrictions.

Dubai (VARA – outside DIFC)

The VA Issuance Rulebook (May 2025) and Annex 1: FRVA Issuance Rules create a tailored regime for FRVA issuers. Any entity issuing a VA “in the course of a business” in the Emirate must comply with the VA Issuance Rulebook; Category 1 covers FRVAs and ARVAs.

Two structural boundaries matter:

• AED reference: FRVAs that purport to maintain stable value relative to AED are not approved under FRVA Rules; such issuance remains under CBUAE.
• Use-of-proceeds and use-cases: FRVAs issued under VARA may be used only for purchase/sale of assets in the VA ecosystem, not as general means of payment in the UAE.

Abu Dhabi Global Market (ADGM – FSRA)

ADGM amended the FSMR in December 2024 to add “Issuing a Fiat-Referenced Token” as a specified regulated activity and to embed FRT rails within Payment Services. The regime also contemplates accepting FRTs on the public record.

Complementary COBS Chapter 19A contains the operating rules (white paper, redemption, reserves, stress-testing, attestations, audits, and claims hierarchy).

DIFC (DFSA) and Federal SCA

Within DIFC, the DFSA runs a securities-grade framework; only recognised tokens may be used in regulated business; recognition focuses on lawfulness, disclosure, governance, market integrity, and tech risk. The Securities and Commodities Authority (SCA) continues to steward federal securities/markets perimeters. (For payments-issuance use-cases, market participants typically look to CBUAE or FSRA, or to VARA for VA-ecosystem FRVAs.)

3) Licensing and approval – what “issuers” must obtain

CBUAE

• Who needs a licence? Any person issuing payment tokens in the UAE (outside the FFZs) must be licensed or registered under the Regulation. The CBUAE can license Payment Token Issuers (including FPT Issuers).
  
• Designation overlay: CBUAE may designate a DPT/FPT as a “Means of Payment,” with knock-on marketing and conduct restrictions.
  
• Marketing constraints: No claims implying legal-tender status; strict prohibitions on promoting non-designated tokens as means of payment.
  

VARA (Dubai, outside DIFC)

• Licence + per-token approval: Issuing an FRVA is a Category 1 VA Issuance. Licensed VASPs must obtain VARA approval for each FRVA before issuance, and comply with cross-cutting rulebooks (Company, CRM, Technology & Information, Market Conduct, VA Issuance).
  
• AED boundary / payments boundary: AED-pegged coins sit with CBUAE; FRVAs are restricted to VA-ecosystem uses.

ADGM (FSRA)

• Regulated activity: Issuing a Fiat-Referenced Token (Schedule 1, para 53B) is a regulated activity. Payment Services explicitly include FRT transfer, settlement, and payment-account safekeeping.
  
• Accepted tokens: The FSRA maintains a public record that includes Accepted FRTs.

4) Redemption, reserves, and audits – the core prudential mechanics

CBUAE (Payment Tokens)

• Reserve coverage: The Reserve of Assets must at least equal the total fiat face value of tokens in circulation, with daily reconciliation and monthly external audit confirming continuous full coverage; robust internal controls are mandated.
  
• Wallet segregation (Article 23): Client Payment Token wallets must not be in the issuer’s name, and records must ensure asset isolation and no commingling.

VARA (FRVAs)

• Redemption: Holders must have a legally enforceable right to redeem at par within one working day; no redemption fees.
  
• Reserves & legal segregation: Reserve Assets must be legally segregated, not rehypothecated or encumbered, bankruptcy-remote, and subject to VARA direction in resolution.
  
• Audits & disclosures: Monthly independent audits confirming 100% backing by Reserve Assets and senior-management attestations. Marketing must disclose par-redemption rights and the absence of deposit-guarantee schemes.

ADGM (FRTs)

• White paper: Detailed content is prescribed (rights, redemption mechanics, reserve composition, risks); must be published pre-issuance and updated if materially inaccurate or at least annually.
  
• Redemption: Issue at par “without delay” upon receipt of money; redeem at par in the reference fiat, no later than T+2 after CDD (extensions possible in stress); reasonable redemption fee allowed only if disclosed in the white paper.
  
• Reserves & denomination: Subscription proceeds are Relevant Money and must be held in client accounts or invested in Reserve Investments with approved third-party agents; all Relevant Money and Reserve Investments must be denominated in the reference fiat.
  
• Coverage, valuation, stress & attestation: Combined market value of Reserve Assets must equal or exceed total outstanding redemption claims at all times; daily valuation, regular stress testing, monthly independent attestation (published and submitted to FSRA), and an annual external audit are mandated.
  
• Business-scope limitation: An issuer may not conduct additional regulated activities beyond those incidental to FRT issuance.

5) Marketing, use-cases, and “legal tender” claims

• CBUAE: Payment tokens are not legal tender; restrictions apply to designations and to claims in marketing; promotions relating to Designated Means of Payment are tightly circumscribed.
  
• VARA (FRVAs): Marketing must avoid implying stability unless licensed and compliant; materials must clearly state par-redemption rights and no guarantee schemes. FRVAs are not a means of payment for goods/services in the UAE.
  
• ADGM (FRTs): COBS includes detailed disclosure requirements within the white paper, including redemption processes, reserve composition, and risk factors.

6) Choosing a route: practical structuring considerations

Objective & use-case.

• If your core use-case is payments to merchants/users in UAE fiat contexts, or you want AED-reference, CBUAE is the natural route (DPT/FPT under Payment Token Services). Algorithmic constructs are off-limits and anonymity-enhanced tokens are prohibited.
  
• If you want a crypto-market rail (settlement, collateral, trading, yield products within the VA ecosystem) referencing non-AED fiat, VARA FRVA provides a specialised path with fast redemption, no redemption fees, and heavy segregation/audit oversight.
  
• If you need payments-grade issuance with bank-like reserve governance and a full payments ruleset (including T+2 redemption, client-money rails and reserve investments), ADGM (FSRA) is purpose-built.

Redemption promise & liquidity profile.

• VARA compels T+1 working day and no fees.
  
• FSRA compels T+2 with permitted fees only if disclosed.
  
• CBUAE ensures full coverage with monthly external audits and daily reconciliation; the redemption mechanics will be set in the issuer’s legal terms and the CBUAE’s supervisory expectations.

Reserve architecture.

• CBUAE: daily reconciliation and monthly audits confirming coverage ≥ 100% of fiat face value in circulation.
  
• VARA: legal segregation; no rehypothecation/encumbrances; VARA direction in resolution; monthly independent audits of 100% backing.
  
• FSRA: denomination matching (reserves and relevant money in the same fiat), daily valuation, stress tests, monthly published attestations, annual external audit, and priority claims mechanics for token holders.

Business-scope & group structuring.

• FSRA limits issuers from undertaking non-incidental regulated activities – this often calls for ring-fenced issuer SPVs.
• VARA can impose conditions on FRVA approvals (segregation of issuance from other VA activities, additional information, etc.).

Token recognition in DIFC.

• If your distribution or secondary-market activity runs through DIFC, ensure your token fits the DFSA recognition pathway; otherwise, DIFC-regulated firms cannot use it in regulated business.

7) Compliance build-list (issuer perspective)

Below is a condensed “first-wave” compliance checklist to align early structuring with each route’s hard requirements:

A. Corporate & licensing

• Determine issuance venue: CBUAE (DPT/FPT), VARA (FRVA), or FSRA (FRT).
• Map group structure to reflect ring-fencing where relevant (especially in ADGM).
• For VARA FRVA, secure per-token approval and maintain compliance across the Company, CRM, Technology & Information, Market Conduct and VA Issuance Rulebooks.

B. White paper / legal terms

• ADGM: Draft a COBS 19A-compliant white paper (rights at par, redemption timelines, reserve composition, risks, tech standards); publish pre-issuance and update at least annually.
  
• VARA: Prepare a white paper per VA Issuance and FRVA Annex (additional disclosures and ongoing reporting).

C. Reserves & banking

• Specify eligible reserve assets and custodial stack; build legal segregation and bankruptcy-remoteness (VARA); implement denomination matching and client-money / reserve-investment controls (FSRA); implement coverage + daily reconciliation + monthly audit (CBUAE).

D. Redemption & operations

• Hard-wire T+1 (VARA) or T+2 (ADGM) processes into Treasury SOPs; define fee policy (ADGM allows fees only if disclosed; VARA prohibits redemption fees).
  
• Establish business continuity to handle disruption events (both regimes allow extensions under regulator oversight).

E. Assurance & transparency

• CBUAE: monthly external audit and daily reconciliation reporting to CBUAE.
  
• ADGM: monthly independent attestation (published + submitted), annual external audit, stress tests (liquidity/redemption scenarios).
  
• VARA: monthly independent audit confirming 100% backing; senior-management attestation.

F. Marketing & financial promotions

• Avoid legal-tender claims (CBUAE), and comply with FRVA/ARVA marketing rules (clarity on par rights and no guarantee scheme, and – where relevant – limits on using “stablecoin”).

G. Wallet & tech controls

• CBUAE: ensure client wallets are not in the issuer’s name; maintain robust records for isolation.
  
• ADGM: comprehensive technology governance across wallets, keys, transaction tracing (origin/destination), security, and risk management.

8) Common structuring patterns we see

• AED + retail-payments focus → CBUAE DPT route, with reserve assets held at UAE banks, daily reconciliations, and monthly audits. Promotions must avoid legal-tender representations and respect designation rules.
  
• USD (or non-AED) rail for crypto markets in Dubai → VARA FRVA with T+1, zero fees, and legal segregation of reserves. Distribution can interface with VARA-licensed venues and custodians; not a general UAE means of payment.
  
• Institutional payments token with bank-grade reserve management → ADGM FRT, leveraging client-money architecture, denomination matching, monthly published attestations, and T+2 redemption. This often sits in a ring-fenced issuer with separate affiliates for other activities.
  
• DIFC distribution/MTF exposure → Consider DFSA token recognition for use within DIFC-regulated business – even if the issuance sits in CBUAE/VARA/ADGM.

9) Frequently asked questions

Can I issue a USD-referenced stablecoin in Dubai and let merchants accept it?
Not under VARA FRVA rules. FRVAs are for the VA ecosystem only and cannot be used as a general means of payment for goods/services in the UAE. For merchant acceptance, consider CBUAE (non-AED FPT) or ADGM FRT pathways, noting each regime’s licensing and coverage requirements.

Can I issue an AED-pegged coin under VARA?
No. AED-referenced stablecoins are not approved under VARA FRVA Rules and remain under CBUAE’s purview.

Are algorithmic stablecoins permitted?
No, CBUAE prohibits algorithmic payment tokens (and anonymity-enhanced coins) within its payments remit. For FRVAs and FRTs, the required 1:1 reserve and redemption mechanics are fundamentally inconsistent with algorithmic constructs.

What are the headline redemption timelines?
VARA: T+1 working day; no fees. ADGM: T+2 (post-CDD), fee permitted if disclosed. CBUAE sets continuous full-coverage and audit expectations; redemption terms are implemented via issuer policies under CBUAE supervision.

10) Closing takeaways

• Start with the use-case. If you aim for payments in the real economy (including AED), the CBUAE or FSRA routes are the natural fit; if you target crypto-market rails and settlement, VARA FRVA is purpose-built, but not for general merchant payments.
  
• Design for redemption. The practical difference between T+1 (VARA) and T+2 (ADGM), fee policy, and legal segregation will drive treasury, custody, and liquidity arrangements.
  
• Assurance is not optional. Expect monthly third-party assurance (VARA and ADGM) and monthly external audits with daily reconciliation (CBUAE). These obligations shape your data, reserve operations, and disclosure cadence from day one.

Disclaimer: 

This material is provided for general information purposes only and does not constitute legal advice. Regulatory requirements evolve, and their application depends on your specific facts and structuring choices. You should obtain advice from qualified counsel before taking any action.

Frequently Asked Questions