UAE Stablecoin Market Gains Momentum with 55% Growth Under New Regulations

As 2024 unfolds, stablecoins are taking center stage in the UAE's cryptocurrency landscape.

In the first half of the year, the total value of stablecoins received by services, particularly centralized (CEX) and decentralized exchanges (DEX), surpassed $9.8 billion—a remarkable 55% increase from the $6.3 billion recorded in the same period of 2023.

This development has elevated stablecoins to dominate the crypto market in the UAE, now representing 51% of all crypto activity, far outpacing Bitcoin (19%) and Ethereum (9%).

“Stablecoins have already performed impressively through the first half of the year,” said Arushi Goel, Head of Middle East & Africa Policy at Chainalysis. She noted that the Central Bank of the UAE (CBUAE) has introduced its Payment Token Services Regulation, which clarifies the framework for issuing, custodying, and converting payment tokens. “This regulatory clarity could pave the way for broader participation and innovation,” she added.

While retail-sized transfers (amounts of $10,000 and below) contributed a modest 6% of the total value received, the distribution of larger transactions tells a different story. Professional-sized transfers ($10,000 to $1 million) accounted for 40%, institutional-sized transfers ($1 million to $10 million) made up 34%, and large institutional-sized transactions (over $10 million) comprised 20%. Nonetheless, despite this, retail transactions dominated in volume, making up 93% of stablecoin transfers, indicating a vibrant market for retail investors likely using stablecoins for trading purposes.

Additionally, Chainalysis data revealed that over three-quarters (78%) of stablecoin transfers in the UAE were conducted on centralized exchanges. In contrast, the overall crypto transaction landscape shows that only 47% of transactions occurred on CEXs from July 2023 to June 2024.

Goel noted, “In line with global trends, stablecoins are helping expand the crypto user base. Centralized exchanges provide a convenient and regulated entry point for individuals and businesses who have not traditionally engaged with virtual assets. Merchant services are growing, and both consumers and businesses are increasingly using CEXs for payments and remittances.”

In the UAE, where the Dirham is pegged to the US Dollar, it is unsurprising that the most popular stablecoins are also dollar-pegged. Tether (USDT), the largest stablecoin by market capitalization globally, accounted for 61% of all stablecoin transactions in the UAE through H1 2024. Dai (DAI), a decentralized stablecoin running on Ethereum, ranked third in transaction volume, employing an algorithmic approach to maintain its dollar value link.

“The concentration of stablecoin investments in the UAE around the world’s most recognized variants indicates that a lower barrier to entry and a more seamless user experience are attracting investors,” Goel commented.

She expressed anticipation regarding the market's reception of Dirham-backed stablecoins, which have received in-principle approval from the Central Bank. “Once these gain widespread acceptance among institutions and consumers, the benefits they could bring would be significant. High-impact use cases could include remittances, eCommerce transactions, real estate purchases, government service payments, and tokenized assets.”

There is no doubt that stablecoins are reshaping the UAE's cryptocurrency ecosystem, establishing themselves as a powerful tool for both retail and institutional investors. With new regulatory clarity provided by the Central Bank’s Payment Token Services Regulation, the pathway is set for continued growth and innovation.

With dollar-pegged stablecoins like Tether dominating transactions and Dirham-backed stablecoins, the potential for stablecoins in the UAE spans beyond trading. They stand ready to streamline remittances, eCommerce, real estate transactions, and more—solidifying their role as a transformative force in the nation’s financial landscape.