DFSA Launches Phase Two of Tokenization Sandbox with Live Testing Under ITL Framework

The Dubai Financial Services Authority (DFSA) has officially moved into the second phase of its Tokenization Regulatory Sandbox, inviting selected firms to conduct live testing under its Innovation Testing License (ITL) framework. The initiative reinforces the DFSA’s commitment to enabling responsible financial innovation within the Dubai International Financial Centre (DIFC), with a strong emphasis on asset tokenization.

In March 2025, DFSA launched the Tokenization Regulatory Sandbox, inviting applications from both traditional financial institutions and fintech startups seeking to explore regulated use cases for tokenized securities, bonds, sukuk, and fund units. The sandbox was designed as a dedicated pathway for investment token experimentation, aligning with DFSA’s broader fintech strategy.

As Unlock Blockchain previously reported in “DFSA’s Tokenization Sandbox: Where It Stands in the UAE’s Digital Asset Market”, the sandbox attracted substantial interest, with 96 Expressions of Interest (EoIs) submitted by firms spanning the UAE, UK, EU, Canada, Singapore, and Hong Kong. The initiative underscored the DIFC’s growing appeal as a global hub for regulated digital asset activity.

Now, in the second phase, DFSA has begun engaging with shortlisted firms to help them develop bespoke test plans. These firms will operate within a controlled environment using the ITL, a regulatory mechanism that allows live testing of innovative financial products and services without being subject to the full suite of DFSA rules. The ITL, launched in 2017, has served as DFSA’s primary regulatory sandbox program.

“Tokenization is reshaping financial infrastructure,” DFSA noted in its recent public statement. “To support responsible innovation, the DFSA launched the Tokenization Regulatory Sandbox… Selected firms will soon be invited to apply for an Innovation Testing License and enter a live testing phase under DFSA oversight.”

Unlock Blockchain covered this milestone in detail in “DFSA Advances Tokenization Agenda with Next Phase of Regulatory Sandbox”, highlighting how this transition from interest to implementation marks a pivotal step in regulatory innovation for tokenized finance in the region.

The testing phase will allow participating firms to refine their tokenization offerings while addressing key regulatory priorities, including:

• Investor protection
• Market transparency
• Financial stability
• Technology risk management

As detailed in the DFSA’s Innovation Testing License Explainer 2025, firms granted an ITL must present clear business models, robust risk frameworks, and a well-structured exit strategy. The ITL provides time-bound regulatory relief (typically 6 to 24 months) to test new products before scaling under full compliance.

This regulatory progression from sandbox to supervised live testing not only supports innovation but also contributes to policy evolution. The feedback and data collected during this phase are expected to help DFSA fine-tune its tokenization regime and shape future guidance.

A Measured Approach to Innovation

DFSA’s tokenization sandbox complements its broader digital asset framework, which includes regulations on investment tokens (2021), crypto tokens (2022), and stablecoins (2024). By segmenting its approach and focusing the sandbox specifically on regulated asset tokenization, DFSA continues to carve a distinct regulatory identity within the UAE’s multi-regulator landscape, which also includes ADGM, VARA, and SCA.

With Dubai’s Economic Agenda D33 aiming to position DIFC among the top four global financial hubs by 2033, initiatives like this sandbox not only foster fintech innovation but also promote the development of globally exportable regulatory frameworks.

As the UAE races ahead in shaping the future of Finance 3.0, the DFSA’s sandbox-to-license transition presents a model worth watching.