The regulation of stablecoins in Dubai sits at the intersection of multiple authorities and evolving rulebooks. Over the last three years the UAE has moved from a largely permissive stance to a carefully tiered regulatory framework that treats fiat-referenced stablecoins (often called “FRVAs” or payment tokens) as a distinct, high-risk category requiring licensing, governance and robust consumer protections. Counsel advising issuers, vendors or operators of a stablecoin platform in Dubai must therefore map the project against several rulebooks such as Virtual Assets Regulatory Authority (VARA), Central Bank of the United Arab Emirates (CBUAE), Dubai Financial Services Authority (DFSA) and federal instruments and design both operational and contractual safeguards accordingly.
JURISDICTION WITHIN UAE
Regulation depends on where the activity is carried out, who issues the token, and the token’s characteristics. Key regulators being Virtual Assets Regulatory Authority (“VARA”), Central Bank of the UAE (“CBUAE”) and Dubai Financial Services Authority (“DFSA”). At the federal level, the UAE has also issued resolutions and Cabinet decisions to harmonise VA activity across the country; these instruments impose AML/CFT obligations and set broad policy parameters that feed into the VARA/CBUAE/DFSA rulebooks.
CLASSIFICATION OF FRVA vs OTHER TOKENS
The initial legal issue concerns how the asset is classified. A stablecoin designed to maintain parity with a fiat currency often referred to as a fiat-linked or fiat-referenced virtual asset falls within the most regulated category under Dubai’s Virtual Assets Regulatory Authority (VARA) framework. Issuers of such tokens must comply with governance and custodial obligations set by the regulator. In contrast, tokens serving utility functions or those based solely on algorithmic mechanisms may fall into different classifications, and certain types such as privacy-focused or specific algorithmic models might even be restricted. Proper classification is critical because if a token conveys characteristics similar to an investment or financial instrument, it could also trigger the application of securities or derivatives regulations.
LICENCING REQUIREMENTS
Issuance of, or services in respect of, FRVAs require licensing and pre-approval. Regulators expect issuers and service providers to demonstrate. Entity and local presence: VARA and the CBUAE typically require a recognised corporate entity in the relevant jurisdiction (Dubai mainland, DIFC, or UAE mainland) for licensing; Reserve backing and custody rules: Clear rules for how reserves are held, audited, and segregated. For fiat-backed stablecoins the regulator will require on-balance sheet safeguards, custodial arrangements, and independent attestations/audits of reserves at regular intervals; Governance and operational controls: Policies for issuance/redemption, price-stability mechanisms, governance bodies, and contingency plans for de-pegging events; AML/CFT and KYC: VASP operators must implement robust KYC, transaction monitoring, suspicious activity reporting and comply with UAE AML law (and any applicable international standards); Consumer protection and disclosures: Clear T&Cs, risk disclosures, and limits on marketing claims that could mislead retail users.
CROSS BORDER AND PAYMENT CONSIDERATION
The CBUAE is especially concerned about payment use: non-AED stablecoins are subject to restrictions when used for domestic payments, and cross-border flows raise additional licensing and prudential questions. We must consider whether the stablecoin will be used for UAE domestic payment rails (which triggers strict CBUAE rules), or only for settlement between non-UAE counterparties, which may allow different approaches but still requires careful AML and sanctions screening.
CONTRACTUAL AND VENDOR IMPLICATION
When engaging a vendor to build a stablecoin platform, the contract must clearly define compliance responsibilities and legal safeguards. It should include a regulatory compliance covenant, requiring the vendor to ensure that the platform’s design fully complies with applicable laws and to cooperate with audits or regulatory inquiries. Indemnity and liability clauses must expressly exclude regulatory fines or third-party claims from standard limitation provisions, holding the vendor accountable for any breaches arising from its actions. The agreement should also grant the issuer audit and access rights, including source code escrow, reserve verification, and emergency operational control. Finally, a robust change-of-law and exit clause is essential to manage regulatory shifts, enabling suspension or termination of services if licenses are revoked or legal conditions change.
KEY RISKS AND MITIGATION
Major regulatory risks include (i) operating without the requisite licence; (ii) inadequate reserve backing or misleading reserve disclosures; (iii) classification mishaps that convert a token into a regulated security; and (iv) AML/CFT failures. Mitigants are straightforward: select the right issuer jurisdiction (VARA vs DIFC vs mainland), design conservatively (full fiat reserves held with regulated custodians), implement rigorous KYC/AML tooling, and document governance and audits comprehensively.
PRACTICAL STEPS FROM A LEGAL STANDPOINT
A practical roadmap for a legal opinion should include: (1) a regulatory map identifying the applicable regulatory and licence type; (2) a functional assessment of the token (peg, redemption, permissioned vs permissionless); (3) an operational gap analysis (reserves, custody, AML, disclosures); (4) recommended contractual clauses for vendor/issuer agreements; and (5) an implementation checklist for licence application and ongoing compliance reporting.