Dubai regulator VARA has set a crypto precedent for the world to follow.

Correction: This article was amended on December 21 to include transmission and settlement services instead of payment and payment services in the list of licenses mentioned in the sixth paragraph.

The Virtual Asset Regulatory Authority (VARA), which oversees cryptocurrency regulations in Dubai, is on track to establish a comprehensive set of rules for crypto service providers in the region.

Established in March 2022 to regulate and develop the Web3 ecosystem in Dubai, VARA issued comprehensive crypto regulatory guidelines for virtual asset service providers (VASPs) in February 2023, less than a year later.

The Virtual Property Guide includes four mandatory regulations, seven activity-specific handbooks, which set out rules for operating VASPs, and one virtual property handbook.

These regulations govern only market participants in Dubai, excluding those operating under the Dubai International Financial Centre, a designated free zone for trade. VASPs must obtain permission from VARA and meet all the requirements of the above-mentioned law books before offering their services.

The regulations require new and existing entities to obtain permission and authorization from VARA before carrying out any activities related to virtual assets. Some of the services that require permission include:

Advisory Services Broker Dealer Services Mortgage Services Exchange Services Lending and Borrowing Services Transfer and Settlement Services Virtual Asset Management and Investment Services

If an organization does not fall into the above categories, it can register directly with VARA. Firms that actively invest their own portfolios in virtual assets and traders with a business capital of more than $250 million must register with VARA.

All licensed and unlicensed service providers must comply with the handbook, and violators will be fined between 20,000 dirhams ($5,500) and 200,000 dirhams ($55,000). The regulations also prohibit the issuance of privacy coins.

Cointelegraph spoke with some key executives at VARA to understand the regulatory body's approach to crypto. Deepa Raja Carbon, managing director and vice-chairman of VARA, told Cointelegraph that the regulator's focus has never been on “separation for the sake of diversity, but on a strong commitment to mutuality and coherence in the global regulatory landscape.”

Today, the Dubai Virtual Asset Regulatory Authority (VARA) launched its first operations in the Metaverse, establishing its headquarters in the dynamic virtual world of The Sandbox. This initiative has created a new model for managing and expanding Dubai's government operations

— Hamdan Bin Mohammed (@HamdanMohammed) May 3, 2022

Regarding the role of stakeholders and the importance of cooperation with existing market players, Vanessa Zuabi, Associate Director of Ecosystem Development at VARA, told Cointelegraph that she regularly participates in roundtable discussions, feedback sessions and collaborative workshops with virtual resources organizations.

“This practical approach ensures that we gain first-hand insights into the complexity of decentralized ecosystems, allowing us to develop robust, development-friendly regulations. It is a symbiotic relationship where we learn from them, and they benefit from a supportive regulatory landscape,” explains Raja.

VARA is setting a precedent.

Raja Carbon discussed the key challenges regulators face when enacting rules around a nascent industry like crypto. She pointed out that attention has been paid to the development of a regulatory framework and regulation book that is comprehensive and in line with international best practices.

According to the Vice Chairman, crafting guidelines for a nascent industry like virtual assets is undeniably challenging. VARA has explored existing frameworks and integrated international best practices where possible.

She added, explaining that VARA has set a global example of how ecosystem regulators and stakeholders can work in partnership:

“Our approach is inherently consultative and collaborative. We engage with a variety of stakeholders – from industry leaders to innovators, from peer regulators to legislators, from investors to the public.”

She added that by working together with Dubai-based entities such as DET [Department of Economy and Tourism] And the DFZC[Dubai Free Zone Council]has developed a unified and flexible framework for the mainland and the various free zones.[DubaiFreeZoneCouncilforMainlandandthevariousfreezoneswe'vecraftedaunifiedandfungibleframework”[የዱባይነፃዞንምክርቤትለሜይንላንድእናየተለያዩየነጻዞኖች፣አንድወጥየሆነእናፈንገጣዊማዕቀፍአዘጋጅተናል።[DubaiFreeZoneCouncilforMainlandandthevariousfreezoneswe’vecraftedaunifiedandfungibleframework”

The Vice Chairman also explained the role of Special Development Zones and their importance in expanding and inviting many business organizations to the region. He pointed out that the establishment of Special Development Zones (SDZs) played an important role in developing VARA's regulatory expertise.

Latest: Dubai regulator VARA shows how authorities, markets can work together – Deputy Chairman

SDZs serve as incubators for innovation, based on bringing virtual assets and traditional financial systems together in one place.

Raja Carbon explains that camaraderie in these zones is very important, because newcomers are not isolated but part of a vibrant community, which together maximizes their potential. She said this model has heightened regulators' understanding of the complexities of the crypto market and influenced a practical and comprehensive approach to building a regulatory framework.

According to the vice-chairman, SDAS act as micro-ecosystems that reflect the larger market and provide VARA with invaluable empirical information and experiences. He added that these zones would allow regulators to refine their strategies and regulations to support innovation and “maintain strong oversight, ultimately fostering a regulatory environment where virtual assets can grow responsibly and sustainably.”

VARA is going to expand its focus on crypto-friendly ecosystems like DeFi and the metaverse.

The virtual asset ecosystem has grown beyond tokens and cryptocurrencies, and the best ecosystems in the sector have grown to form multi-billion dollar industries in the virtual asset ecosystem known as Web3. Decentralized finance (DeFi), metaverse and virtual tokens (NFTs) are some of the niche sectors that have grown to gain mainstream attention in the past few years.

During the last bull run of 2020–2021, NFTs and the metaverse became popular, showing a desire to incorporate and build communities like Meta and Apple. On the other hand, the DeFi ecosystem has attracted the attention of institutional giants like JPMorgan Chase and many others over the years.

Raja Carbone told Cointelegraph that VARA's regulatory philosophy is to connect the flexibility of Web3 sectors like DeFi with the resilience of blockchain and metaverse constants. She stated that VARA is fully aligned with Dubai's Metaverse strategy, which emphasizes the development of the Web3 and Metaverse ecosystems as key drivers of innovation and economic expansion.

“With initiatives to attract more than a thousand companies to the field and support more than 40,000 virtual jobs by 2030, VARA is shaping this regulatory framework for growth and innovation.”

VARA's new regulatory framework positions Dubai and the UAE to become a global crypto hub with favorable operating conditions. A number of crypto firms – including Hex Trust MENA FZE, Trek Labs Ltd TOKO FZE and Komainu MEA FZE – have already obtained operating licenses from VARA, while many others are in the process of obtaining one. Apart from VARA, Hong Kong and the European Union are the only countries with comprehensive regulatory frameworks.

The Dubai Crypto Regulatory Framework introduced in February 2023 mandates all crypto exchanges and service providers to apply for operating licenses by November 17, 2023. As a result, VARA has received over 1,000 applications for registration.

All crypto exchanges and service providers in Dubai have been asked to submit their applications by Nov. 17 for operating licenses for crypto exchanges and for registration of more than 1,000 crypto platforms.

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