Cryptocurrency adopters have long known that digital, decentralized finance (DeFi) is going to be significant to the future of money. The rest of the world appears to be catching up.

Even legacy institutions have begun offering investors access to crypto assets, while central banks across the globe are seriously exploring digital currencies. The current combined value of all crypto coins, such as Bitcoin and Ethereum, currently hovers around $1 trillion USD.

Exactly how cryptocurrencies will integrate into mainstream society remains an open question. Some territories have opted for full-scale adoption. Others remain more cautious. This uncertain tangle of responses can be difficult for crypto companies to unpick, acting as a barrier to the sector’s maturation, and leaves investors hesitant.

Dubai is taking a progressive stance, leveraging its existing qualities as an overlapping finance and technology hub to cultivate a stable environment that nurtures DeFi innovation, while smoothing crypto’s volatility – in the hopes of building a framework that works for everybody.

“Those banks are now being joined by some of the most recognizable names in digital finance.”

Bridging the gap

Web3 businesses, such as those in crypto and blockchain, have started forming clusters. According to research by Forex Suggest, the UAE is one of the top three locations with the most blockchain startups.

Investors and developers are looking for places that have the infrastructure and forward-thinking momentum to sustain their ambitions. Locations like Dubai, with its established financial hub and progressive environment, are attracting attention. The city has long acted as a gateway between east and west, acting as a conduit for trillions of dollars in capital. So far, 17 of the world’s 20 biggest banks have a base in the Dubai International Finance Centre (DIFC) economic free zone. This is part of a wider network of Web3 enabling ecosystems including the DMCC, Dubai World Trade Centre, Dubai Future District and Dubai Internet City, each designed to support growth and investment.

Those banks are now being joined by some of the most recognizable names in digital finance: Binance, Coinbase, and crypto.com have all relocated to Dubai. Traditional institutions with DeFi offerings such as Brevan Howard, Galaxy Digital and Komainu have also made their base in the emirate.

In part, companies are attracted by the same qualities that bring any other business to Dubai – 0% corporation tax in free zones, 0% income tax, and comprehensive bi- and multi-lateral tax treaties. But those in the crypto world are also drawn to the advantages of clustering with the wider financial and business ecosystem.

Such close proximity to established investors offers a plethora of opportunities for funding, as well as a route to mainstream partnerships. DIFC-based portfolio managers invested $151.4 billion in 2021. 32% of FinTech deals and 49% of funding across the Middle East and North Africa (MENA) was focused in the UAE the same year.

But capital is only one reason the crypto community is embracing Dubai. The emirate is also cultivating a supportive regulatory environment.

Evolving regulations

Regulating cryptocurrencies is a major challenge. On one hand, it is a rapidly developing, innovative sector that needs support. On the other, assets are volatile and unpredictable – investors need protection. The Virtual Assets Regulatory Authority (VARA) was established to thread that needle.

VARA is the first dedicated virtual assets regulator in the world. It acts as a single regulatory contact for virtual assets actors across the emirate’s mainland and free zones, excepting the DIFC, the region's financial hub, where oversight sits under the well-established Dubai Financial Services Authority. VARA works closely with the dedicated Crypto Centre in the Dubai Multi Commodities Centre (DMCC) free zone, home to over 400 crypto firms, and the Dubai World Trade Centre (DWTC).

“The Virtual Assets Regulatory Authority (VARA) was established to thread that needle.”

In keeping with digital finance best practice, VARA uses a blockchain ledger to ensure accountability, market transparency, and cybersecurity. Blockchain is the underlying technology of cryptocurrencies, maintaining an immutable record of every transaction.

VARA is also working in close collaboration with digital finance leaders like Chainalysis, Elliptic, AnChain, and Confirm to develop a regulatory framework using a tech-friendly ‘Test-Adapt-Scale’ model. The aim is to establish a replicable, evidence-backed template which could become the gold standard in establishing global digital economy regulations.

This regulatory ecosystem forms a supportive environment in which crypto companies can flourish. But capital access and progressive regulations only go so far. For tech companies to thrive, they need talent.

Investing in technology

Dubai already has a knack for attracting tech talent from across the world. In its 2022 Digital Cities Index, The Economist placed Dubai in the top 10 for digital finance. It’s currently home to over 1,000 companies in the metaverse and blockchain sector, contributing $500 million to the UAE economy. The city hosts major AI, blockchain, and web3 events like Binance Blockchain Week.

The Dubai Metaverse Strategy aims to capitalize on this momentum, growing the sector to support more than 40,000 jobs by 2030, adding $4 billion to Dubai’s economy in five years. The city also stands to benefit from the UAE’s National Program for Coders, which aims to attract 100,000 entrepreneurs, owners of enterprises, and start-ups specialized in coding over the next five years.

Both programs promise to grow an already deep pool of talent for virtual asset companies to draw from.

Forging the future of digital assets

The digital assets sector remains nascent. But 13 years from the launch of BitCoin, it’s clear that it’s here to stay. And with interest growing from established finance and government, cryptocurrencies may well deliver on their promise to change the face of money.

For that to happen, the boundaries between traditional and digital, finance and tech, public and private need to come down to encourage cross-pollination. And that’s why crypto is embracing Dubai.