Comprehensive Overview of Dubai's Virtual Asset Regulatory Framework: From RWA Definition to Compliance Path

Core Regulatory Agencies and Framework

The Dubai Virtual Assets Regulatory Authority (VARA) and the Dubai Financial Services Authority (DFSA) are the two main regulatory bodies in the field of virtual assets in Dubai.

VARA was established in March 2022, responsible for regulating cryptocurrency-related laws in Dubai and collaborating with institutions such as the Central Bank of the UAE to formulate relevant policies. DFSA is the regulatory authority of the Dubai International Financial Centre (DIFC), and its cryptocurrency token regime came into effect in November 2022.

The regulatory framework of VARA includes laws, regulations, rule manuals, guidelines, and related documents. The DFSA framework covers multiple aspects, including tokenization, crypto tokens, etc.

VARA's Specific Requirements for Asset-Backed Virtual Assets (ARVA)

1. Pre-issuance Approval

• The issuance of ARVA falls under the highest regulatory category, and the issuer must obtain a VARA license.
• Each ARVA issuance must obtain approval from VARA before proceeding.
• Reserve assets must be held in full, kept by a licensed custodian, and may not be re-pledged or encumbered.

2. Information Disclosure

• A white paper must be published before issuance, including general disclosure content and additional disclosure requirements for RWA.
• The ongoing disclosure requirements include publicly disclosing the quantity and value of ARVA in circulation every month, as well as the value and composition of reserve assets.

3. Capital Requirements

A VASP should maintain its paid-in capital of no less than 2.5 million dirhams or 2% of the average market value of its reserve assets over the past 24 months, whichever is higher.

4. Transfer of Ownership

If ARVA represents direct ownership of RWA, the issuer must ensure that the ownership is legally established and that the ownership of RWA is transferred synchronously when the token is transferred.

5. Redemption Mechanism

Holders must be allowed to redeem in Dirhams or other equivalent forms disclosed in the white paper, and redemption requests must be processed within a reasonable time frame.

6. Audit and Reporting

• An independent audit of the circulating ARVA and reserve assets will be conducted every 6 months.
• The senior management must submit an audit accuracy certification to VARA.

7. Multiple Rules Compliance

Issuers must also comply with the requirements of the four core rule manuals regarding company, Compliance and risk management, technology and information, and market behavior.

DFSA Tokenization Regulatory Sandbox

The DFSA will release the "Tokenized Regulatory Sandbox Guidelines" in March 2025, providing a clear compliance path for RWA tokenization. The participation process is divided into two phases:

1. Submit a Letter of Intent: The enterprise needs to engage in tokenization business, excluding cryptocurrencies and stablecoins. Existing DFSA licensed institutions can expand their business.

2. Innovative Testing License (ITL Tokenisation Cohort): A DFSA license is required, and participation in the program can only occur after completing the authorization process.

Dubai Real Estate RWA Case

Dubai has implemented several real estate RWA projects, involving various tokenization models and regulatory bodies. These cases demonstrate Dubai's innovation and regulatory flexibility in the RWA sector.