The UAE’s debut stablecoin has real-world significance

In May, regional carrier Air Arabia became the first UAE airline to accept AE Coin – the country’s debut stablecoin – as a means of payment. The country’s first stablecoin is backed by Mbank and regulated by the UAE Central Bank.

Hot on its heels is another UAE-based stablecoin soon to be launched, backed by three blue chip UAE entities – First Abu Dhabi Bank, investment giant IHC and sovereign wealth fund ADQ – and is also regulated by the Central Bank. 

Sponsors say stablecoins are moving from niche to mainstream with the potential to transform payment systems and even geopolitics. As momentum builds, they argue, more major players are likely to join the list of those adopting these instruments as a legitimate means of wealth storage and transfer. 

Stablecoins are cryptocurrencies, the value of which is linked to other assets, such as traditional fiat currencies such as the UAE dirham or commodities such as gold. USDT, the world’s biggest stablecoin is, for example, pegged to the value of the US dollar.

The link to a fiat currency or real-world asset distinguishes stablecoins from cryptocurrencies such as bitcoin, the value of which is entirely dictated by demand and supply.

The adoption of AE Coin has real-world significance in the UAE, where millions of low-income expatriates regularly send money home.

According to the World Bank, the UAE ranks among the top 10 countries globally for outbound remittances. Stablecoins, which slash fees and settlement times, mean disruption for incumbents but bode well for financial inclusion and regional competitiveness. 

Globally, stablecoins have hitherto operated in a regulatory grey zone, hindered by vague and inconsistent rules. But the UAE has moved to close the gap.

Last summer, its Central Bank introduced regulations that classify stablecoins as “payment tokens”. Issuers must obtain licences, maintain adequate reserves and undergo regular audits.

Tether, which created USDT, is in the process of launching an AED stablecoin.

And Ripple, a major US-based blockchain company, has secured a licence from the Dubai Financial Services Authority, enabling it to offer regulated crypto payment services in the UAE. 

Dubai companies can now use the RLUSD, a stablecoin developed by Ripple, for services including payments and treasury management.

Buy crypto has been blighted by scams, volatility and the pump-and-dump culture of memecoins, which means the industry is struggling to win over a sceptical public. 

Three years ago, the collapse of Terra, marketed as an algorithmic stablecoin, wiped out $40 billion in investor value and shook confidence across the crypto ecosystem.

Algorithmic stablecoins use algorithms, not a fiat currency, to maintain a stable value. Terra held its target price of $1 per token by tying it to another stablecoin, Luna, and using an algorithm to burn or “mint” Luna tokens to maintain Terra’s value. A sudden sale of Terra tokens caused the algorithm to fail. The currency briefly lost its peg to the dollar, triggering a mass sell-off by users. 

Today, algorithmic approaches are less popular. The most popular, the Dai stablecoin, has a market cap of just $5 billion, compared with USDT’s $155 billion. 

It remains to be seen whether USD-backed versions will continue to dominate or whether more local currency-backed alternatives – like AE Coin – will gain traction. Given that the dirham is pegged to the US dollar, the difference may feel negligible for some end-users.

But from a government and geopolitical perspective, the stakes are significant. In a multipolar world, the UAE’s position as a neutral financial bridge becomes increasingly strategic. Stablecoins issued within the UAE may attract countries wary of routing transactions through US financial channels.

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Government-backed stablecoins should be safer by design, offering credibility and regulatory clarity. But they also raise concerns about government oversight and state control — which goes against the foundations of decentralised finance. 

Stablecoins, however, solve a real-world problem rather than chasing the next hype cycle.

Unlike traditional financial institutions, which require paperwork, approvals and physical branches, stablecoins need only an internet connection and a digital wallet. This allows anyone to send and receive money without recourse to a bank, anywhere in the world.

Banks themselves are dipping their toes further into the world of decentralised finance and are exploring stablecoins as a means of streamlining cross-border payments. 

In February, Standard Chartered said it had joined forces with crypto companies to launch a stablecoin pegged to the Hong Kong dollar. Other financial institutions, such as Bank of America, PayPal and Stripe, have either launched stablecoins or have made their intentions known. 

First Abu Dhabi Bank could be joined by Zand Bank, a privately owned UAE digital institution that has ambitious plans to launch its own dirham-backed stablecoin, while logistics heavyweight DP World is developing a multi-currency stablecoin in partnership with international financial institutions.

What was once a niche experiment is becoming a crowded – and competitive – space.

Justin Harper is an award-winning business journalist and editor with more than 20 years of experience in London, Singapore and Dubai