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Indian Web3 startups migrate to the UAE

The co-founder of one of MENA’s top tech policy firms explains why Indian crypto and Web3 companies are being drawn to Dubai

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Dubai's Museum of the Future: the emirate is attracting Indian startups with its forward-thinking approach to Web3 regulations

Last year, India’s Web3 startups received $600 million worth of investments, and this year the figure has risen to $890 million. This windfall signaled a watershed moment for India’s emergence as a global hub for the next generation of the internet. 

However, optimism was short-lived as the Indian government’s budget in February included a levy of 30 percent tax on income from digital asset transfers, and a one percent tax on digital asset transactions starting in July. 

The Ministry of Finance also revealed plans to explore a central bank digital currency as an alternative to private digital currencies.

The Reserve Bank of India (RBI) has just sowed further public doubt about cryptocurrencies and digital assets. This month’s statements by RBI leaders have painted cryptocurrencies as a threat to India’s monetary, financial, and macroeconomic stability, even labeling the currency a ‘Ponzi’ schemes that should be banned. 

Following the examples of Singapore and the UK, the Securities and Exchange Board of India also recommended that celebrities be prohibited from endorsing crypto products − but did not go so far as banning advertisements.

Due to the UAE’s increasingly eastward-looking foreign policy approach, diplomatic and economic ties between India and the UAE have grown closer

Another damaging government move against crypto and the broader Web3 ecosystem was the recent suspension of rupee deposits via the instant real-time payment system, the National Payments Corporation of India-owned Unified Payments Interface (UPI). 

The UPI suspension leaves few options for crypto exchanges to accept deposits. The opposition to crypto is set against a backdrop of lagging Web3 regulation. Although India is home to the third largest number of non-fungible token (NFT) companies globally – behind the US and Singapore – it lacks regulations governing the issuance of tokens, management of token-based economies, and emerging Web3 governance structures.

Government policy has been bad for business. Due to its tax policies, crypto exchanges have seen transaction volumes decrease by more than 70 percent. Regulatory uncertainty has also pushed the crypto and Web3 sector to search for pastures new. Enter Dubai, which in March established its Virtual Asset Regulatory Authority, the world’s first dedicated crypto regulator. Dubai’s initiative also comes as Singapore increases its crypto licensing requirements, making the UAE even more attractive to Indian crypto and Web3. 

Indian crypto migration started in April with a few prominent startups, like WazirX and Polygon, announcing moves to Dubai. Now, more small and large companies are following suit. BigBuc, CGCX, PCEX, Instadapp, Unifarm, and Zebpay among those considering moves.

Creating a safe place for Web3  

The UAE’s push to provide Web3 regulatory certainty is attracting startups, talent, and investment while also positioning it as an emerging global Web3 hub. 

Despite Abu Dhabi Global Market’s work on regulating virtual assets as early as 2018, the approval of Dubai’s Virtual Asset Regulation Law grabbed the attention of Indian startups. It created a dedicated regulator and established an intention for future licensing and regulation of other Web3 use cases. 

The UAE’s business-friendly pitch to crypto and Web3 is creating certainty for migrating Indian startups in terms of what they can build while offering a sandbox approach to emerging Web3 use cases. 

Its approach has been to move forward with light touch regulations that create certainty while leveraging agile governance to address uncertainty. 

The Dubai Metaverse Strategy estimates crypto and Web3 could add $4 billion to Dubai’s economy alone and create 42,000 virtual jobs. 

Building a Web3-ready workforce

Up until March 2020, when the coronavirus pandemic forced GCC employers to adopt flexible work models, the modern-day version of the 1900s punch card system was alive and well. Nearly every office door in the GCC is flanked by a biometric attendance system. The pandemic provided the UAE with a glimpse of what the future remote-first, distributed, borderless Web3 workforce might look like. It exposed how critical labour market reforms to enable the future of work would be to solidifying the UAE’s ambitions as an emerging global technology hub. 

The pandemic led the UAE to update its labour law to introduce workforce mobility and flexibility and long-term residency reforms to attract digital nomads, freelances, entrepreneurs, and high net worth investors. East and Southeast Asia’s slow response, and the Russia-Ukraine conflict have also promoted a Web3 brain gain. 

Whereas the Arab world has historically bemoaned its brain drain, shrewd regulatory competition and global events have allowed the UAE to unwittingly assemble one of the world’s deepest Web3 workforces. 

Location and a free trade agreement 

Due to the UAE’s increasingly eastward-looking foreign policy approach, diplomatic and economic ties between India and the UAE have grown closer since 2015. The countries’ tech and startup ecosystems have also converged. Indian startups have capitalised on the UAE’s diaspora market, progressive digital economy regulations, and investor interest. 

The signing of the UAE-India Comprehensive Economic Partnership Agreement (CEPA) bilateral free trade agreement is also fast-tracking the ecosystem convergence and migration.

Is the UAE’s early Web3 leadership defensible?  

While the UAE’s early Web3 regulatory leadership has provided a head start, it’s unclear if it’s defensible against the backdrop of global cooperation on Web3 regulations. India has announced it’s close to finalising a consultation paper on cryptocurrencies to inform national regulations and contribute to the dialogue on global regulations. 

Progress on Web3 regulation in India, and globally, will likely slow the current Web3 migration which puts pressure on the UAE and the entrepreneurs it wants to court. It must shore up its early leadership as an emerging global Web3 hub.

Wes Schwalje is co-founder of Tahseen Consulting, one of the MENA’s top tech policy firms. He has advised 10 unicorns and 11 US-listed public companies

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