UAE’s virtual asset regime becomes benchmark as tokenization drives next licensing wave

As global regulators tighten their approach to virtual assets, Soham Jethani, Partner at Septten Advisors, believes the UAE is moving from early regulatory adopter to international benchmark, with tokenization set to define the next phase of licensing activity across the UAE, MENA and Asia.

Jethani’s view is rooted in experience dating back to 2017, when he worked with young entrepreneurs in Singapore’s ICO, crypto and blockchain startup ecosystem. At the time, Singapore was emerging as a crypto hub partly because it had not yet imposed a dedicated regulatory framework, while Abu Dhabi Global Market (ADGM) was beginning to build one of the region’s earliest virtual asset regimes.

Today, Septten advises clients across licensing, compliance, corporate structuring, fundraising, governance, market entry and day-to-day legal operations. Jethani explained, “We help clients navigate the legal and commercial issues that arise when building, financing and scaling companies, including corporate structuring, fundraising, commercial contracts, governance, regulatory strategy, market entry and day-to-day legal operations. The past five years have been exceptionally active when it comes to the digital asset space. But it all started back in 2021 when I was working in Dubai on completely non-tech related licenses, while being intrigued by what was happening in the digital asset space”.

Two jurisdictions shaped the early regulatory landscape: Singapore, which later recognized the need for regulation after scams and rug pulls affected the industry, and Abu Dhabi Global Market (ADGM), which introduced one of the first virtual asset regulatory frameworks in 2018.

ADGM quickly became attractive to virtual asset service providers seeking regulation. While Singapore’s Monetary Authority moved cautiously on licensing, ADGM began regulating and amending its rules as new requirements emerged. By 2022, Dubai’s Virtual Assets Regulatory Authority, VARA, had been established.

Soham notes, “VASPs who first came to Dubai and Abu Dhabi thought regulation would be easy, but they soon realized that they would need to meet stringent requirements. In ADGM out of six licensed crypto exchanges, only three survived, ADGM was geared towards financial services and institutional players such as BlackRock, while VARA was initially geared towards more OG crypto service providers.”

Septten now represents licensed VASPs across VARA Dubai, the UAE Capital Markets Authority and ADGM.

The UAE license as a regulatory badge of honor

Jethani says that although virtual asset license passporting is not yet a global reality, a VARA or ADGM license carries weight internationally.

He explains, “If you are regulated in ADGM you can with some effort passport to DIFC (Dubai International Financial Center) in Dubai and CMA (Capital Markets Authority) in UAE because VASPs in ADGM are fully regulated by the FSRA. Similarly, if you are regulated in CMA, it is easier to have conversations in Bahrain and Saudi Arabia.”

He notes that international regulators increasingly respect the UAE’s regulatory architecture. He explains, “I am doing so many licensing applications not just in the UAE but internationally. A VARA license is like a badge of honor, if VARA has given you a license, then there must be something there.”

He adds, “To date VARA has given out 54 licenses but there are many VASPs who have applied and withdrawn or many who are still in the queue and this number is much higher than 54.”

As banks and financial institutions expand into crypto, Jethani expects them to face a different but still demanding journey. Soham notes, “There are currently financial service institutions who are expanding their offering to include crypto. A bank will be treated much differently than a VASP. Regardless, it will be a journey. With banks it will be like adding a new product line.”

He gives the example of Binance, which now holds three distinct licenses in ADGM. Soham explains, “Virtual asset regulators in the UAE are not simple, they are well trained, well experienced in the process and well exposed to various unique business models in the crypto space. They are not scared, nothing fazes them, whereas financial regulators in other countries have less experience.”

For Jethani, regulation ultimately comes down to consumer protection. He explains, “The regulated VASPs, like regulated banks, must deal with compliance requirements and corporate governance because, at the end of the day, people need to trust where their money is sitting. Most people in the world today are still putting their money in a bank, and only a small percentage want to be in total control of their finances. It is all about trust. So, if crypto entities want to deal with people’s money, then they must safeguard it, and so they will be put through a series of tests for checks and balances.” 

That means licensing can take months, and in some cases close to a year.

New entrants face higher barriers in the UAE

Jethani expects the UAE to remain a virtual asset licensing hub but says not every applicant will qualify. Across ADGM, VARA, CMA and DIFC, he believes only well-led organizations with credible business models will be able to operate in a regulated manner.

Applicants must meet economic substance requirements, including opening a UAE office, hiring locally, placing senior leadership and compliance teams on the ground, and maintaining regulatory capital as specified by each regulator, depending on the license.

He views a VARA license as part of a marathon: a training ground that can prepare VASPs for future licensing in Europe and, eventually, the USA.

For some firms, the UAE’s banking environment is also a draw. He explained, “An EU firm that was interested in being licensed in DIFC was very impressed that UAE banks allowed VASPs to open accounts and on and off ramp between fiat, crypto and stablecoins.”

US regulation remains uncertain

On the USA’s GENIUS Act and CLARITY Act, Jethani views the GENIUS Act as narrow and focused mainly on stablecoins, while the CLARITY Act remains stuck in Congress. With midterms approaching, he says the outlook depends heavily on political dynamics and Senate support.

Soham notes, “If it does pass it will happen really fast and then the USA will finally be able to do what the UAE has been doing since 2018.”

If it passes, the CFTC and SEC would have clearer infrastructure and guidance for regulating VASPs. He notes, “They will have somewhere they can go. But if not, and Trump advocates fail in upcoming elections, things might go back to the way they were before, and everything changes.”

In Europe, Jethani says VASPs are increasingly looking toward the UAE. He notes, “For one thing they are curious and secondly there are being forced to because they are being pushed out, same as what happened to VASPs in Singapore.”

Tokenization is rising, but licensing remains complex

While requests for tokenization licenses are increasing, Jethani says the process is more complex than many applicants expect. The key distinction is between tokenized assets and security tokens.

He explains, “If you are tokenizing a car or watch it is different than tokenizing a bond, or share or fractionally owned asset. For security tokens they follow the same process that are already in place in the financial regulatory system.”

A company that wants to tokenize listed shares must still go through the full IPO or securities process. Jethani also points to the question of how tokenized assets will be sold. He explains, “If you are tokenizing a share of Apple, it’s a security, goes through the normal financial service regulation, with a wrapper, and this doesn’t change what it is.”

The same applies when a physical asset is fractionalized. A car sold as one object is different from a car split into 10,000 tokens, where multiple people own tradable interests that may be treated like securities.

This complexity makes ADGM increasingly attractive because it sits at the heart of financial regulation, while VARA’s tokenization framework remains connected to the Capital Markets Authority.

Soham adds, “The CMA rules for tokenized virtual assets as securities only got clarified in January of this year. There is a whole underwriting process that CMA has mandated, and it is a complicated one.”

Within the VARA regime, properties have already been tokenized through initiatives involving Ctrl Alt, Prypco, Dubai Land Department and others, but Jethani says these assets are not securities.

He explains, “Binance chose to acquire three licenses from the FSRA in ADGM for these reasons. Soham recommends that big entities take the same road as well. Binance has one entity for broker dealer services, and exchanges that offers not only spot trading but derivatives trading, and its second entity for custody which is also a recognized clearing house offering custody and a central securities depository service, and finally its third license as a clearing house.”

He adds, “I believe the next license Binance will be working on is RIE (Recognized Investment Exchange) which will allow it to trade traditional securities as well, if that is not already in the pipeline.”

Jethani believes ADGM’s track record will attract both VASPs and traditional financial players interested in tokenized finance, although he would not be surprised to see VARA and CMA develop a similar path.

According to Soham, ADGM now has a proven track record in this space, and this will attract VASPs and traditional financial players who are interested in tokenized finance. But he adds, he will not be surprised if we soon see something similar from VARA Dubai in cooperation with CMA.

The future will mix traditional finance and pure-play crypto

Looking ahead, Jethani expects more global VASPs and traditional businesses to seek licensing in the UAE. Locally, he points to Daman Virtual Assets, the virtual assets arm of Daman Securities, and the growing activity of institutions such as Standard Chartered.

He also expects more consolidation in crypto exchanges as the market matures. He states, “Big players are acquiring the smaller ones or at least trying to. Additionally, the new businesses are now building the crypto infrastructure rather than a crypto exchange.”

For now, the jurisdictions where he sees the strongest licensing momentum are the UAE, followed by Bahrain, Hong Kong, Malaysia and the EU.