Abu Dhabi Skyline view from the Marina Mall

Abu Dhabi ‘DLT Foundations Regulations’ targets DAOs, Web3

The Abu Dhabi Global Market (ADGM) has received a new regulatory framework to govern the operations of Web3 organizations after nearly a year of deliberations with stakeholders.

Dubbed the Distributed Ledger Technology (DLT) Foundations Regulation, the framework will provide regulatory direction for Web3 service providers in the zone. The rulebook makes provision for decentralized autonomous organizations (DAOs), DLT foundations, and legacy foundations transitioning to Web3.

From the provisions of the regulation, entities can float DLT Foundations in the ADGM without the typical frictions faced in other jurisdictions. Firms must simply submit a charter containing the details of the foundation’s assets, tokens, and governance procedure for consideration.

Other details to be forwarded to the ADGM include a whitepaper and a separate document containing plans for a DLT framework. To gain regulatory approvals, firms are expected to comply with benign requirements, including “DLT Foundation” in their operational names and naming between 2-16 individuals in the governing council.

The framework, enacted by the ADGM’s Board, was accompanied by additional rules of applicable fees and accounting standards. Per the accompanying rules, application fees for entities seeking to be DLT Foundations are pegged at $1,470 and nominal initial asset value at $25,000, with the rules providing fees payable for missed deadlines.

The ADGM has been working on the framework since early 2023, launching a public consultation in April to seek the opinion of industry stakeholders and associations. In its submission, the ADGM noted that the framework is expected to assist the free trade zone in achieving uniformity of operations.

“The RA does not envisage the need for a bespoke data protection/cyber security regime to be built into the new regime,” read the consultation paper. “Rather, the RA proposes addressing such risk by including a general compliance provision in the new regime.”

Already, the ADGM has begun using DLT in its courts to streamline the dispensation of justice for participants. To underscore the commitment to Web3, the ADGM and Hub71+Digital Asset teamed up to roll out a $2 billion fund to support DLT firms in the region.

Building on the five guiding principles

A closer inspection of the ADGM’s new DLT framework reveals an affinity to the five “guiding principles” for Web3 unveiled by the Financial Services Regulatory Authority (FSRA) in 2022.

For the FSRA, the first step is the establishment of a robust legal framework with other principles revolving around inclusiveness, innovation, and proper risk management.

“ADGM’s rules and regulations will be principle-based and supplemented by specific and detailed rules, where appropriate, to guide market conduct and industry participants,” said the FSRA.

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