UAE approves stablecoin; Bahrain debuts BTC-linked fund

As stablecoins become the lifeblood of the digital asset world and a critical bridge to traditional finance, more countries are seeing homegrown solutions that cater to the specific needs of their people. The latest is the United Arab Emirates, where the central bank granted approval for AED Stablecoin to issue the first-ever regulated stablecoin in the country.

Elsewhere in the Middle East, one of Bahrain’s largest banks has launched a BTC-linked product that claims to offer 100% protection against the digital asset’s price drops.

UAE’s first stablecoin

The UAE has become a digital asset haven in recent years. A Chainalysis report found that its digital asset sector grew 42% in the year ending June 2024, four times faster than the region’s average, to make it the third-largest market in the Middle East after Turkey and Saudi Arabia. This growth has bubbled into the country’s first stablecoin.

AED Stablecoin LLC announced this week that it had received in-principal approval from the Central Bank of the UAE (CBUAE) to launch AE Coin, the first stablecoin pegged to the dirham.

The issuer notes that AE Coin will be fully backed by transparent and regularly audited fiat currency reserves. It combines the best of both worlds—the stability of fiat currency with the agility of blockchain technology, said AED Stablecoin.

The company touts AE Coin as a multifaceted digital currency that allows users to save, invest and make day-to-day payments. Businesses can also make and receive instant payments to their partners and suppliers at very low costs. The company intends to get into e-commerce payments, partner with merchants and introduce a mobile wallet app for users in the near future.

It also plans on diving into decentralized finance (DeFi), integrating with DeFi platforms to allow holders to lend, borrow and earn interest without financial intermediaries. The UAE has become the Middle East’s DeFi hotspot; according to the Chainalysis report, only Israel has a higher share of digital asset activity taking place on DeFi protocols than the UAE.

“As the first-ever stablecoin regulated by the Central Bank of the UAE, AE Coin will be revolutionizing the digital currency landscape, providing users with an unparalleled blend of financial freedom, unwavering stability, and top-tier security,” commented Ramez Rafeek, the AED Stablecoin general manager.

The company didn’t reveal which blockchain its stablecoin would be issued on. However, it’s presumably a private ledger, which the company described as “state-of-the-art blockchain technology” with “multi-layer encryption.”

AED Stablecoin may soon have to fend off competition from Tether, the stablecoin leader. In August, the platform revealed that it was seeking a regulatory nod to launch a dirham-pegged stablecoin.

BTC product with no downside in Bahrain

In Bahrain, one of the country’s largest banks has announced the launch of a BTC-linked product that guarantees no downside despite BTC’s notorious fluctuations.

The National Bank of Bahrain (NBB) partnered with ARP Digital—an institutional digital asset firm founded by an ex-Goldman Sachs (NASDAQ: GS) partner—to launch the product, which it says targets the growing demand for structured digital asset products from the region’s institutional investors.

The bank, the oldest local lender, said the product will offer investors access to an uptick in the price of BTC while guaranteeing 100% protection against any dips. It’s designed for “risk-averse investors seeking exposure to bitcoin while fully insulating their principal investment from market fluctuations.”

NBB didn’t reveal the inner workings of its product. However, it’s most likely structured around options trading, where the bank will purchase put options that allow it to sell its stash at a predetermined price within a set timeframe. While these options offer protection against the downside, they have costly premiums and limit the upside in case BTC shoots up. The bank has accounted for the limitations, informing interested investors that the profits are “capped within a predetermined threshold.”

“With our expertise in digital assets and NBB’s extensive presence in the financial sector, we have developed a product that facilitates access to [BTC] within a secure framework. This structured investment opens new horizons for investors looking to adopt a measured approach to digital assets,” commented Abdullah Kanoo, one of the founders of ARP Digital.

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