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UAE stablecoin usage up 55% year on year

New regulations drive market momentum

2024 is proving to be a landmark year for stablecoins in the UAE. Through the first half of the year, the value of stablecoins received by services, particularly on centralised and decentralised exchanges (CEX and DEX) in the country totalled over $9.8billion, a 55 per cent spike over the $6.3billion received over H1 2023.

Consequently, stablecoins now account for the largest share of crypto activity in the UAE (51 per cent), which stands significantly higher than both Bitcoin (19 per cent) and Ether (9 per cent), which are typically considered to be the most recognised and popular cryptocurrencies.

“Stablecoins have already done impressively well through the first half of the year. And with the Central Bank of the UAE releasing its payment token services regulation, which clarifies the rules for issuing, custodying and converting payment tokens in UAE, this would potentially pave the way for broader participation and innovation,” said Arushi Goel, Head of Middle East & Africa Policy at Chainalysis.

Interestingly, retail-sized transfers ($10,000 and below) accounted for a meagre six per cent of value received, while professional-sized ($10k to $1million), institutional-sized ($1million to $10million) and large institutional-sized ($10million and above) accounted for 40 per cent, 34 per cent, and 20 per cent respectively. It is, however, important to note that in terms of volume of stablecoin transfers in the UAE, retail sized transactions were by far the majority (93 per cent). This indicates a highly active market for retail investors who are likely using stablecoins as a means to trade in and out of other virtual assets.

Also notable is the fact that over three quarters (78 per cent) of stablecoin transfers tracked by Chainalysis through H1 2024 took place on (CEXs). By comparison, according to Chainalysis’ 2024 Geography of Crypto Report, between July 2023 to June 2024, just 47 per cent of overall crypto transactions in the UAE took place on centralised exchanges.

Offering insight into these findings, Goel said, “In line with global trends, stablecoins are helping expand the crypto user base, with centralised exchanges serving as a convenient and regulated on-ramp for individuals and businesses who have not traditionally utilised virtual assets. Merchant services are growing, and both people and businesses are now using centralised exchanges for business payments and remittances. The significant proportion of stablecoin activity on CEXs suggests they are being increasingly used for settlements and transfers. This contrasts with DEXs, where activity is typically centred around trading.”

In the UAE, where the dirham is pegged to the US Dollar, it comes as no surprise that the top three most popular stablecoins are also dollar-pegged. Tether (USDT), which enjoys the largest market cap among all stablecoins globally, is also highly favoured in the UAE, where through H1 2024, it accounted for 61 per cent of all stablecoins transacted. Dai (DAI) — a decentralised stablecoin running on Ethereum (ETH), which unlike USDT and USDC utilises an algorithmic rather than an asset-based approach to stay dollar-value linked — placed a distant third in terms of transaction volume.

“The concentration of stablecoin investments in the UAE around the world’s most popular variants indicates that a lower bar to entry and more frictionless experience helps draw in investors. It will therefore be very interesting to see the market reception to Dirham-backed stablecoins, which is expected to become a reality, with the AE coin receiving in-principle approval from the Central Bank,” added Goel. “Once these gain widespread market acceptance, among both institutions and consumers, the benefits they bring could be truly impressive. Remittances, eCommerce transactions, real estate purchases, the payment of government services, and tokenised assets are just a few of the high impact use cases. And as the crypto ecosystem has demonstrated time and time again, the potential for ongoing innovation and transformation of the financial ecosystem can be unprecedented.”