While the US government is actively fighting the expansion of the crypto sector, and other jurisdictions have dragged their heels when it comes to rulemaking, some countries have adopted a pro-crypto stance. These locations have enacted clear and sensible regulation that enables crypto and blockchain businesses to start and thrive, leading to an influx of Web3 startups. Among this small handful of favourable jurisdictions, Dubai stands out as one of the most attractive.
Regulation tends to lag the development of new technologies, and governments are always racing to catch up. Some are faster, and less hostile, than others. To date, only a small number of jurisdictions have provided the frameworks within which crypto businesses can operate with confidence.
The UK, for example, recently became the latest country to announce a surprisingly sensible regime for blockchain companies. Prime Minister Rishi Sunak has stated his intention that the country will become a hub for crypto. In contrast, the US has been actively hostile to crypto businesses, meaning that the world’s largest economy is now an unattractive location for Web3 entrepreneurs.
Singapore, Canada, Estonia and Switzerland are four other examples of countries that have positioned themselves as crypto-friendly, with forward-thinking legislation for blockchain companies, often including tax breaks.
Dubai is another location that has proven extremely popular among crypto entrepreneurs and startups. Let’s take a look at why this city in the United Arab Emirates has become such a magnet for blockchain talent.
Dubai: An Economic Powerhouse
Over the course of the last 20 years, Dubai has transformed itself into a financial and tech hub. Blockchain and DeFi was a natural step that combines both of these competencies. The Dubai Blockchain Strategy is an official initiative, launched by H.H. Sheikh Mohammed bin Rashid Al Maktoum, with the aim of fostering innovation in the crypto sector and creating a centre for the fast-growing Web3 industry.
The strategy has proven effective, with a multi-pronged approach that has made Dubai one of the most attractive destinations for crypto businesses in the world.
One of the big attractions of life in Dubai – for anyone, regardless of whether they’re involved in the crypto sector – is the tax regime. Businesses in Free-Trade Zones (FTZ) pay zero corporation tax, and individuals pay no income tax. That’s a huge draw for high earners who would potentially end up paying 30-50% on their income back at home, but that’s only the start.
An Established Financial Centre
Following decades of infrastructure growth in the 1970s-1990s, Dubai launched the Dubai Internet City (DIC) and Dubai Media City (DMC) in 2000, followed by the Dubai International Financial Centre (DIFC) in 2004. These are free zones designed to attract companies from these sectors, with various incentives such as tax breaks and simplified regulation.
The zones have played a pivotal role in Dubai’s development, and the city is now a gateway for trillions of dollars passing between East and West. 17 out of the world’s largest 20 banks have a presence in the DIFC, making it a global hub for the financial sector. Given the need for both major banks and favourable regulation for on- and off-ramping funds to the crypto sector, it’s hardly surprising that exchanges are establishing a presence there. Binance, Coinbase and Crypto.com have all found a home there, but it’s not just western companies. WazirX, India’s largest exchange, has a base in Dubai too.
Crypto has been a thorn in the side of global regulators, with a small number of exceptions. Regulators are used to centralised financial organisations and systems. Crypto works in a completely different way, and it has been hard for agencies to engage with it – and many seem to have no real interest in doing so quickly. There is a fine line to tread between facilitating innovation and protecting investors, and regulators have been unwilling to nail their colours to the mast.
Of course, the first regulators to get it right would give their jurisdictions a huge advantage. Dubai didn’t shy away from the challenge, and came up with the Virtual Assets Regulatory Authority (VARA): the first dedicated digital asset regulator in the world.
VARA provides a single regulatory framework for crypto asset businesses across Dubai, with the exception of the DIFC, which is regulated by the Dubai Financial Services Authority. The organisation works closely with other relevant bodies, streamlining the regulatory process for digital asset companies.
This approach has clearly been successful. At a time when US regulators are hounding Binance out of the country, the exchange has been able to secure an Operational Viable Product (MVP) licence from VARA. Ripple is another great example. While the SEC has been (largely unsuccessfully) dragging Ripple Labs through the courts in the US, Dubai’s financial regulator, the Dubai Financial Services Authority, approved XRP for use within the DIFC, meaning that licensed virtual asset organisations within the free zone will be able to integrate XRP into their services.
Thanks to the personal, business and regulatory advantages, many hundreds of crypto businesses are now based in Dubai. That kind of success begets its own momentum, as the city becomes known for its key role in the digital asset movement, and more global businesses establish a base there.
Neither is it just companies. A recent survey found that two-thirds of adults in UAE are interested in investing in crypto within the next five years. The forward-thinking approach, large number of crypto businesses, and low-tax regime means it’s a great location for crypto investors and traders.
The result of this cluster of regulatory steps and a welcoming environment has been the creation of a vibrant crypto ecosystem that encompasses all aspects of the blockchain space. As well as exchanges and blockchain services companies, Dubai’s leadership has sought to foster the most cutting-edge elements of Web3. For example, Dubai’s Metaverse Strategy seeks to make the city one of the biggest metaverse economies in the world. Overall, the stated aim is to attract at least 1,000 blockchain and metaverse businesses to Dubai by 2030, with 40,000 jobs.
In short, Dubai’s great strength is not just smart regulation and warm words, but concrete steps that make a meaningful and practical difference to businesses and individuals involved in the blockchain economy.