Metaverse is seen as the next significant evolution of the internet, moving away from text-based websites towards shared, overlapping 3D worlds in which users interact via avatars. It is used for a variety of purposes, including socializing, events, gaming, commerce, and even work.
Dubai, the commercial hub of the United Arab Emirates, has emerged as the region’s leading hub for the virtual asset industry.
Recently, the company Binance, which leads the world’s largest cryptocurrency exchange, and FTX Europe, established regional headquarters in Dubai, where they have already received their virtual asset licenses. Bybit, Crypto.Com and BitOasis have also started operating in Dubai.
Dubai never settles for anything less than first place when it comes to development, which is why it adopted its first digital asset law on March 11, 2022, the Dubai Law No. 4 of 2022 on the Regulation of Virtual Assets.
Regulatory Authority
The law provides that the Dubai Virtual Assets Regulatory Authority (VARA) will be responsible for licensing and regulating the sector in mainland Dubai and Free Zone territories (excluding DIFC). This body is competent according to law to regulate, supervise and control virtual asset services and will work in coordination with the Central Bank of the UAE and the Securities Authority.
Overview of the Law
The Virtual Assets Law only lays the groundwork. As such, the definitions used are quite broad. For example, the term ‘virtual asset’ is defined as: “a digital representation of value that can be traded, transferred or used digitally as an exchange or payment tool or for investment purposes, including virtual tokens and any digital representation of value or any other value determined by the Authority in this regard”. This definition would include cryptocurrencies, non-fungible tokens (NFTs), as virtual assets.
The law also establishes that the authority is tasked with organizing and establishing the rules and controls that govern the conduct of virtual asset (VA) activities, including administration, clearing, and settlement services, as well as classifying and specifying types of virtual assets.
Who can practice?
According to the law, it is forbidden for anyone in the Emirate to participate in activities without the authorization of VARA. The person wishing to practice any of the VA activities must establish a presence (settle) in Dubai to conduct business.
General Prohibitions and Penalties
While the scope is broad, the Virtual Assets Act creates a clear blanket prohibition on engaging in any activity that is subject to the scope of VARA without authorization. These activities are: virtual asset platform operation and management services; exchange services between virtual assets and currencies, national or foreign; exchange services between one or more forms of virtual assets; or virtual asset transfer services.
We must add to the current, non-exhaustive list of activities that will be regulated: the services of custody and administration of virtual assets; virtual asset portfolio related services; or services related to the offer and trading of virtual tokens.
The acts that constitute a violation of the provisions of this law as well as the fines imposed on a violator, will be determined by a decision issued by the board of directors of the Dubai World Trade Center.
In addition to the fine sanction, the VARA may take any of the following measures against the violator: suspend the permit for a period not to exceed six months; or cancel the permit and coordinate with the competent business licensing authority in the Emirate to cancel the business license.
We look forward to the publication of more detailed regulatory rules in the near future. In the meantime, the Metaverse, Cryptocurrency and Cybersecurity laws are constantly evolving and in case of any doubt, you contact us. It will be a pleasure to help you.