Token-happy investors were no doubt pleased by Monday’s announcement of the UAE’s plans to regulate initial coin offerings (ICOs) come early 2019. And while these plans could be seen as a way to create an alternative to IPOs hit by weak equity markets and low oil prices as Reuters suggests, that’s just part of the story.
The UAE has always had an ambitious blockchain agenda, and the regulation of ICOs as securities offerings is a key aspect of its plans.
“It’s a way to push forward the idea of having Dubai and the UAE as a hub for future innovations and technologies,” says Mohamed Taysir, CEO and co-founder of Cairo-based consultancy, Destiny. “By making tokens securities, investors may be encouraged to reconsider ICOs and crypto tokens,” he says. “But they need to be protected.”
Taysir adds that regulation will open up the market for “normal people” to invest. “There aren’t a lot of cities that are welcoming of blockchain that can claim the same importance in international trade as Dubai.”
Under the new regulations currently being drafted, assets sold through ICOs will be considered “securities” by the UAE authorities. While they are a popular fundraising tool for startups to raise capital, the highly volatile character of tokens—the life blood of the ICO—and the lack of a clear regulatory environment has made them the most controversial aspect of the crypto ecosystem. It’s a state of affairs that has not been popular with institutional investors.
“We want to invest in coins that are regulated,” said chairman and managing director of Realm Investments, Sultan Ali Lootah, speaking at Dubai’s Future Blockchain Summit in May.
Analysts believe that clarification of the muddled regulations of ICOs is a sign of industry maturity and is also likely to speed up regulation in other parts of the world. “Undoubtedly, blockchain-related startups will get a boost,” says Hans Koning, CEO of Vicarium, a service provider to ICOs. “It will also further help the country’s effort to obtain/retain a special position in the international business community.”
While the exact degree of scrutiny is yet to be announced, Koning doesn’t anticipate that the UAE will place a heavy regulatory hand on the market. He says “governance doesn’t mean strict guidelines and regulations,” but rather “creating an environment and a playing field that is fair.”
Earlier this year, the European Union brought cryptocurrency exchange platforms within its anti-money laundering rules, and Malta introduced a regulatory framework for blockchains, offering a legal basis for cryptocurrency, blockchain and ICOs. Dubai, however, has even loftier ambitions. Its grand plan is to be “to be 10 years ahead of other world cities” and a global thought leader in blockchain.
Several high-profile projects have already been announced: a state-issued cryptocurrency was launched in October 2017, and the Emirate wants all applicable government transactions digitized on the blockchain by 2020. This includes visa applications, bill payments and license renewals, accounting for over 100 million documents each year.
But happiness is the ultimate objective, according to the director general of Smart Dubai, Aisha bin Bishr. During a keynote address at the city’s Future Blockchain summit, she emphasized: “We don’t view technology development as [an] end, but the means to spread happiness.”
Someone go tell that to the SEC.