GCC countries are increasingly embracing decentralised finance (DeFi) and attracting cryptocurrency firms as they seek to harness financial technology (fintech) innovation, expand services and boost financial inclusion. DeFi, characterised by peer-to-peer financial services without central authorities, is seen as a means for economic diversification and the adoption of Web3 technologies like blockchain, the internet of things and artificial intelligence. Projections vary, but conservative estimates expect the global DeFi market to grow at a compound annual rate of 11% from 2025 to 2030, surpassing $87bn in value by 2030, according to a 2024 report by economic consultancy Mordor Intelligence.
Regulatory Progress
Developing the DeFi sector will require transparent regulations to attract foreign companies. In April 2023 the Registration Authority of Abu Dhabi Global Market (ADGM) proposed a legislative framework for distributed ledger technology that targeted disclosures, insolvency and governance structures. That same month, the UAE’s Securities and Commodities Authority started accepting licensing applications for companies to provide cryptocurrency services after crafting a mandatory licensing regime that mirrored the regulatory framework published by Dubai’s Virtual Assets Regulatory Authority in February 2023. In November 2022 ADGM launched the Middle East, Africa and Asia Crypto and Blockchain Association, which is working in partnership with major global cryptocurrency exchanges, such as Binance and Crypto.com, to address the challenges facing the sector, while promoting the integration of cryptocurrencies into the global economy.
In 2020 the Central Bank of Oman issued a warning, stating that it did not recognise cryptocurrencies as legal tender. However, despite this cautionary approach, the sultanate has seen significant progress in regulating digital assets. In February 2023 the Capital Market Authority announced its intention to introduce a Virtual Assets Regulatory Framework to create a comprehensive and supportive environment for virtual assets.
Ease Of Transactions
With high interest rates in the US and inflation weakening many fiat currencies, cryptocurrencies and the decentralised exchanges on which they are traded allow users in emerging markets to limit their exposure to macroeconomic pressures and ease transaction flows. DeFi offers significant advantages, as it lowers fees due to the lack of intermediaries, enhances transparency and security with blockchain technology, and creates seamless transactions among accounts and entities with no centralised entity.
Cryptocurrencies as an asset class have seen a significant decline since the second half of 2021, prompting banks and financial institutions to question their sustainability. This was seen most prominently after the collapse of the cryptocurrency exchange FTX in November 2022. Western markets remain skittish, not least after international media reported in May 2023 that Binance had commingled customer funds with company revenue in 2020 and 2021.
The total value of global cryptocurrency activity increased significantly between the fourth quarter of 2023 and the first quarter of 2024, reaching higher levels than those seen in the crypto bull market in 2021. Between July 2023 and June 2024 MENA accounted for 7.5% of the global cryptocurrency value, with Turkey leading the region at $136.8bn in value received, while the UAE and Saudi Arabia were frontrunners in the GCC.
To improve security, several companies have launched stablecoins, which are pegged to a reference asset such as fiat currencies, exchange-traded commodities or other cryptocurrencies like Bitcoin or Ethereum. If Gulf countries can continue to build on their regulatory momentum and attract DeFi, and companies and citizens in emerging markets continue to embrace cryptocurrencies and the DeFi model, there are significant opportunities for Gulf-based exchanges to become global leaders in the emerging technology.
