As GCC countries look to harness new forms of financial technology (fintech), expand services and improve financial inclusion, governments are embracing decentralised finance (DeFi) and attracting cryptocurrency companies. DeFi – peer-to-peer financial services with no central authority or intermediary involved in trading, lending and investing – is seen by GCC countries as an opportunity to diversify their economies and embrace Web3 technologies, such as blockchain, the internet of things and artificial intelligence. The global DeFi market is forecast to grow at a compound annual growth rate of 42.6% from 2022 to 2030, with its value exceeding $232bn by 2030, according to a January 2023 report by economic consultancy Zion Market Research.
Regulatory Progress
Developing the DeFi sector will require transparent regulations to attract foreign companies. In April 2023 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 2023 the Registration Authority of Abu Dhabi Global Market (ADGM) formally released a legislative framework for distributed ledger technology that targets disclosures, insolvency and governance structures. Prior to these developments, 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 various challenges facing the sector, while simultaneously promoting the integration of cryptocurrencies into the global economy.
Bahrain hopes to develop an ecosystem for cryptocurrency companies, having implemented crypto-asset regulations for licensing. This allowed for cryptocurrency exchange Binance to officially launch its first platform in the GCC in the kingdom in January 2023.
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.
Six of the top-10 countries driving cryptocurrency adoption in 2023 were located in the Central/ Southern Asia and Oceania region, which made up 19.3% of the cryptocurrency market, according to blockchain data platform Chainalysis’s “2023 Geography of Cryptocurrency Report”. The region ranked second in the study, after North America (24.4%). The MENA region had the sixth-largest cryptocurrency economy of any region studied, with an estimated $390bn in on-chain value received between July 2022 and June 2023.
Within the MENA region, Turkey ranked fourth globally in raw transaction volume in 2023. Saudi Arabia led in year-on-year transaction growth with a 12.0% increase in July of that year. Other countries have also seen increased cryptocurrency adoption, with Morocco and Iran ranking 20th and 28th, respectively. The UAE is also emerging as a centre for cryptocurrency with significant activity in DeFi protocols, due to its innovation-friendly regulatory frameworks, and attracts businesses and entrepreneurs from around the world.
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