UAE Major Regulatory Upgrade: DeFi and Web3 Officially Included Under Central Bank Regulation

The Federal Decree No. 6, which incorporates Decentralized Finance (DeFi) and Web3 projects into the Central Bank regulatory framework, will officially take effect in the UAE on September 16, 2025. The law stipulates that DeFi platforms engaged in payment, trading, lending, and other businesses must apply for a license, with violators facing fines of up to 1 billion dirhams (approximately 272 million USD). Additionally, businesses are given a one-year grace period until September 2026 to complete compliance adjustments. This initiative marks a key step for the UAE in the regulatory field of digital assets, filling the legal gap in DeFi and potentially reshaping the competitive landscape of the global crypto market.

Regulatory Framework Analysis: From “Code is Law” to Comprehensive Compliance

The core breakthrough of Federal Decree No. 6 lies in completely overturning the long-reliant legal defense logic of “code is law” in the DeFi field. According to Articles 61 and 62 of the decree, any protocol, DeFi platform, middleware, and infrastructure provider operating within the UAE must apply for the appropriate license from the Central Bank of the UAE (CBUAE) as long as they involve businesses such as payment, exchange, lending, custody, or investment services. This means that even a fully decentralized exchange, if its smart contracts involve stablecoin exchange or liquidity routing services, will also fall under regulatory scrutiny. For example, a DEX supporting USDT trading may need to undergo capital adequacy and anti-money laundering reviews just like traditional financial institutions.

The regulatory framework designs a layered compliance mechanism. For self-custodial wallets used by individual users, the law still allows free operation; however, if enterprises provide payment or transfer services through such wallets, they must strictly assess regulatory obligations. It is noteworthy that the decree sets a transition period until September 2026 for existing projects, while also committing to complete license approvals within 60 days, a level of efficiency that is quite rare in traditional financial regulation. From a technical perspective, the regulatory scope also covers blockchain infrastructure such as cross-chain bridges, oracles, and middleware, demonstrating the regulators' deep understanding of the Web3 technology stack.

Legal expert Irina Heaver commented that this is “the most influential regulatory change in the Middle East.” In fact, the issuance of the decree underwent a two-year incubation period during which the Central Bank of the UAE had multiple consultations with mainstream CEXs like Coinbase. Compared to the rules of the Dubai Virtual Assets Regulatory Authority (VARA) in 2023, the new law first clarifies the legal status of DeFi protocols, avoiding a “one-size-fits-all” ban and establishing a controllable innovation environment through a licensing system.

Key Regulatory Provisions for DeFi in the UAE

Effective date: September 16, 2025

Maximum fine: 1 billion dirhams (approximately 272 million USD)

Transition period: Compliance to be completed before September 2026.

License Approval: Decision to be made within 60 days

Regulatory subjects: DeFi protocols, DEX, wallet services, cross-chain bridges, oracles

Exemption Scope: Personal Self-Custody Wallet

Special Terms: Sharia-compliant digital asset

In-depth Analysis of Industry Impact: Opportunities and Challenges of DeFi Projects

For DeFi projects operating in the UAE, the new regulations bring both compliance certainty and increased operating costs. Taking the decentralized lending protocol Aave as an example, if the stablecoin deposit business on its platform is classified as a “savings service,” it will need to apply for the corresponding financial license. This may lead to governance token holders needing to vote on whether to establish a legal entity, or even adjust protocol parameters to meet capital requirements. Similarly, DEXs like Uniswap that involve tokenized physical asset trading may face disclosure obligations similar to traditional brokers.

From the market structure perspective, the new regulations may accelerate mergers and consolidations in the DeFi sector. Smaller protocols may choose to exit the UAE market or be acquired by larger projects due to the difficulty of bearing compliance costs. Meanwhile, leading protocols such as Curve and Compound have the opportunity to attract more institutional users through the compliance process. It is worth noting that the decree specifically mentions “digital storage value” services, which directly targets stablecoin issuers. Currently active Arab coin projects in the Middle East may need to reassess their reserve audit arrangements.

Industry practice shows that some projects have begun to adjust their technical architecture. Some DeFi protocols are exploring “regulatory-friendly” designs, such as separating compliance-related business flows into specific smart contracts or using zero-knowledge proof technology to achieve a balance between privacy protection and regulatory transparency. Kokila Alagh, founder of Karm Legal, pointed out: “Companies must now conduct legal risk assessments on every line of code as they do with traditional financial businesses.” Although this shift increases development costs, in the long run, it will help DeFi integrate into the mainstream financial system.

Global Regulatory Comparison: How the UAE Seizes the Crypto High Ground

Comparing the new regulations in the UAE with the European MiCA (Markets in Crypto-Assets Regulation) reveals significant differences in regulatory philosophy between the two regions. MiCA adopts a “technology-neutral” principle, categorizing regulations based on function rather than technological form, with full implementation expected after 2026; whereas, the UAE decree directly designs rules based on the characteristics of blockchain technology and takes effect immediately. In terms of penalties, MiCA imposes a maximum fine of 5% of annual turnover, while the UAE has set an absolute cap of 1 billion dirhams, which is more deterrent for large projects. Additionally, the UAE specifically incorporates Islamic finance compliance requirements, paving the way for tokenized Sukuk (Islamic bonds); last year, global Sukuk issuance reached $65.6 billion, and it is expected to grow to $25 trillion by 2029.

The reactions of major crypto hubs in Asia are also worth noting. The Monetary Authority of Singapore (MAS) introduced the Payment Services Act as early as 2020 but still takes a wait-and-see approach towards DeFi; the Hong Kong Securities and Futures Commission mainly regulates security tokens, with a more lenient approach towards utility tokens. The comprehensive approach in the UAE may encourage more projects to relocate their operational entities to special zones like the Dubai International Financial Centre (DIFC). Data shows that since 2024, over 50 Web3 projects have established regional headquarters in the UAE, including the well-known cross-chain protocol Polygon and the privacy project Aztec.

Marina D'Angelo, the European head of DLT Law, believes that “the UAE has redefined the regulatory boundaries for digital assets through this move.” This forward-looking layout is closely related to its economic transformation strategy - the UAE plans to increase the share of the digital economy to 20% by 2030. Initiatives such as the “Aber” digital currency project in collaboration with Saudi Arabia and the Dubai blockchain strategy are all laying the foundation for creating a global crypto hub. However, the clarity of regulations also brings new challenges, and how to balance innovation and risk still needs to be observed.

Compliance Practice Guide: Corporate Strategies and Implementation Pathways

In the face of the new regulatory environment, Web3 companies operating in the UAE need to immediately initiate a three-phase compliance plan. The first phase (by October 2025) should involve a comprehensive business diagnosis to clarify which services fall under the “licensed activities” defined by the decree. For example, CertiK, which provides smart contract auditing services, may not require a license, but platforms like Opensea that integrate wallet payment functionalities must apply for payment institution licenses. It is recommended that companies hire local compliance consultants to create regulatory mapping, especially for business lines involving tokenized real-world assets (RWA) that need to be closely examined.

The second phase (before March 2026) requires the completion of technical architecture adjustments. This includes: 1) embedding a transaction monitoring module in the smart contract to meet anti-money laundering requirements; 2) establishing independent legal entities for regulated businesses; 3) developing digital asset products compliant with Shari'ah law, especially targeting the Islamic finance market. The technical team should note that the regulations require all crypto transactions to maintain records for at least 5 years, which may necessitate expanding the existing database or migrating to compliant cloud services.

In the third phase (before September 2026), it is necessary to submit a license application and prepare for operational inspection. The fast approval channel provided by the Central Bank of the UAE only takes 60 days, but the preparation of materials often requires more time. Key documents include: legal opinions on the project white paper, risk assessments of the token economic model, cybersecurity audit reports, etc. For DeFi projects, proof of decentralization must also be prepared, which may involve legal recognition of the DAO governance structure. Companies that successfully obtain a license will be able to participate in the Central Bank's regulatory sandbox and enjoy policy benefits such as tax incentives.

The regulatory transformation in the UAE is far from an isolated event; it is an important milestone in the evolution of global digital asset governance. As DeFi gradually moves from the fringes of experimentation to the financial mainstream, the dynamic balance between regulation and innovation will be key to the healthy development of the industry. By establishing clear rules, the UAE provides certainty for businesses and sets a reference paradigm for other emerging markets. In the next two years, as compliance deadlines approach, we may witness a “great reshuffle” in the DeFi industry—those projects that successfully adapt to the new regulations will gain broader development space, while participants who refuse to change may be forced to exit the historical stage. Ultimately, where this transformation leads decentralized finance will depend on the collective wisdom of regulators, developers, and users.