It is becoming increasingly apparent that the UAE’s early promotion of blockchain’s disruptive potential is paying off.
Over the past year, the world has become increasingly open-minded with respect to digital assets and cryptocurrencies. This has been demonstrated by growing acceptance and wider mainstream adoption of cryptocurrencies, not just at the retail level but at the institutional level as well.
As always with progress, there remains many sceptics. However, even the most stubborn of these would have had to question their position following US President Joe Biden’s March 9 executive order on Ensuring Responsible Development of Digital Assets. This executive order addresses the need for a supportive framework to encourage the development of cryptocurrencies in the US.
With the White House noting that there are about 40 million Americans involved in trading and investing in cryptocurrencies, it is increasingly apparent that the US does not wish to be left further behind by international competition, such as the UAE, that already has a significant head start.
As part of the initiatives to diversify the UAE economy, the government recognised early on the disruptive potential of blockchain and actively sought to create a supportive ecosystem. While others hesitated, the country’s leadership and regulators took a number of positive steps to develop a hub to support growth and innovation in the blockchain industry.
Through a combination of specific and precise regulations, government adoption of blockchain initiatives and sovereign wealth fund investments, the foundation for a solid ecosystem was created and growth was nurtured.
The initial results were manifest in the development and launch of several local home-grown companies with significant potential.
However, this is not the only measure of the UAE’s success in the industry. It is also demonstrated by the fact that many large international companies and established industry stakeholders have chosen to relocate and set up their headquarters in the Emirates.
These industry leaders have been attracted by a supportive ecosystem with solid regulation and massive growth potential, and they are being drawn in more significant numbers by the day.
One such entity is cryptocurrency exchange Binance, which recently received licences to begin operating in Dubai and Abu Dhabi. The fact that it has been attracted to the UAE and is actively engaged in the country’s growing digital space is possibly the strongest testament that the ecosystem is poised to succeed.
I recently caught up with Changpeng Zhao, chief executive and founder of Binance, to get a perspective on the company’s specific initiatives in the region as well as the broader themes in the blockchain and cryptocurrency landscape.
The UAE and the Middle East and North Africa region have growing young populations with increasing IT literacy, which encouraged Binance to put a strategy in place to capitalise on this potential. For example, through the Binance Labs incubation programme, it is looking for early stage projects from around the world.
Binance organises meet-ups between founders, helps them to set up connections and also provides UAE-based entrepreneurs with necessary funding, advice and resources to take their projects to the next level, Mr Zhao says.
The company also developed its own blockchain called the BNB Chain, which has gained considerable market share and is run by the cryptocurrency community, Mr Zhao says.
Since its launch in 2020, BNB Chain has grown at a fast pace; more than 2.5 billion transactions have been processed from 137 million unique addresses, reaching a daily transaction high of 16.26 million in November 2021. At peak time, it had more than two million daily active users, Mr Zhao says.
The main advantages of BNB Chain are low transaction fees, ease of use and low barriers to entry, while cryptocurrency regulation is essential for the industry’s healthy growth, he adds.
“Adoption is still very low,” he says. “Despite the huge awareness gains that crypto has seen over the last year or so, mainstream audiences are put off by the perceived risk of dealing with an unregulated industry when it comes to their finances. Responsible and trustworthy exchanges should welcome regulation as it can only be a net benefit to the industry.”
The fast-moving cryptocurrency and blockchain industry is also promising to revolutionise the employment sector, with many enthusiasts predicting that smart contract engineers will become a staple job at most companies, similar to data scientists and artificial intelligence developers 10 years ago.
As more brands get involved in Web3, there will be a requirement for people who understand and can design the systems that enable it, Mr Zhao says.
People who already have a coding background will have an advantage, but the key thing will be to understand how blockchain and cryptocurrency work at a fundamental level and see how they can solve challenges in innovative ways, he adds.
These are sentiments that the UAE appears to have embraced, allowing it to take the lead globally when it comes to promoting blockchain’s disruptive potential.
Mohammed Altajir is the founder and project custodian of Tratok Portal
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FFP EXPLAINED
What is Financial Fair Play?
Introduced in 2011 by Uefa, European football’s governing body, it demands that clubs live within their means. Chiefly, spend within their income and not make substantial losses.
What the rules dictate?
The second phase of its implementation limits losses to €30 million (Dh136m) over three seasons. Extra expenditure is permitted for investment in sustainable areas (youth academies, stadium development, etc). Money provided by owners is not viewed as income. Revenue from “related parties” to those owners is assessed by Uefa's “financial control body” to be sure it is a fair value, or in line with market prices.
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Killing of Qassem Suleimani
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Alwyn Stephen says much of his success is a result of taking an educated chance on business decisions.
His advice to anyone starting out in business is to have no fear as life is about taking on challenges.
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"Nothing and no-one can stop you from succeeding with the right work application, and a little bit of luck along the way.”
Mr Stephen sells his luxury fragrances at selected perfumeries around the UAE, including the House of Niche Boutique in Al Seef.
He relaxes by spending time with his family at home, and enjoying his wife’s India cooking.
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Yahya Al Ghassani's bio
Date of birth: April 18, 1998
Playing position: Winger
Clubs: 2015-2017 – Al Ahli Dubai; March-June 2018 – Paris FC; August – Al Wahda
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Investors: Eight first-round investors including, Beco Capital, 500 Startups, Dubai Silicon Oasis, Hala Fadel, Odin Financial Services, Dubai Angel Investors, Womena, Arzan VC
The Great Derangement: Climate Change and the Unthinkable
Amitav Ghosh, University of Chicago Press
