Abu Dhabi Global Market's sandbox programme opens applications for decentralised finance

Move gives FinTech companies the chance to foster innovation in the UAE's financial services market

The Abu Dhabi Global Market says decentralised applications can support the development of a strong Web3 foundation. Victor Besa / The National

The Abu Dhabi Global Market opened its fifth Regulatory Laboratory (RegLab) sandbox programme and has invited FinTech organisations to pitch their ideas on decentralised applications.

The latest cohort, which will run under the ADGM's Financial Services Regulatory Authority, will focus on decentralised finance (DeFi), Web3 and tokenisation.

This will give FinTech businesses the opportunity to foster innovation within the UAE financial services market, the financial free zone said on Wednesday.

Participants will have direct access to the Digital Lab, the FSRA's online sandbox environment.

A sandbox is generally defined as a testing ground for applications. The entry period for the fifth programme, which is open to new entrants and existing companies, will close on July 15.

“As the financial services sector continues to evolve globally at a rapid pace, the FSRA needs to remain agile in policy thinking and regulatory tools to address emerging risks while supporting the opportunities that DeFi can bring," said FSRA chief executive Emmanuel Givanakis.

"To this end, the formulation of an appropriate regulatory framework will be a key to ensuring trust and confidence in the deployment of DeFi protocols.

"Through the RegLab programme, we are committed to working closely with the Web3 community of talent in tapping the potential of DeFi."

Web3 is the latest iteration of the World Wide Web, with blockchain, decentralisation, openness and greater user utility among its core components.

The value of the Web3 market is expected to be valued at about $6.2 billion in 2023, and is expected to grow at a compound annual rate of 44.6 per cent from 2023 to 2030, according to Market Research Future.

Meanwhile, DeFi can potentially replace middlemen, such as brokers and banks, in the financial system. It is generally considered to be a safer way to conduct transactions based on blockchain technology.

The global DeFi platform market is expected to hit $507.92bn, a compound annual growth rate of about 44 per cent in 2028, according to Emergen Research.

Tokenisation is a process where a piece of sensitive data, such as a credit card number, is replaced by a surrogate value known as a token, according to Gartner.

This can prevent fraud and reduce risk from data breaches as the sensitive data still generally needs to be stored securely at one centralised location for subsequent reference. It also requires strong protections around it.

The global tokenisation industry is expected to grow by a compound annual growth rate of about 20 per cent to $5.6bn by 2026, from $2.3bn in 2021, according to research company Markets and Markets.

The UAE is increasing its focus on future technology. Dubai's Virtual Assets Regulatory Authority said earlier this month that it had entered into the metaverse after establishing its Metaverse HQ, making it the first regulator to have a presence in the emerging digital space.

"The development of robust and efficient DeFi services can help develop a strong foundation for Web3 by creating an effective mechanism for managing the transfer of value between decentralised Web3 services," the ADGM said.

While DeFi has the potential to positively affect the financial services sector, it has some associated risks. The FSRA recently issued a discussion paper to establish dialogue with the industry.

"Any future regulatory framework must ensure the relevant risks are mitigated, in order to fully realise the potential benefits of DeFi," it said.