Dubai prohibits privacy coins and imposes stricter regulations on stablecoins amid crypto overhaul

Dubai Implements Ban on Privacy Tokens in Financial Hub

The Dubai Financial Services Authority (DFSA) has prohibited the use of privacy-focused cryptocurrencies within the Dubai International Financial Centre (DIFC). This move is part of a comprehensive overhaul of the region’s crypto regulations, which also shifts the responsibility for token approval to individual companies and introduces a stricter definition for stablecoins. The regulator cited concerns over anti-money laundering (AML) and sanctions compliance as key reasons for the ban.

Effective January 12, the updated Crypto Token Regulatory Framework positions the DFSA as an enforcer of international compliance standards, moving away from the direct approval of specific digital assets.

This restriction comes at a time when privacy coins like zcash (ZEC) are experiencing renewed interest, and monero (XMR) recently reached a record high. The ban covers all activities related to trading, promotion, investment, and derivatives involving privacy tokens within or from the DIFC.

Elizabeth Wallace, associate director for policy and legal at the DFSA, explained that the decision was necessary for Dubai to maintain alignment with global regulatory standards. She noted, “Privacy tokens are designed to obscure transaction histories and ownership, making it virtually impossible for firms to meet Financial Action Task Force (FATF) requirements when dealing with these assets.”

According to Wallace, FATF guidelines require firms to identify all parties involved in a crypto transaction, including both the sender and recipient. She emphasized, “Engaging with privacy tokens would prevent firms from fulfilling most anti-money laundering and financial crime obligations.”

In addition to banning privacy coins, the DFSA’s rules also forbid regulated entities from utilizing or offering privacy-enhancing tools such as mixers, tumblers, or any technology that conceals transaction details.

Dubai’s stance differs from Hong Kong, where privacy tokens are technically permitted under a risk-based licensing system, though they are rarely listed. Meanwhile, the European Union has taken the strictest approach, effectively excluding privacy coins and mixers from regulated markets.

Redefining Stablecoins

The revised regulations also place a spotlight on stablecoins. The DFSA has narrowed the definition of “fiat crypto tokens,” limiting the category to tokens that are pegged to government-issued currencies and backed by high-quality, liquid assets capable of meeting redemption requests even during market stress.

Wallace pointed out that algorithmic stablecoins lack transparency regarding their mechanisms and redemption processes. She stated that the DFSA’s stricter criteria are in line with other regulators who prioritize asset quality and liquidity.

Algorithmic Stablecoins Under Scrutiny

When asked about Ethena, a rapidly growing algorithmic stablecoin, Wallace clarified that it would not be recognized as a stablecoin under the DIFC’s framework, though it would not be outright banned. “Within our system, Ethena would be classified as a crypto token, not a stablecoin,” she explained.

Industry-Driven Token Approval

The updated framework introduces a significant change in how crypto assets are approved for use within Dubai’s financial free zone. Instead of maintaining a list of approved tokens, the DFSA now requires licensed firms to evaluate and document the suitability of the crypto assets they offer, with ongoing reviews of these decisions.

This shift was influenced by feedback from the industry, reflecting a more mature market rather than a relaxation of oversight. Wallace noted, “Firms indicated that the market and their own understanding of financial regulation had evolved, and they wanted the autonomy to make these decisions themselves.”

She added that this approach is consistent with international regulatory trends, where the responsibility for asset selection is placed on firms rather than regulators.

Dubai’s regulatory philosophy now emphasizes that the future of crypto within its financial center lies with asset managers who can justify and oversee their offerings. Regulators are less focused on approving individual tokens and more intent on ensuring that companies are accountable for their choices in a market where transparency, responsibility, and compliance are essential.