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VARA regulates the issuance of stablecoins, and it does so through one of the more demanding parts of its framework.
VARA regulates the issuance of stablecoins, and it does so through one of the more demanding parts of its framework. But not every stablecoin is VARA’s to regulate. A dirham-referenced token used for payment may sit outside VARA altogether, under the Central Bank’s regime. So the first question about any stablecoin is which regulator it answers to, and the second is what that regime requires.
Within VARA’s perimeter, a stablecoin is a form of virtual asset issuance, and the rules split it into two types. A fiat-referenced virtual asset is referenced to fiat currency and is governed by Annex 1 of the Issuance Rulebook. An asset-referenced virtual asset is referenced to other value, such as a basket of assets or a commodity, and is governed by Annex 2 (Virtual Asset Issuance Rulebook, Annexes 1 and 2, current as at 1 July 2026). The two share a spine and differ in their details, and one of the sharpest differences, the capital charge, was drawn out in the companion article “What capital does a VARA licence actually require?”.
The regime each type carries is built around a single promise: that the coin is backed and redeemable. An issuer must maintain the coin’s backing, hold reserves against it, honour redemptions, and submit to independent audit and reporting, each set out as its own Part of the relevant Annex. The reserve rules, examined in the companion article “If my VASP fails, where does my crypto sit?”, go as far as the framework’s language reaches in insulating those reserves from the issuer’s estate. It is a fuller and more prescriptive regime than most VA activities carry, because a stablecoin makes a promise of value that the others do not.
The boundary is where this turns genuinely cross-regulator. The dirham is the national currency, and the regulation of payment instruments denominated in it engages the Central Bank rather than VARA. So a token that references the dirham and functions as a means of payment can fall to the Central Bank’s regime, and the line between the two is the one place in this article that depends on an instrument VARA does not administer. Section IV tests that boundary against the source, and flags rather than asserts anything that cannot be confirmed there.
So this article sets out the two types and how they differ, the backing-and-redemption regime they share, the boundary where a dirham-referenced token passes to the Central Bank, and what the whole picture means for an issuer choosing where to seek a licence and for a holder judging what a stablecoin is worth as a claim.
Both types are stablecoins in the loose sense that each holds its value against something outside itself. The framework separates them by what that something is, and the difference runs deeper than the label.
A fiat-referenced virtual asset holds its value against a fiat currency. On VARA’s side the currency must be one it approves, one that is legal tender and controlled by a central bank not subject to sanctions under the Federal AML and CFT laws (Virtual Asset Issuance Rulebook, Annex 1, Rule I.A.4, current as at 1 July 2026), and it is never the dirham: a coin referencing the dirham is not approved under these rules and stays with the Central Bank (Rule I.A.2, taken up in Section IV). The category is drawn narrowly. It excludes tokens representing an equity claim, central-bank digital currencies, and tokenised bank deposits used only for interbank settlement (Rule I.A.3). What is left is the familiar thing: a coin that holds a stable value against a foreign fiat currency, backed in full by a reserve held in that currency, whose reserve regime was the subject of the companion article “If my VASP fails, where does my crypto sit?”.
An asset-referenced virtual asset references something else entirely. Its value tracks Reference Assets, defined as the real-world assets or the income the coin represents or purports to represent, as approved by VARA (Annex 2, Rules I.A.3 and I.A.5). That is a broader and less liquid base than a single currency, and it can carry a right a fiat coin never does. Where an asset-referenced coin represents a “direct right of ownership of the Reference Asset”, or a fraction of it, the issuer must ensure that ownership right is legally and validly established and passes with the token, that any settlement or title-transfer formalities on the underlying asset are actually satisfied so the transfer takes effect, and that transfers of the token do not outrun legally effective transfers of the asset beneath it (Annex 2, Rule III.B.1). VARA may require a registered lawyer’s legal opinion confirming the position (Rule III.B.2). This is a different instrument from a fiat coin. It can be a claim on, or outright ownership of, a real asset, with all the legal-title machinery that implies.
The capital charge, examined in the companion article “What capital does a VARA licence actually require?”, tracks that difference in structure. A fiat-referenced issuer adds a fixed sum and a percentage of supply; an asset-referenced issuer holds the higher of a fixed sum or a percentage of its reserve value. The fiat coin’s requirement grows with how much is in circulation; the asset coin’s grows with the value of what backs it. The same headline figures, on different denominators, because the two coins are stabilised against different things.
So the types differ in what they reference, a foreign currency against real-world assets or income; in whether they can convey ownership, which the asset-referenced type can and the fiat type does not; and in how their capital scales. What they share is a single spine, the promise that the coin is backed and redeemable, enforced through reserve, redemption and audit rules that reach both. Section III takes that spine up.
The promise both types make is that the coin is backed by something real and can be turned back into it. The framework does not leave that to the issuer’s word. It enforces the promise through three mechanisms working together: backing that tracks supply, a redemption right, and independent verification. The fiat-referenced coin shows the machinery most clearly.
Backing comes first, and it is dynamic rather than a one-time check. Every increase in the circulating supply of a fiat-referenced coin must be matched by a corresponding increase in the reserves, and every decrease by a corresponding decrease (Virtual Asset Issuance Rulebook, Annex 1, Rule III.A.1, current as at 1 July 2026), managed so the reserve movements do not themselves disturb the market (Rule III.A.2), and holding whether or not third parties handle the minting and redemption (Rule III.A.3). Read with the reserve rules examined in the companion article “If my VASP fails, where does my crypto sit?”, which require the coin to be at least fully backed and the reserves held in the reference currency, the effect is that the reserve pool moves in lockstep with the coins in issue. The backing is not a launch-day ratio; it is a continuous equality.
Redemption is the holder’s exit, and it is the strongest single protection in the regime. A fiat-referenced issuer must ensure holders have “the valid legally enforceable right to redeem the FRVA at par” at all times (Rule III.C.1). A redemption request from a holder with a valid client agreement must be completed within one working day, and without any fee (Rules III.C.2 and C.3), the only permitted delay being a narrow one where trading or settlement of the reserves is significantly disrupted by events beyond the issuer’s control, and only until that disruption passes (Rule III.C.2). Par, prompt, and free: the holder’s right to turn the coin back into currency is written to be real and enforceable, not a matter of the issuer’s discretion.
The backing is also verified and insulated. The reserves are subject to audit and reporting requirements under the Annex (Annex 1, Part III.D), and, as set out in the companion article “If my VASP fails, where does my crypto sit?”, must be held segregated and remote from the issuer’s estate to the furthest extent applicable law permits (Rule III.B.4). So the promise is required, checked, and ring-fenced as far as the framework’s reach extends, which is exactly as far as that companion article found that reach to go, and no further.
The asset-referenced coin carries the same spine in its own Part of Annex 2: a rule fixing the coin’s value, a reserve requirement, a redemption Part and independent audit (Annex 2, Part III). But its exit interacts with what backs it. Where the coin conveys a direct right of ownership in the underlying asset (Section II), redeeming can mean effecting a transfer of that asset, with the settlement and title machinery that requires, rather than paying par out of a cash reserve. The promise is the same shape for both types. The mechanics follow the nature of what stands behind the coin.
So within VARA’s perimeter the stablecoin regime is a real backing-and-redemption regime, more prescriptive than most VA activities because the coin makes a promise of value the others do not. All of it, though, depends on the coin being inside VARA’s perimeter in the first place. Section IV turns to the coin that is not: the dirham-referenced token that answers to the Central Bank instead.
The boundary between VARA and the Central Bank is drawn from two directions, and at the sharp end the two agree. VARA draws its line by what the coin references; the Central Bank draws its by what the coin does. For a dirham-referenced coin the two point the same way. For a foreign coin used to pay, they overlap.
VARA draws the first line in its own rulebook. A fiat-referenced coin that references the dirham is not approved under VARA’s rules and remains “under the sole and exclusive regulatory purview of the CBUAE”, the Central Bank of the UAE (Virtual Asset Issuance Rulebook, Annex 1, Rule I.A.2, current as at 1 July 2026). VARA does not regulate the dirham stablecoin. It steps back from it by rule.
The Central Bank occupies that ground through its Payment Token Services Regulation, Circular No. 2 of 2024, in force and current as at 1 July 2026 (verified against the Central Bank’s official rulebook). It regulates payment token services, being the issuing, the custody and transfer, and the conversion of payment tokens, wherever performed in or directed into the UAE (Article 2). A payment token, for this purpose, is a fiat-referenced stablecoin. The regime then splits by currency. A dirham payment token may be issued only by an issuer the Central Bank has licensed, incorporated in the UAE, and only to residents of the UAE (Articles 5, 6 and 12). A foreign, non-dirham payment token requires the Central Bank to register its issuer instead (Articles 5 and 9). The regime excludes the financial free zones, the DIFC and the ADGM (Article 2), and it prohibits algorithmic stablecoins and privacy tokens outright, for everyone, including firms licensed by VARA (Article 2).
Crossing that boundary is not a lateral move; it is a step up in the weight of the regime. A Central-Bank-licensed dirham payment token issuer must hold base regulatory capital of AED 15,000,000, plus a percentage of the face value of the tokens in issue (Article 13), against the AED 1,500,000 base a VARA fiat-referenced issuer carries (see the companion article “What capital does a VARA licence actually require?”). The dirham stablecoin is regulated far more like a bank than like a VARA issuance, which is the point: a coin that behaves like national money is regulated by the monetary authority, on the monetary authority’s terms.
Away from the dirham, the two regimes meet rather than divide. A foreign fiat-referenced coin used as a means of payment sits inside both perimeters at once: VARA regulates its issuance as a fiat-referenced virtual asset, and the Central Bank’s regime regulates its use as a payment token. The framework resolves the overlap through a non-objection: a VARA-licensed firm that wants to convert, hold or transfer such coins applies to the Central Bank for a non-objection registration rather than a full licence (Article 8). So for a foreign payment coin the answer to “which regulator” is often both, coordinated, rather than one.
What sits cleanly on VARA’s side is the asset-referenced coin. The Central Bank’s payment token is defined by reference to a fiat currency; an asset-referenced coin references real-world assets or income, not a currency, so it does not meet that definition and falls outside the payment-token regime. That is an inference from the two definitions rather than a stated hand-off, but it follows directly: the Central Bank regulates fiat-referenced coins used to pay, and the asset-referenced coin is neither.
So the boundary runs on two axes at once, the reference and the function. A dirham reference sends the coin to the Central Bank, and VARA stands back. A foreign fiat reference used in payments places it in both regimes, joined by a non-objection. An asset reference keeps it with VARA. The first question about any stablecoin is therefore not simply whether it is regulated, but what it references and whether it is used to pay, because those two answers decide the regulator and the weight of the regime that comes with it. Section V turns those answers into consequences for issuers and holders.
The regime’s structure falls differently on the two sides of the relationship. For an issuer, the type of coin and the currency it references are structuring decisions that fix the regulator, the capital and the compliance load before any licence is sought. For a holder, the same structure produces a redemption right that is unusually strong, a backing that is protected but bounded, and a position whose character depends on the type of coin held.
For an issuer, the first decision is what the coin references, because that alone fixes the regulator and the weight of the regime. A dirham reference sends the coin to the Central Bank and its bank-like regime, with a base capital requirement ten times the VARA figure (Section IV). A foreign fiat reference, where the coin is used as a means of payment, places the issuer inside both regimes, joined by a non-objection registration. A coin that references assets, or a foreign currency but is not used to pay, stays with VARA alone. Reading the two definitions together, the reference and the function decide the forum before anything else does, which is an inference from the boundary drawn in Section IV rather than a single stated rule.
The second decision is the type, which fixes the shape of the capital charge and the build of the compliance spine. A fiat-referenced issuer carries additive capital (examined in the companion article “What capital does a VARA licence actually require?”), a reserve held in the reference currency, a continuous backing obligation, and a redemption promise at par. An asset-referenced issuer carries higher-of capital, under that same companion article, and, where the coin conveys a direct ownership right, the added burden of establishing and maintaining legal title in the underlying asset, with a legal opinion the regulator may demand (Annex 2, Rule III.B). The asset-referenced coin is the heavier legal build, not merely the heavier capital one. The practical consequence is that these choices are made before licensing: by the time a firm applies, its reference and its function have already chosen its regulator and its rulebook.
For a holder, the redemption right is the strongest protection in the regime, and it is real rather than nominal. It is a legally enforceable claim to redeem at par, satisfied within about a day. On a VARA fiat-referenced coin the redemption is fee-free (Virtual Asset Issuance Rulebook, Annex 1, Rule III.C, current as at 1 July 2026); on a Central Bank payment token it may carry a fee, but only one limited to the cost actually incurred (Payment Token Services Regulation, Article 21). Either way the holder can turn the coin back into currency on demand, which ordinary virtual-asset custody does not guarantee.
The backing behind that right is protected but bounded. The reserve is held in full and kept apart from the issuer’s own assets: on the VARA side, segregated and remote from the issuer’s estate to the furthest extent applicable law permits (Annex 1, Rule III.B.4); on the Central Bank side, held in escrow with a UAE bank, shielded from the issuer’s other creditors, and supported by a contractual insolvency claim for holders (Article 22). But as the companion article “If my VASP fails, where does my crypto sit?” found, whether that protection actually delivers the reserve to holders ahead of a general estate in an insolvency is bounded by applicable law and remains untested. The holder’s protection is therefore strong at the point of redemption and open at the point of failure.
The character of the position then depends on the type. A fiat-referenced coin gives a par claim, with the holder’s outcome fixed at par in both directions. An asset-referenced coin may give ownership of, or a claim on, real assets whose value moves, and where it conveys a direct ownership right the holder’s protection is only as good as whether that right is, in the rulebook’s words, “legally and validly established” (Annex 2, Rule III.B). That the ownership position rises or falls on its legal establishment is an inference, but one the rule invites by making legal establishment the issuer’s own obligation. So stability is not one thing across the two types: the fiat holder is protected against price, while the asset holder is exposed to it. On the Central Bank side, a further consequence is that the coin pays nothing for being held, since the issuer may not pay interest or any time-based benefit (Article 12). The payment token is money-like, not a yield product.
So the consequences track the structure. The issuer’s freedom is front-loaded into the choice of reference and type, after which the rulebook is largely fixed. The holder’s protection is strongest at redemption and weakest at failure, the same asymmetry that companion article identified for virtual assets generally. Section VI closes with what is settled, what remains open, and where the position stands as at the date of writing.
Most of the stablecoin regime is settled, and it is more prescriptive than the framework applied to any other virtual-asset activity. Two types are clearly drawn, the fiat-referenced coin and the asset-referenced coin, separated by what they reference and by whether ownership can pass with the token (Section II). Both carry the same backing-and-redemption spine: a backing that tracks supply continuously, and a redemption right that is legally enforceable, at par, satisfied within about a day, and either fee-free or subject only to a cost-limited fee (Section III). The cross-regulator boundary is settled in its structure: a dirham-referenced coin belongs to the Central Bank alone, a foreign fiat coin used in payments belongs to both regulators through a non-objection registration, and an asset-referenced coin belongs to VARA (Section IV). And the consequences are settled in outline: an issuer’s reference and function fix its regulator, its capital and its rulebook before it applies, while a holder gains a redemption right stronger than ordinary custody provides (Section V).
What remains open is the same question the companion article “If my VASP fails, where does my crypto sit?” identified, and it is the one that matters most in the worst case. The reserve behind a stablecoin is required, audited, and held apart from the issuer’s own assets, on the VARA side remote from the estate to the furthest extent applicable law permits, and on the Central Bank side held in bank escrow with a contractual insolvency claim for holders. Whether that protection actually delivers the reserve to holders ahead of a general estate, if an issuer fails, is bounded by applicable law and has not been tested. The backing is strong as a matter of the rulebooks; its survival through an insolvency is not yet settled as a matter of outcome.
Two narrower edges are worth naming. That an asset-referenced coin sits outside the Central Bank’s payment-token regime is an inference from the two definitions, sound but not stated as a hand-off in either instrument. And because the boundary runs on two axes rather than one, the answer to “which regulator” is not always a single regulator; for a foreign coin used in payments it is both, and the operational detail of that coordination sits with the two authorities rather than in a single published rule.
This analysis rests on the VARA Virtual Asset Issuance Rulebook, in the version effective 19 June 2025, and on the Central Bank’s Payment Token Services Regulation, Circular No. 2 of 2024, in force as at the date below. Each is live and subject to change. A new version of the Issuance Rulebook, an amendment to the Payment Token Services Regulation, or a shift in the Central Bank’s operational position on payment tokens would each be a reason to read this analysis again against the source. On the question that remains open, the survival of the reserve through an issuer’s insolvency, the first reliable answer will come from a decided case or a further instrument, and until then the position should be treated as strong but unproven.
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