Dubai: Crypto Entrepreneur Paradise or Fata Morgana?
A first fact-finding mission to Dubai
In recent months several acquaintances have moved to Dubai. They either work in commodities trading or are active in the crypto ecosystem. All of them praise Dubai’s entrepreneurial vein, zero taxes, bustling business ecosystem and apparently an unlimited pile of money.
On my way to a client conference in Malaysia I made my first visit to Dubai. I had the pleasure of meeting several exponents from the local crypto and blockchain ecosystem. Here are some interesting (and quirky) insights from my meetings.
20 Free Trade Zones
One local contact told me that Dubai has more than 20 free trade zones! They are a key feature of Dubai’s vibrant business ecosystem. They are either government or privately-run and focus on different industries from commodities to finance to fashion and beauty. The Dubai International Financial Center DIFC for example is a large government run free trade zone with its own building, conferences, zero taxes and support for business registrations and licensing. Another free zone that I visited is the Dubai Multi Commodity Center DMCC with its massive new skyscraper. Both free zones maintain crypto ecosystems. The DMCC boasts more than 600 registered businesses and is the oldest and biggest free zone.
An interesting quirk is that different free zones have different legal regimes such as UK common law. As a result, they also have different regulator from the local VARA to the UK’s FSA. The free zones licenses let companies operate also on the “mainland”, defined as the UAE. There is ample competition among the free trade zones as they offer on-boarding services from getting a bank account to licensing support to trade conferences.
Several large crypto conferences, such as Token2049 and the Cardano Summit, have moved to Dubai catering to an ever-growing ecosystem.
Is Dubai the crypto entrepreneurs’ paradise?
Dubai and its many free zones (as well as neighboring GCC countries from Abu Dhabi to Saudi Arabia) undeniably have a strong entrepreneurial pull for crypto companies. There is a real sense of a gold rush in the desert. However, even the most flexible and entrepreneurial free zone faces some challenges when it comes to crypto.
Licensing limitations
Various large crypto exchanges from Binance to Kraken and from Coinbase to Bittfinex have been grappling with becoming “regulated” in different jurisdictions. In the absence of regulatory clarity several large exchanges such as Coinbase and Kraken have launched lawsuits against the US SEC.
While exchanges such as Binance have found a temporary home in Dubai, they are still faced with a lot of scrutiny abroad. Getting a legacy crypto exchange properly licensed in any jurisdictions, remains a big challenge. Therefore, Dubai offers only a very local solution and it will be interesting to see how Europe’s MiCA directive will foster (or block) progress in this sector.
Cross-border services and a tiny home market
From crypto exchanges to Web3 and from gaming to supply chain projects, Dubai is the home of hundreds of blockchain-related startups. They are busy building services attracting founders from around the world. This begets the question who they will sell too? Dubai is the biggest city in the UAE with approximately 3 million inhabitants, most of the being foreigners. This is a tiny market. Accessing larger markets such as Europe and the US will still require foreign licensing. Let’s see if Dubai can work with foreign regulators to make them comfortable with local licenses.
A cold welcome by local banks
Something we have experienced in Switzerland also exists in Dubai: local banks are very reluctant to interact with crypto startups. I have been told that the central has a strong anti-crypto stance. This can hamper entrepreneurial activities and free zones explicitly offer consulting services on how to get a bank account.
Who are the investors?
Dubai and the UAE are perceived as the location where money is as abundant as sand. There are different accelerators with funding attached, such as the Swiss-linked Crypto Oasis. However, I wonder if there is also a professional VC investor ecosystem and local angel investors. The government has been a strong investor in the past. So, let’s see if they can expand the funding base.
Crypto entrepreneurs’ paradise or letter-box heaven?
In summary, Dubai has clearly a bustling entrepreneurial scene with a vibrant ecosystem and friendly free zones. This is undeniably amplified by the lure of easy money and light-touch oversight. As the crypto ecosystem is notoriously mobile and decentralized, it is hard to tell how many companies have actual operations and staff in the UAE.
I am very eager to see how Dubai can grow its crypto ecosystem beyond its narrow home market and form links with other ecosystems. Forming strong ties with other forward-thinking blockchain ecosystems such as Switzerland would be a sensible next step.