ABU DHABI, United Arab Emirates — The United Arab Emirates has emerged as a global hub for cryptocurrency and blockchain innovation, offering what boosters say is a model for the incoming Trump administration on how clear regulations and strategic investment can drive growth in the booming but volatile digital finance sector.

As Washington prepares for a potential major policy shift on crypto policy and regulation under President-elect Donald Trump, cryptocurrency advocates point to the UAE as a success story that could guide U.S. efforts to harness the sector’s economic potential. By embracing blockchain technology and moving aggressively to put in place a regulatory framework, the UAE has positioned itself as a global leader in an industry that the U.S. has struggled to regulate effectively.

Eric Trump, the president-elect’s son, speaking at the Bitcoin MENA conference in Abu Dhabi, underscored the significance of the UAE’s achievement in the field. “The UAE has shown how to do this right,” he said. “By supporting crypto innovation, they’ve created jobs, attracted investment, and strengthened their global standing. The U.S. can and should do the same.”

Between July 2023 and June 2024, cryptocurrency transactions in the UAE surged to $34 billion, a 42% increase from the previous year, according to blockchain analytics firm Chainalysis. This sharp rise reflects the wealthy Gulf enclave’s ability to balance innovation and investor protection, analysts say.

In a closely-watched mover last year, UAE officials effectively slashed taxes on cryptocurrency transactions by exempting individuals and businesses from a value-added tax (VAT) on the transfer and conversion of digital assets, making the tax break retroactive to 2018 as a further way to “supercharge” the sector.

At the heart of the UAE crypto drive is the Virtual Assets Regulatory Authority (VARA), which oversees compliance with international anti-money laundering (AML) and counter-terrorism financing (CTF) standards while promoting blockchain development. Complementing VARA’s work are special economic zones like the Abu Dhabi Global Market and Dubai International Financial Center, which seek to attract companies with tax exemptions, streamlined licensing and tailored regulations.

“The UAE is often seen as using its crypto policies to enhance its geopolitical clout, but I view it the other way around: Its geopolitical clout is driving the success of its crypto policies,” Sam Blatteis, CEO of The MENA Catalysts and a former Google public policy head for the Gulf, said in an interview with The Washington Times.

Mr. Blatteis credited the emirate’s focus on diversifying its financial economy with helping to attract global blockchain firms. “The policy and intentions were driven by diversification of the financial economy as an aim. The result has been the geo-economic benefits of countries looking to cooperate on digital assets, and global companies moving to the UAE.”

Turning to stablecoins

One key element of the UAE’s cryptocurrency strategy is the widespread adoption of so-called “stablecoins” — digital currencies tied to traditional assets like the U.S. dollar or UAE dirham. Known for their stability in the sometimes chaotic crypto markets, stablecoins are increasingly used for cross-border payments and daily transactions, providing a practical alternative to the volatility of traditional cryptocurrencies such as the better-known Bitcoin.

In August, Tether, a leading stablecoin issuer, announced plans to launch a dirham-backed stablecoin in partnership with Abu Dhabi-based firms. This move aligns with the UAE’s broader goal of integrating blockchain into its financial system and making digital payments more accessible and efficient.

“Stablecoins are a bridge between traditional and digital financial systems,” Eric Trump said during his Bitcoin MENA keynote. “They offer reliability and liquidity, making them a key tool for financial inclusion and global trade.”

Cryptocurrency’s use in everyday life is also growing in the UAE. Residents can use Bitcoin and stablecoins for retail purchases, international money transfers, and even real estate transactions.

“Bitcoin is as liquid as cash — you can do peer-to-peer transfers, move funds between banks, and convert it easily,” said Mohamad Khaled Mrad, founder of SVN Capital in Dubai. “Stablecoins take this a step further by offering reliability and trust.”

Beyond stablecoins, blockchain technology is being employed to address real-world challenges. Entrepreneurs like Alexander Guseff, the creator of SyntezNote, a hybrid digital currency are using blockchain to simplify cross-border payments.

“Imagine you’re a coffee shop owner in Dubai, and you’re buying beans from a farmer in Brazil,” Mr. Guseff told The Washington Times. “Instead of going through banks, paying high fees, and waiting days for transfers, SyntezNote lets you send payments directly. It’s fast, stable and avoids the hassles of traditional banking systems.”

The UAE has also integrated blockchain solutions into public services, including property transactions and supply chain management, streamlining processes and reducing bureaucracy.

Pivotal moment

The UAE’s success comes at a pivotal moment for the United States, where the incoming administration has hinted at a major policy shift on cryptocurrency. The president-elect has talked up the federal government’s bitcoin holdings and sharply criticized what he said during the campaign was the anti-cryptocurrency bias of Mr. Biden and his financial regulatory team.

The senior Mr. Trump has vowed to create a “bitcoin and crypto presidential advisory council,” and told investors over the summer, “The [cryptocurrency] rules will be written by people who love your industry, not hate your industry.”

If the new president is true to his word, analysts say the UAE’s approach offers valuable lessons for U.S. policymakers eager to foster innovation without stifling it through heavy-handed regulation.

Steve Witkoff, a billionaire real estate developer and longtime Trump ally, has been named special envoy to the Middle East, with observers predicting he will focus on strengthening U.S.-UAE cooperation in digital finance.

David Sacks, an incoming White House adviser on artificial intelligence and cryptocurrency, is also likely to draw on the UAE’s model as he helps shape U.S. blockchain policy. These developments reflect a growing recognition in Washington that proactive regulation, rather than enforcement-driven approaches, can unlock the potential of the crypto sector.

“The UAE didn’t wait for blockchain to become safe or popular,” said Mr. Blatteis. “They took risks, built the infrastructure, and showed the world how to lead. That’s what leadership looks like,” he told The Washington Times.

Risks and rewards

While the UAE’s rapid adoption of cryptocurrency and digital transformation initiatives has positioned it as a global leader, critics argue that its “all-in” approach comes with significant risks, particularly in the realm of cybersecurity.

The UAE’s aggressive push into digital technologies has expanded its “attack surface,” making it a prime target for cybercriminals. A report by CPX, a cybersecurity firm based in Abu Dhabi, found over 155,000 vulnerable assets within the UAE’s internet infrastructure, with 40% of critical vulnerabilities remaining unpatched for more than five years. These gaps highlight persistent challenges in patch management and a shortage of skilled cybersecurity professionals.

“Alarmingly, many of the vulnerabilities exploited are historical, indicating a gap in patch management practices,” said Hadi Anwar, Head of CPX. “Timely and effective patch management is crucial and can significantly reduce the risk posed by these vulnerabilities.”

Sophisticated cyberattacks, fueled by advances in technologies like artificial intelligence, have further complicated the landscape.

Irina Zinovkina, head of the information security research group at Positive Technologies, noted that the UAE faces a growing threat from complex attacks and hard-to-detect malware.

“All new technologies bring risks, especially to the security landscape,” she said. “Digital transformation in the UAE may face challenges such as integration complexities and data security concerns.”

The risks are not hypothetical. More than 87% of UAE-based businesses reported experiencing a cybersecurity incident in the past two years, according to cybersecurity firm Kaspersky. Analysts warn that the UAE’s interconnected digital infrastructure — spanning finance, public services, and blockchain applications — could exacerbate the impact of a successful cyberattack, potentially crippling critical systems.

“Digital transformation doesn’t necessarily increase the likelihood of attacks, but it amplifies the consequences,” said Jon Amato, senior director analyst at Gartner. “Look at the example of the [cyber]S attacks on Estonia in 2007. While the UAE has taken bold steps to modernize, its reliance on digitized systems raises the stakes.”

Critics also highlight the potential for regulatory gaps to be exploited, particularly by bad actors operating across borders. Despite the UAE’s efforts to enforce stringent compliance measures through entities like tthe VARA, the global nature of blockchain technology poses ongoing challenges.

As the U.S. looks to the UAE’s example for inspiration, these vulnerabilities serve as a cautionary tale. Policymakers must weigh the benefits of innovation against the inherent risks of overextending into an increasingly volatile digital landscape.

Crypto diplomacy

The Abraham Accords, which normalized relations between the UAE and Israel, have further bolstered the Gulf nation’s position as a hub for innovation. Israeli-founded companies like eToro, a social trading platform that incorporates cryptocurrency, have already established a presence in the UAE. This trilateral cooperation between the U.S., UAE, and Israel offers significant opportunities for blockchain and fintech development.

“The UAE’s leadership in blockchain isn’t just about technology; it’s about vision,” Mr. Blatteis said. “Their ability to balance innovation with regulation is something other nations can learn from.”

Even for the UAE, however, challenges remain. Critics warn that the global nature of blockchain technology introduces vulnerabilities, with bad actors potentially exploiting regulatory gaps and different policy approaches in different countries. VARA says it has implemented stringent standards to address these concerns, including enhanced transparency measures and collaboration with international organizations.

“Building trust in the cryptocurrency ecosystem requires ongoing vigilance,” said SVN Capital’s Mr. Mrad. “The UAE’s regulators understand this and are taking proactive steps to close potential loopholes.”

Another challenge lies in ensuring consistency across regulatory bodies within the UAE itself. Experts say greater alignment between VARA and the investor community will be essential for maintaining the country’s leadership position.

As the U.S. considers its next steps, advocates argue that adopting elements of the UAE’s approach — such as regulatory clarity, stablecoin integration, and public-private collaboration — could help the U.S. reclaim its competitiveness in the global blockchain ecosystem.

The Trump administration’s interest in cryptocurrency represents an opportunity to reframe the U.S.’s approach to digital finance. While Washington has often lagged behind in adopting blockchain technology, analysts believe the UAE’s example could serve as a roadmap for effective policymaking.

“Leading a digital-asset enabling environment took ‘chutzpah’ before it became popular. It was not without risks,” Mr. Blatteis said.

With global competition intensifying, both supporters and critics of cryptocurrency agree that the stakes are high in a global market that in 2024 hit an estimated $3.3 trillion in market capitalization.

“The UAE has shown the world how to lead,” Mr. Guseff said. “Now it’s up to others to follow.”