VARA 2.0, Tokenisation and the Future of Digital Assets: A Closer Look

The Virtual Assets Regulatory Authority (VARA), established in 2022 under Law No. (4) of 2022 Regulating Virtual Assets in Dubai, is the UAE’s (and the world’s) first dedicated regulator of digital assets. VARA is mandated to regulate, supervise, and oversee all Virtual Asset Service Providers (VASPs) and associated activities within its jurisdiction.

In February 2023, VARA issued the Virtual Assets and Related Activities Regulations 2023, laying down a framework to govern the issuance, trading, and custody of virtual assets, as well as the licensing and conduct of VASPs. The VARA regulations do not, however, apply in the Dubai International Financial Centre (DIFC), which has its own Digital Assets Law (DIFC Law No. (2) of 2024).

VARA 2.0 and New Developments

Now, in a major step forward, VARA has introduced a substantial update (VARA 2.0) that builds on the previous rules in a few different areas. This update has already catalysed significant market activity in the middle-east. Notably, on May 25, the Dubai Land Department (DLD), in collaboration with VARA, Ctrl Alt, and fintech firm PRYPCO, launched the MENA region's first licensed tokenized real estate investment platform called PRYPCO Mint. The initiative aims to tokenize up to 7% of the real estate market in the city, equivalent to $16 billion, by 2033.

Additionally, on May 26, Air Arabia partnered with Al Maryah Community Bank, the UAE’s first fully integrated digital bank, to enable flight bookings using AE Coins; a blockchain-based digital currency.

In light of these rapid developments in the virtual asset space, here are some of the major aspects of VARA 2.0 to look out for:

1. Enhanced Margin Trading Controls

VARA 2.0 introduces significantly stricter rules on margin trading, a high-risk area of the crypto industry that allows users to amplify both gains and losses by trading with borrowed funds. While margin trading can offer greater exposure with smaller capital outlays, it also increases the risk of widespread liquidations during volatile market swings. Some of the major updates include:

• Crypto margin trading is now restricted to qualified and institutional investors. Retail clients are prohibited from accessing leveraged crypto products in UAE.
• VASPs must implement stringent collateralization practices, ensuring adequate coverage of client obligations through initial and maintenance margin requirements.
• VASPs are obligated to issue monthly reports to clients detailing fund movements in their margin accounts.
• VASPs must immediately notify clients if their collateral falls below the required threshold. If clients do not replenish the margin, automatic liquidation of part of their positions is mandated to restore balance.

In real-world contexts, such margins controls are imperative to protect the market. In past crypto crashes, such as those involving FTX, Celsius, and Terra, lack of margin discipline and fewer risk controls contributed to the billions in losses and severe liquidity crises. By restricting margin trading to institutional players and imposing oversight, VARA clearly aims just prevent similar collapses in the local market.

2. Introduction of Asset-Referenced Virtual Assets (ARVA)

Another important aspect of VARA 2.0 is the formal recognition of Asset-Referenced Virtual Assets (ARVAs), the definition of which now explicitly includes tokenised real-world assets (RWAs) and income-based assets. These tokens are designed to have a stable value, often pegged to a fiat currency, other assets, or a basket of assets.

Previously, such tokens operated in a regulatory grey area since their definition was open to interpretation. Now, ARVAs have been explicitly defined and identified as falling within the scope of VARA’s oversight, and any issuance or offering involving such assets will require prior authorization from VARA.

Tokenisation

VARA’s recognition of tokenisation (converting real-world assets like real estate, commodities, or debt instruments into digital tokens on a blockchain) is significant since this has become one of the most promising applications of Web3 technology. It enables fractional ownership, faster settlement, and greater liquidity in traditionally illiquid markets.

In the UAE, tokenisation is already being applied to real estate, allowing investors to buy fractional interests in high-value properties (e.g., penthouses, commercial buildings) via licensed tokenisation platforms. The aforementioned PRYPCO Mint, which is built on Ctrl Alt's Web3 infrastructure, converts tangible real estate assets into secure, digital tokens, each linked to a legally recognised Property Token Ownership Certificate issued by the DLD. In just a day, the platform’s first tokenised property has already been fully funded, and the certificate for it has been issued by the DLD, marking one of the first official recognitions of tokenised real estate in the region.

This grants investors the same rights as traditional property ownership with none of the associated administrative burden, allowing them to enjoy benefits such as rental income, capital appreciation, and liquidity. Currently, only people with an Emirates ID can invest in tokenized real estate projects, but it will open to global investors in the coming months.

Additionally, assets like gold are being tokenised into ARVA-backed stablecoins, which may include built-in yield models or be used as digital collateral in DeFi lending platforms (where users can lend or borrow cryptocurrencies without relying on traditional financial intermediaries).

In comparison, the Dubai Financial Services Authority (DFSA), which regulates the DIFC, approaches tokenisation through the lens of financial market regulations, classifying tokenised instruments as “Investment Tokens” when they mirror traditional securities like equities, bonds, or fund units.

To further support innovation, the DFSA also recently launched the Tokenisation Regulatory Sandbox, a two-stage initiative that allows firms to test tokenised investment products under the Innovation Testing Licence. The sandbox is open to both new entrants and DFSA-authorised firms working on use cases such as the issuance, trading, custody, or settlement of tokenised financial instruments.

3. New Rules for Token Distribution

VARA 2.0 also brings in rules for token distribution, marking a major step in formalizing how virtual assets are offered to the public and private markets.

Under the updated rules, any entity involved in the issuance or distribution of tokens must meet clear licensing requirements. This applies to both primary issuances (e.g., token launches, sales, airdrops) and secondary distributions, including activities conducted by brokers and exchanges. Major provisions include:

• Issuers and distributors must obtain prior approval from VARA before conducting any token distribution.
• VASPs are now required to provide whitepapers or offering documents with clear and accurate disclosures, including information about the underlying asset, associated rights, and risks.
• VARA prohibits deceptive or exaggerated promotional materials. All marketing campaigns must be fair, balanced, and transparent, and targeted appropriately to the permitted investor category.

These rules align the UAE’s practices with global standards for initial coin offerings and token launches. More importantly, they clear a path for legitimate Web3 projects such as utility token startups, real estate tokenisation platforms, gaming ecosystems, and DeFi protocols by providing the structure needed to attract institutional capital, venture funding, and retail participation within a compliant environment.

In the USA, the recently introduced Digital Asset Market Structure (DAMS) draft bill proposes to open avenues for registered Alternative Trading Systems operated by broker-dealers, as well as Digital Commodities Exchanges to function as spot market trading venues for digital commodities and permitted payment stablecoins. These platforms would register with the Commodity Futures Trading Commission (CFTC) but remain under Securities and Exchange Commission (SEC) oversight in the USA, and would enable trading of digital commodities, tokenized securities, and stablecoins on a single platform with real-time settlement and blockchain-native record-keeping.

4. Regulated Virtual Asset Activities

VARA 2.0 sets out the core regulated activities under the regulation, creating a structured licensing regime. Firms must obtain individual licenses and approvals for each regulated activity they intend to carry out, aligned with their specific business model and operational footprint. The regulated virtual asset activities are:

1. Advisory Services
2. Broker-Dealer Services (including distribution)
3. Custody Services
4. Virtual Asset Exchange Operations
5. Lending and Borrowing Services
6. Virtual Asset Management Services
7. Issuance of Virtual Assets
8. Transfer and Settlement Services

Each of these activities comes with activity-specific requirements related to capital adequacy, risk controls, and internal governance and compliance structures. In addition, certain harmonized compliance and reporting obligations apply across all licensed activities, which include:

• Enhanced onboarding and AML/CFT obligations
• Mandatory financial and operational reporting to VARA
• Ongoing disclosure obligations, particularly in relation to service changes, incidents, or financial health
• Reporting on internal controls, governance requirements, and audit mechanisms

Such compliance requirements are also present in the DAMS draft bill, wherein digital commodity issuers would need to file an “offering statement” with the SEC which discloses technical and economic information about the blockchain, including source code and transaction verification methods.

5. Stronger Oversight

VARA 2.0 strengthens the VARA’s supervisory and enforcement toolkit, empowering it to conduct expanded on-site inspections and implement quarterly risk assessments across all licensed VASPs. It can also levy fines, mandate corrective action plans, and escalate serious breaches for criminal referral where appropriate.

6. Transition Timeline and Enforcement

All affected VASPs and market participants must comply with the VARA 2.0  framework within 30 days of its issuance, and full enforcement begins on June 19, 2025. Failure to comply may result in fines and license suspension.

Conclusion

With VARA 2.0, the authority seems to be transitioning from a foundational phase to a more mature and refined regulatory regime. According to VARA, the new framework reflects lessons learned from real-world licensing, market supervision experience, and alignment with international best practices, which will lead to long-term trust and growth in the virtual asset space in the UAE.