Dubai Financial Services Authority Addresses Slow Adoption Rates With Tokenization Initiative

Seeking an expression of interest for a Tokenization Regulatory Sandbox, the independent regulator of the Dubai International Financial Centre (DIFC), the Dubai Financial Services Authority (DFSA), released a statement on 17 March 2025.

By means of this initiative, the DFSA aims to invite companies to explore and test several tokenized investment products and services in a controlled environment.

The DFSA claims that adoption rates are slow even though tokenization is attracting great attention for its potential benefits. Industry roundtable results from the Dubai FinTech Summit in May 2024 and January 2025 highlighted issues in interoperability, scaling, and regulatory clarity.

Notably, the DFSA’s Innovation Testing License (ITL) has played a key role in supporting digital and fintech pioneers within the DIFC. Now, with its scope expanded to include tokenized investments, the financial centre intends to emphasize Dubai and the UAE’s position as a global hub for crypto innovation.

The initiative by the DFSA aims to help crypto firms explore tokenized investment products and services within a controlled environment at the Dubai International Financial Centre. #dubai #crypto #sandboxhttps://t.co/8y0s9YnFH7

— thehodlernews.com (@thehodlernews) March 19, 2025

The proposed sandbox operates in two stages. First, firms will have to express an interest in developing tokenized products or services within the DIFC. Stage two lets the selected firms test their offerings in the sandbox through the DFSA’s ITL program.

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Initiative Targets Firms That Are Already DFSA authorized, Looking To Expand Operations Into Tokenization

The DFSA is actively scouting firms that engage in tokenization-related financial services, including those that issue, trade, hold, or settle tokenized investments such as equities, bonds, sukuk, or other collective investment funds.

The initiative also targets firms that are already DFSA authorized and looking to expand their operations into tokenization, along with firms that have their fundamentals in place with a strong understanding of the relevant legal and regulatory frameworks.

The Expression of Interest window is open from 17 March 2025, to 24 April 2025, allowing interested parties to submit their applications through the DSFA’s official portal and will require no submission payment.

Those eligible will be moved along to the ITL Tokenization Cohort to test their services under DFSA’s supervision. Participating firms may look forward to gaining regulatory guidance. Moreover, successful firms might even receive a full DFSA license.

Case in point, Ripple secured a DFSA license on 13 March 2025, allowing the company to provide regulated crypto payment services in the DIFC.

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Crypto Tokens, Fiat-Crypto Tokens Not Part of the Initiative Despite RWA Tokenization Gaining Momentum in Dubai

Industry players are positioning themselves to meet the ever-increasing demand for blockchain-based asset trading in the UAE. In the past couple of months, several key partnerships have emerged in Dubai’s Real-World Asset (RWA) tokenization sector.

On 9 January 2025, the RWA blockchain firm Mantra entered into a partnership with the UAE’s DAMAC Group to tokenize their properties. The deal with $1 billion ensures DAMAC’s tokenized assets will be made available exclusively on the Mantra chain.

Also, on 14 January 2025, the Dubai Virtual Asset Regulatory Authority (VARA) granted a full market license to Tokinvest, an RWA investing marketplace.

BlackRock’s decision to create a tokenization fund on the Ethereum blockchain in the UAE last year also sparked a rally in RWA projects.

It is important to note, however, that crypto tokens and fiat-crypto tokens hold considerable significance in RWA tokenization and are not a part of this initiative’s scope. This limits the program’s ability to bridge traditional finance and blockchain technology by risking reduced liquidity, limited accessibility, inefficient transactions, lack of integration with Decentralized Finance (DeFi) platforms, higher barriers to entry as well as transparency and security concerns.

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