DIFC Digital Assets Regime | Crypto Tokens - 10 Leaves

DIFC Digital Assets Regime – Crypto Tokens


Section 1

The Dubai Financial Services Authority (DFSA) recently issued a consultation paper on the regulation of Crypto Tokens in the DIFC. This paper is one of the two consultation papers that will go on to make the base for the DIFC Digital Assets Regime, thus opening the gateway to a whole new world of exciting and cutting-edge fintech applications using the Distributed Ledger Technology (DLT).

The DFSA then made the relevant amendments to it’s legislation in the end of September, thus creating the framework for the regulation of Security Tokens in the centre.

Part 2 of the DIFC Digital Assets Regime covers Crypto Tokens, Utility Tokens, Exchange Tokens and Stablecoins.

The DIFC Digital Assets Regime will be of interest to issuers of Crypto Tokens, Authorised Market Institutions that wish to admit Crypto Tokens to trading, or performing clearing and settlement services, operators of Alternate Trading Systems such as Multilateral Trading Facilities (MTF) and Organised Trading Facilities (OTF) that wish to trade Crypto Tokens, providers of Digital Wallets who provide custody and storage services for such tokens, technology providers and in general, any licensed firm that wishes to advise, arrange or manage crypto-assets.

What does DIFC consider to be a token, or a crypto asset?

The DFSA defines a token as a digital representation of value, rights and obligations that are created, stored and transferred electronically, using distributed ledger technology (DLT) or similar technology.

Generally, crypto assets depend on cryptography and distributed ledger as part of their perceived or inherent value. They are created, stored and transferred using a DLT application, using:

  1. An address,
  2. a public key corresponding to that address, and
  3. a private key, also corresponding to that address.

What does the DFSA consider a Security Token?

A Security Token is defined as a token that confers rights and obligations that are:

(i)  the same as those conferred by a share, debenture or futures contract (Investments); or (ii)  substantially similar in nature, purpose or effect, to those conferred by Investments.

In effect, a Security Token is a token that behaves as a security (equity, debenture, convertible, future, option etc.) and is hence considered by the DFSA as a specified investment.

What does the DFSA consider a Crypto Token?

A Crypto Token is a Token that is used, or is intended to be used, as a medium of exchange or for payment or investment purposes but excludes an Investment Token, or any other type of Investment, or an Excluded Token.

A Crypto Token includes a right or interest in the relevant Crypto Token.

DIFC Digital Assets Regime

What is a security?

The DFSA has a list of instruments that they consider a security. In general, a transaction is considered a security if a) there is an investment of money, b) there is an expectation of profit, c) the investment of money is in a common enterprise and d) any profit comes from the efforts of a promoter or third party. This is also commonly known as the Howey Test.

How would the DFSA determine whether a particular Security Token is an Investment or not?

The DFSA aims to take a hybrid approach, where they will make their own assessment of whether the proposed token is a Security Token, based on a self-assessment submitted by the applicant.

What types of tokens fall under the DFSA definition of Crypto Tokens?

  1. Cryptocurrencies – These include cryptos that have a native blockchain, such as Bitcoin and Ethereum, and those that use hosting blockchains, such as Polygon and Chainlink.
  2. Hybrid Utility Tokens – These are crypto tokens that share some characteristics with cryptocurrencies, but also provide rights to the holder (like discounts, early subscriptions etc.).
  3. Asset-referenced tokens – Such as stablecoins.

What are Hybrid Utility Tokens?

These are utility tokens that also act as a medium of exchange. Hybrid Utility Tokens provide rights such as discounts or early subscriptions on products and services that may be offered on a particular blockchain.

Most Hybrid Utility Tokens are created by crypto exchanges where holders can get discounts on traducing commissions and other fees. These tokens can be created and offered through an Initial Token Offering and the funds raised are usually used to develop the marketed product or service.

What are Asset Referenced Tokens?

These tokens aim to reduce price volatility and hence have their values determined by reference, either to a fiat currency, another Crypto Token, a commodity or a basket of assets.

Stablecoins are one such example, since their derive their values by pegging to a fiat currency, such as the US Dollar.

Some other Asset Referenced Tokens reference the spot prices of commodities, and hence may be considered as tokenised commodities.

Others may reference assets that are pooled and investors receive income from this managed pool of assets. The DFSA considers such tokens as Units of a Fund.

What tokens are excluded from the DIFC Crypto Assets Regime?

Utility Tokens, NFTs and Central Bank Digital Currencies (CBDCs) are excluded from this regime (“Excluded Tokens”). This does not mean that they are prohibited or banned, but instead do not fall under the regulatory purview of the DFSA.

What are Utility Tokens?

These are tokens usually issued in a closed ecosystem, as a means to pay for services or products within that ecosystem. A good example are gaming tokens. These tokens are Excluded Tokens. In some cases, these may become hybrid tokens and will then come under the purview of DFSA regulation.

What are NFTs?

Non-Fungible Tokens are unique identifiers of distinct objects – such as arts, collectibles, website domains etc.) and are used to demonstrate provenance and current ownership of the asset. They are tradable but not exchangeable, given that there are no current ways to convert/benchmark the values of such unique NFTs to a common reference point. These tokens are also Excluded Tokens, provided that they do not exhibit characteristics of other types of tokens such as security or investment tokens.

The DFSA has also proposed to bring NFT service providers within the purview of their Designated Non- financial Business and Profession (DNFBP) regime, although this is not yet finalised.

What tokens are prohibited or banned from the DIFC Crypto Assets Regime?

The DFSA has banned privacy tokens and algorithmic tokens, which means that public offers, promotions or any kind of financial services from the DIFC, involving such tokens, is prohibited.

Accepted Crypto Tokens

The DFSA has stated that any firm that wishes to provide a Financial Service in or from the DIFC, in relation to a Crypto Token or a Crypto Token Derivative, will only be able to do so if the Token is an Accepted Crypto Token, i.e., if the DFSA has accepted it for use in the DIFC. Which means that any Firm that wishes to manage a crypto asset, or advise on crypto, or solicit investments into a crypto fund, will have to consider the Accepted Crypto Tokens list before providing the service.

What are the factors that the DFSA will consider to determine whether the Crypto Token is an Accepted Crypto Token?

There six major considerations, as follows:

  1. Current regulatory status in other jurisdictions – if the crypto token has been accepted for trading in other comparable jurisdictions, and governance arrangements built into the underlying protocols, whether centralised or decentralised.
  2. Size, liquidity and volatility of the crypto token – history of secondary trading, depth of trading market across jurisdictions, total token supply and market capitalisation, factors affecting demand and supply, market liquidity.
  3. Transparency – around the technology, stakeholders and protocols, working of the consensus mechanism, traceability of transactions.
  4. Adequacy and suitability of technology – type of blockchain used, access permissions, smart contract availability, interoperability across blockchains, privacy of user information.
  5. Risks and controls – AML/CTF risks, cybersecurity risks, custody risk, settlement risk, operational risks.
  6. Reserves, stabilization and redemption mechanisms – ability to maintain a stable price, reserves held in segregated accounts with well-regulated custodians, quantity of reserves vis-à-vis volume of crypto tokens in circulation, responsibilities and liabilities.

Do firms have to submit an application for each crypto token separately, even if they have been accepted by the DFSA before?

After conducting it’s review of the application, the DFSA will announce whether a Crypto Token is an Accepted Crypto Token or not. A list of Accepted Crypto Tokens will be made available on the DFSA website. Firms that wish to use a Crypto Token that is already on this list, can do so without a fresh application.

Can a foreign financial entity set up a branch in the DIFC in order to provide crypto-related services?

No, the DFSA allows only subsidiaries, i.e. the firm will have to be setup within the DIFC. Representative Offices will also not be allowed.

What licenses will be available for crypto-related businesses?

Most of the financial services that are carried out from the DIFC, including Dealing as Principal and Agent, Asset Management, Advising and Arranging activities and operating exchanges and Alternative Trading Systems, will be able to be carried out making use of Accepted Crypto Tokens. A noticeable exception is the activity of Operating a Collective Investment Fund, which has not been mentioned in this list. We assume that there will be a clarification/inclusion of this activity before the actual legislation.

Representative Offices will not be able to promote any Crypto Token-related products or services. Operators of Crowdfunding Platforms will also not be able to provide any products or services involving any Crypto Tokens.

Existing firms will need to apply to the DFSA to vary their DFSA licenses to reflect this new asset class. There will be additional requirements to be undertaken in order to satisfy the DFSA that the firm has the adequate resources and procedures in order to carry out the financial service involving Crypto tokens. Do get in touch with us for more information.

Can Money Service Businesses offer clients access to payments, remittances, and wallet services in Crypto Tokens?

Not as of now. However, Money Service Businesses are permitted to use blockchain (and associated native Tokens required to operate on the blockchain) for limited purposes. This would be where the blockchain and native Tokens are used as a technology platform that is a back-office operation, without exposing the client to the Token.

Can a regulated firm provide services in relation to both Accepted and Excluded Crypto Tokens?

Not as of now.


Our Services

Services 1


Services 2


Services 3

1. Fintech Advisory

Consultations on structuring fintech businesses in the UAE and Saudi Arabia. Starts with advice on holding structures, share vesting plans, investor and founder legal packs. In case of regulated fintechs, we also advise and assist in authorisations from the relevant financial regulators.

(i.)Sectors – Money Service Businesses, Open Banking, Robo-Advisory (passive, automated and hybrid), crowdfunding platforms (investment, loan-based, property) and decentralised applications (DeFi and Blockchain-based solutions).

(ii.)Regulators – UAE Central Bank, Emirates Security and Commodity Authority, Dubai Financial Services Authority (DFSA/DIFC), Financial Services Regulatory Authority (FSRA/ADGM) and the Central Bank of Bahrain.

(iii.)Regulated licenses – Electronic Money Institutions (EMI), Payment Institutions (PI), Crowdfunding Platforms, AISP/PISP, Automated Investment Advisors and Asset Managers          

2. Regulatory Sandbox Consulting

Approach and structuring of regulatory sandbox licenses in the DIFC (Innovation Testing License, or ITL) and the ADGM (Fintech Reglab).

(i.)Sectors – Money Service Businesses, Robo-Advisory (passive, automated and hybrid), tokenized crowdfunding platforms (investment, loan-based, property) and decentralised applications (Blockchain-based solutions).

(ii.)Regulators –Dubai Financial Services Authority (DFSA/DIFC), Financial Services Regulatory Authority (FSRA/ADGM) and the Central Bank of Bahrain.

(iii.)Regulated licenses – Electronic Money Institutions (EMI), Payment Institutions (PI), Alternate Trading Systems (ATS), DeFi, Blockchain-based regulated fintech

3. Blockchain and Crypto


Compliant Token Design, Crypto asset Product Design, Jurisdictional Scoping, KYC/AML Policy Development for Crypto asset Products, Privacy and Data Protection Compliance Strategy for Crypto asset Products.

4. Corporate Structuring

(i.)Corporate Structuring – Holding structures, IP vesting, ESOPs, Investor on-boarding, customized Articles, Legal documentation.

(ii.)Jurisdictional Selection.

(iii.)Assistance in incorporation.

Jurisdictions – Dubai International Financial Centre (DIFC), Abu Dhabi Global Market (ADGM), Dubai World Trade Centre Free Zone (DWTC), Dubai Multi-Commodities Centre (DMCC), Luxembourg.

5. Regulatory Licensing

(i.)Tokenised Crowdfunding Licensing.


(iii.)Crypto-asset Licensing.

(iv.)Crypto-asset Facility Licensing – MTF, OTF.

(v.)Crypto Trading Platforms.

(vi.)Crypto-related advisory and asset management permissions.

6. Legal

(i.)Crypto-asset Purchase Agreements.

(ii.)Crypto-asset Terms and Conditions.

(iii.)Key Features Documents for Security Tokens.

(iv.)Private Placement Memorandums for Tokenised Funds.

(v.)STO Prospectuses.

(vi.)Simple Agreement for Future Tokens (SAFT).

(vii.)Privacy Notices.

7. Tokenisation of Assets

Legal and technical consultancy services on tokenization of physical or digital assets such as securities, real estate, financial assets, luxury goods, art, and initial public offerings. Assistance in legal documentation, compliance framework for the offering and selection of suitable jurisdictions.

We also assist with corporate and commercial documentation through our legal consultancy - 10 Leaves Legability. We assist in the drafting of:

  • Crypto-asset Purchase Agreements.
  • Crypto-asset Terms and Conditions.
  • Key Features Documents for Security Tokens.
  • Private Placement Memorandums for Tokenised Funds.
  • STO Prospectuses.
  • Simple Agreement for Future Tokens (SAFT).
  • Privacy Notices.
  • Founder agreements.
  • Shareholder agreements.
  • Investor agreements.
  • Share vesting/ESOP plans.
  • Client/Supplier/Distributor agreements.
  • Employment agreements.


Rohit Ghai – Founder & Blockchain Specialist

Rohit Ghai

Rohit is the Founder of 10 Leaves. With over eighteen years of experience in the region, Rohit consults firms on corporate structuring, market entry strategies, fintech, fund structuring, regulatory authorisations and startup funding. He conducts workshops on doing business in the region and is a regular presenter to visiting trade delegations from Europe and Asia.

Rohit advises clients on legalities related to blockchain technologies and applications, including tokenization, DeFi and DApps, Tokenomics, STOs and secondary listings.

Master in Business Administration

Capabilities – Fintech, Blockchain, Funds, Venture Capital

Jurisdictions – DIFC, ADGM, UAE Mainland, DWTC, DMCC

Bishr Shiblaq

 Bishr Shiblaq

Bishr established and headed the MENA office of the leading Luxembourg law firm, Arendt & Medernach for around 10 years. In this capacity he advised leading financial institutions, sovereign wealth funds, asset managers, MNCs and family offices in both Europe and the Middle East on all issues relating to the structuring of international transactions and the setting up of regulated and unregulated investment structures.

Certified Investment Fund Director (CIFD)

Master of Laws (L.L.M.) in International Economic Law from the University of Warwick (UK). Capabilities – Legal, Structuring, STOs and secondary offerings, Islamic Finance, Funds

Jurisdictions – DIFC, ADGM, Luxembourg, Europe

Soumen Ghosh

 Soumen Ghosh

Soumen is a Master of Computer Applications and has over 20 years of experience in media and technology applications. He has consulted international organisations on technology transformation and helped implement holistic media solutions across India and the United Arab Emirates. Soumen now consults on fintech applications in money services, robo-advisory and blockchain-related solutions. He is an active NFT creator, with profiles on OpenSea and Mintable.

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