UAE Law Brings DeFi, Web3 Under Regulatory Scrutiny
The United Arab Emirates is taking a significant step toward regulating decentralized finance (DeFi) and Web3 sectors with the passage of a new central bank law. This development, formalized in Federal Decree Law No. 6 of 2025, marks a pivotal regulatory shift for the region’s burgeoning crypto industry and signals a heightened level of oversight. Irina Heaver, a local crypto lawyer and founder of NeosLegal, described the law as “one of the most consequential regulatory shifts” for the industry within the UAE. The law is effective as of September 16, 2025, and encompasses protocols, DeFi platforms, middleware, and even infrastructure providers that facilitate activities such as payments, exchanges, lending, custody, or investment services.
A core component of the legislation, specifically Articles 61 and 62, obligates the Central Bank of the UAE (CBUAE) to issue licenses for activities involving crypto payments and digital stored value. Article 62 stipulates that any entity utilizing “any means, medium, or technology” to conduct, offer, issue, or facilitate a licensed financial activity falls under the regulatory purview of the CBUAE. This expanded scope effectively eliminates the argument that DeFi projects can operate under the guise of simply being “code,” as the law explicitly subjects protocols supporting stablecoins, real-world assets (RWAs), decentralized exchange (DEX) functions, bridges, and liquidity routing to potential licensing requirements. The law’s enforcement is already active, with the potential for substantial penalties—up to 1 billion dirhams ($272.3 million) in fines and possible criminal sanctions—for unlicensed operations.
The legislation’s implications are particularly pronounced for cryptocurrency wallet providers. Kokila Alagh, founder and managing partner of Karm Legal Consultants, noted a “fair bit of confusion” regarding the impact on self-custody or non-custodial wallets, which allow users to independently store assets. While some observers, such as Trading Strategy’s Mikko Ohtamaa, have suggested the law constitutes a “de facto ban” on crypto and self-custodial wallet apps in the UAE, Heaver and Alagh clarified that self-custody itself is not prohibited. Instead, the law widens the regulatory perimeter for companies. If a wallet provider enables payments, transfers, or other regulated financial services for UAE users, it may be subject to licensing requirements. Karm Legal Consultants has received a considerable number of inquiries concerning this issue, and further clarification from the Central Bank is anticipated as the law is implemented.
Interestingly, Mikko Ohtamaa recently criticized UAE lawyers, arguing that their businesses are “free of interest in the UAE.” However, Heaver and Alagh emphasized that the law doesn’t constitute a restriction on independent law firms. For these firms, any actions that diminish the UAE’s appeal to the crypto industry would represent a loss of income. Despite this, the firms are actively tracking the implementation of the legislation. Karm Legal Consultants is in ongoing communication with the CBUAE to obtain clarity on specific requirements. The broad scope of the new law underlines the UAE’s commitment to fostering a regulated and secure environment for digital assets while navigating the complexities of the rapidly evolving Web3 landscape.
