Gulf Business Invest Feb 2022

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MARKET WATCH

What 2022 has in store for investors P.09

BUILDING A LEGACY FOR OVER THREE DECADES, CENTURY FINANCIAL HAS DELIVERED VALUE TO ITS INVESTORS WHILE PURSUING AN AMBITIOUS DIVERSIFICATION STRATEGY

SP OTLIGH T P.26 CASHING IN ON CRYPTO Insights into the fast-evolving global and regional cryptocurrency market

P.29 NFTs EXPLAINED What are non fungible tokens and why are they so valuable?

P.37 BANKING ON CHANGE Why the year will see increased adoption of open banking by financial institutions and fintechs

Commodity outlook From precious metals and oil to gold and agriculture, here’s where the markets are leaning

Cover story How Century Financial’s employee-first strategy ends up putting their clients, and overall business, in the lead

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CONTENTS

02 2022

INSIGHTS ACROSS ALL CRYPTOCURRENCIES TRACKED BY US, TOTAL TRANSACTION VOLUME GREW TO $15.8 TRILLION IN 2021 AROUND THE WORLD, UP OVER 550 PER CENT FROM 2020’S TOTAL” — JANEY YOUNG Global Investigations, Chainalysis

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Green flags Here is where billions are being invested to fulfil the energy transition agenda

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The ESG hype Why money managers must understand the full implications of socially responsible investments

Exclusive paintings, sculptures, photography and timepieces from award-winning international artists.

Painting by Fatima Sherjan

Photograph by Yousif Alharmoodi

The Arabian Falcon Navigator Clock – Limited Edition by David Galbraith

Editor-in-chief Obaid Humaid Al Tayer

SPOTLIGHT

Managing partner and group editor Ian Fairservice Group director Andrew Wingrove andrew.wingrove@motivate.ae

EDITORIAL Editor Neesha Salian neesha.salian@motivate.ae

Deputy editor Varun Godinho varun.godinho@motivate.ae varungodinho

Talking tokens How global brands are approaching the subject of tokenisation

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Tech editor Divsha Bhat divsha.bhat@motivate.ae

Contributor Zainab Mansoor editorial.freelancer@motivate.ae zzainabmansoor

Art director Freddie N. Colinares freddie@motivate.ae

Securing crypto Kaspersky’s Maher Yamout on the roles of cryptocurrency organisations in securing customer data

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Photographer Mark Mathew

PRODUCTION General manager – production S Sunil Kumar Assistant production manager Binu Purandaran Production supervisor Venita Pinto

SALES & MARKETING Chief commercial officer Anthony Milne anthony@motivate.ae HEAD OFFICE: Media One Tower, Dubai Media City, PO Box 2331, Dubai, UAE, Tel: +971 4 427 3000, Fax: +971 4 428 2260, motivate@motivate.ae DUBAI MEDIA CITY: SD 2-94, 2nd Floor, Building 2, Dubai, UAE, Tel: +971 4 390 3550, Fax: +971 4 390 4845 ABU DHABI: PO Box 43072, UAE, Tel: +971 2 677 2005, Fax: +971 2 677 0124, motivate-adh@motivate.ae LONDON: Acre House, 11/15 William Road, London NW1 3ER, UK, motivateuk@motivate.ae Cover: Freddie N. Colinares Follow us on social media: Linkedin: Gulf Business Facebook: GulfBusiness; Twitter: @GulfBusiness; Instagram: @GulfBusiness

A GULF BUSINESS INITIATIVE

Group sales manager Manish Chopra manish.chopra@motivate.ae

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Sales executive Sonam Sharma sonam.sharma@motivate.ae

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INSIGHTS

8 GLOBAL EQUITIES Technology remains a dominant theme for investors around the world

9 ANALYSING GROWTH Understanding the challenges and opportunities that lie ahead in the year’s stock market landscape

15 OFFSET INFLATION Investment strategies to stay ahead of inflationary pressures

“Rising inflation is the biggest challenge of our times, and investors of the current generation are experiencing something they might not have seen in their entire lives” — Nadeem Khan, executive director, Century Financial

INSIGHTS

GLOBAL MARKETS

concern and risk to growth.

The rising inflation outlook and expectations that interest rates might rise caused many investors to evaluate their exposure to growth stocks, which are more sensitive to interest rates.

As a result, 2020’s winners such as green transformation, e-commerce and bubble stocks were among the worst performers last year.

Additionally, 2021 will also be remembered as the year when China likely faced its biggest challenges since the global financial crisis in 2008, with a brewing housing crisis, technology crackdown to drive more ‘common prosperity’, PETER GARNRY and weakening domestic HEAD OF EQUITY demand – all of which STRATEGY have made Chinese ELECTRICAL VEHICLE COMPANIES TESLA AND NIO equities underperform SAXO BANK compared to the rest of VIDEO GAME RETAILER GAMESTOP, TECH GIANT APPLE, the world.

AND SEMICONDUCTOR COMPANY ASML HOLDING WERE The flipside of China’s TOP PERFORMERS IN 2021 challenges has been a strong performance from India, which has emerged as one of the big economies, and the he year 2021 ended up winners in 2021, with a strong consequences were being a very good one equity market and earnings rising costs on goods and for global equities. With hitting a new record. supply constraints on key the ongoing impact of Last year, the most traded industrial components such the Covid pandemic around the stocks among our UAE-based as semiconductors, which world, the year started with high investors reflected all these had a negative impact on volatility and a Reddit-fuelled trends, with American electrical car production. campaign, which saw retail vehicle giant Tesla leading the As a result of these supply activity spike in several of the way followed by GameStop, constraints logistics, the heavily shorted stocks, such as Apple, Amazon and Nio, as commodity sector, and GameStop and AMC. investors continued to follow semiconductor stocks did But as the year progressed, the global trends driven very well in 2021, outperforming economy roared thanks to the by technology. global equities. rollout of vaccinations. Markets A similar trend reflected Owing to out-of-supply were up around 20 per cent, and across our global investors: constraints and high demand, the year’s solid performance Tesla was also the most popular inflation emerged as something was driven by a strong rebound stock ahead of Nio, ASML more broad-based and less in earnings – up 104 per cent Holding, Apple, and transitory contrary to what for the first nine months of 2021 ASM International. central banks kept insisting on. compared to the same period The biggest question for The US Federal Open Market in 2020. investors this year will be how Committee finally met in Several trends emerged over much interest rates will go up, as December last year to lay the last year. Global supply chains it will dictate many of the trends grounds for a higher Fed Funds were stretched and unable to we’ll see play out in the months Rate in 2022, with inflation deliver against an extraordinary to come. becoming a key economic demand from developed

2021: A GOOD YEAR FOR GLOBAL EQUITIES

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INSIGHTS

GLOBAL MARKETS

especially dangerous for the top US tech growth stocks. With the Nasdaq Composite Index being corrected by 10 per cent already, a sustained consolidation towards the downside could trigger more fear and panic even amongst seasoned equity investors.

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WHAT INVESTORS CAN LOOK FORWARD TO THIS YEAR

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he year has started with a lot of nervousness, as global markets are sitting on a jittery edge. The previous year’s tailwinds are now increasingly looking to act like VIJAY VALECHA 04 potential headwinds for the global equity markets. The CHIEF Fed’s extraordinary stimulus coupled with the accommodative The year when INVESTMENT monetary policy served as a significant factor for last year’s ‘uncertainty will be the OFFICER massive gains across all the risk asset classes. new certainty’ Similarly, the fiscal largesse provided by American and Global investment CENTURY FINANCIAL European authorities provided a solid cushion for the markets are currently unemployed and lower-income groups. As we come out of saturated with multiple the shadows of the pandemic, both these factors are likely to headwinds ranging from provide significant speed brakes on last year’s massive rally. Inflation central bank actions, pandemic will loom large for a lot longer, with supply chain issues hampering ill effects and overvalued recovery-related growth. markets, among other factors.

Despite all the past challenges, the year ahead will likely provide The expected volatility derived pockets of opportunities in various ways. from the implied volatility index (or VIX) curve levels has remained relatively higher last volatility. The markets’ worstTOP CHALLENGES year, near 20 per cent. Compare case scenario will likely involve 01 this with the 27 per cent returns a further sustained correction observed in the benchmark SPX– across all the risk assets.

Navigating choppy waters 500 index last year. The risk to alongside the central bank 02 reward is almost moving linearly, rowboat implying enough warning signals For global markets’ investors, a Sky-high valuations in ahead for the markets. lot depends on the ability of the specific sectors central banks to walk the middle Having closed the first month’s 05 ground. An outrightly hawkish trade, markets look to further Fed will likely lead towards a discount the possibility of more Inflation is not transitory path of more uncertainty and interest rate hikes. This is Contrary to the entire narrative

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2022: CHALLENGES AND OPPORTUNITIES

Chances of more flare-ups in Covid-19 variants If the last 18 months are any indication, chances of discovery of new mutants and variants of Covid–19 are extremely high.

While the previous Omicron variant is said to be much less dangerous than the highly infectious Delta variant, the world of virus mutations and its treatment is 100 per cent unpredictable. This will likely imply more negative triggers for any short periods of calm and complacency. Even the 1918 Spanish Flu had multiple waves.

INSIGHTS

GLOBAL MARKETS

being built up last year by central bankers and economists of inflation being transitory, the current rise in inflation trajectory is proving out to be stickier than previously expected. From supply chain snags to sudden demand outbursts in the post-pandemic recovery phase, the roots of inflation are firmly anchored to the ground, as seen in the current cycle. This is also the number one reason why the Fed has suddenly started its shift towards a hawkish tone.

TOP OPPORTUNITIES 01

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Pivot towards Steepener trades Markets are currently battling out the expected rise in key US interest rates. What the US does with its money markets and bank rates has enormous repercussions on the global economy. A look at the current Eurodollar futures contract shows the gravity of the entire interest rate rise episode. The rolling three-month Eurodollar futures have corrected from a high of 99.82 seen in July 2020 to the current lows of 98.61, implying the market expectations of a massive shift in interest rate trajectory. Time is ripe to enter products trades that are highly correlated with an interest rate rise. This includes sectors such as financials, which have historically remained strong in a rising rate environment. Concentrating on a shorter-maturity bond portfolio with decent yields avoids the risk of being too exposed to a significantly longer duration.

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Return of value investing Some of the best-performing stocks in 2021 were the previous year’s laggards. Energy sector stocks such as Halliburton (24 per cent), Chevron (10 per cent) and Aviation major Boeing (8 per

As per the latest survey from Gartner, more than 80 per cent of the firms surveyed in the technology and service space expect their AI investments to top $1m over the next two years” cent) have outperformed the top names in the Nasdaq-100 as well as the FAANG index.

Value investing as a theme might get further impetus with the sudden shift towards higher interest rates and ongoing move towards the ‘recovery and reopening’ theme.

03 Despite the ongoing sell-off, growth stocks will dominate the average investor’s mindset Legacy growth names that are part of the benchmark US indices have a built-in business model that is hard to replicate by anyone.

These tech companies also drive the global economy through physical devices or onsite/ offsite products and services.

The current dip can be seen as more of a technical adjustment by the markets discounting the new normal. This likely implies balancing out the inefficiencies and high valuations in the overstretched markets.

04 Blockchain and AI see growing relevance Blockchain and cryptocurrencies went through a massive paradigm shift in 2020-21. What started as a fad is now slowly catching the average investor’s interest. So much so that despite the over 50 per cent correction currently seen in cryptos, most institutional investors are still looking to diversify to legacy cryptos, including Bitcoin and Ethereum. The growing relevance

of decentralised finance (or DeFi) and non fungible tokens (or NFTs) is seeing more optimisations and consolidations across the blockchain space. Use casespecific and competitive cryptos – such as Solano and Polygon – are likely to see a new wave of investors based on the underlying sentiment in the crypto markets.

Artificial intelligence (AI) and cloud computing are also in focus. Almost every major industry in every corner of the world is leveraging the power of AI and increasing their physical and network infrastructure to either complement the work being done by humans or replace it outright by providing a superior level of skillsets and competency. As per the latest survey from Gartner, more than 80 per cent of the firms surveyed in the technology and service space expect their AI investments to top $1m over the next two years. While exploring primary use cases of AI remains in a very nascent stage, its broader adoption and integration will likely see more traction and value addition in this field.

05 ESG investing will continue being in the spotlight The increasing frequency of extreme weather events and events related to social justice have contributed to the elevation of ESG issues as the top priorities for investors, companies, and policymakers. According to Refinitiv Lipper data, $649bn flowed into ESG-focused funds worldwide by November 30, 2021, up from $542bn and $285bn, respectively, in 2020 and 2019. As a result, ESG funds now account for 10 per cent of worldwide fund assets. Additionally, the number of US companies voting in favour of ESG proposals has increased from 21 per cent in 2017, to 27 per cent in 2020, to 32 per cent in 2021.

INSIGHTS

COMMODITIES

Heading into the year, supply chain disruptions are anticipated to improve, while the commodity balances will appear less tight than in 2021. This should ideally result in lower prices from current levels”

COMMODITY FORECAST: MAPPING THE MARKET

back into surplus. China and the US are trying to put political pressure on global oil markets by releasing oil from their strategic reserves.

Nevertheless, OPEC leader Saudi Arabia’s YOGESH comments suggest that KHAIRAJANI the OPEC members are A LOOK AT HOW GOLD, OIL AND unlikely to succumb to GLOBAL MARKET INDUSTRIAL METALS ARE STRATEGIST pressure tactics. Saudi Arabia’s Energy Minister EXPECTED TO FARE THIS YEAR CENTURY Prince Abdulaziz bin FINANCIAL Salman commented set to tighten monetary ommodities were one that it was up to the US policy over the course of the best performing to release more supply from of 2022, which will increase asset classes of 2021, strategic petroleum reserves. the pressure on yields and the with the Bloomberg However, whether or not the dollar. Since commodities are Commodity Index gaining more prices will correct on any more dollar-denominated and are nonthan 25 per cent for the year. reserve supply releases, will yielding assets, this scenario will Demand rebounding after depend on the magnitude of cap the upside. the pandemic, supply chain reserve replenishment, and how The Chinese property market disruptions, government stimulus top oil importers exert pressure is another lingering concern. If and adverse weather have all on OPEC. there is a further slowdown, it is contributed to market tightness From a fundamental perlikely to put downward pressure last year, driving commodity spective, oil seems to be bullish on the complex, particularly prices higher. as demand for 2022 could hit metals. Nevertheless, the Heading into the year, supply a record high on the back of likelihood of this happening chain disruptions are anticipated recovering air travel. The postlooks less likely as China seems to improve, while the commodity pandemic demand outstrips to be becoming a little more balances will appear less tight supply, and it could go even accommodating when it comes than in 2021. This should ideally higher as countries open up furto policy. result in lower prices from ther. OECD inventories are likely current levels. Nonetheless, to fall by the summer to their Fundamental backdrop remains prices are expected to remain lowest levels since 2000. Moreofavourable for oil above long-term averages. ver, OPEC+ spare capacity is also Oil is set to see strong supply Besides, there will be a number set to drop to historically low growth from non-OPEC nations, of macro headwinds, which levels of about 1.2 million barrels which coupled with a further will likely limit further upside per day (bpd). This sets a bullish easing in OPEC+ supply cuts, for the commodities complex. backdrop for oil. should push the global oil market Firstly, global central banks are

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INSIGHTS

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COMMODITIES

Major gains for gold will remain on hold Gold finished the last year nearly 4 per cent lower, its first yearly loss in three years, despite inflation hitting the highest level in nearly four decades. Since the metal does not pay any interest, it succumbed to rising yields as central banks worldwide resorted to policy tightening measures to contain inflation.

Gold may face similar dynamics in 2022 like those seen last year, as tightening from central banks around the world along with expectations of further dollar strength should mean investment demand for gold remains weak. Nonetheless, contrary to expectations, gold has managed to remain stable so far this year even as central banks prepare to dial back stimulus and inflation-adjusted bond yields rise. Given expectations for even more rate hikes this year than markets are pricing in, gold may be seeing some inflation hedging from traders who believe central banks are not doing enough to reduce price pressures. Meanwhile, recent market volatility and geopolitical concerns surrounding Russia and Ukraine have boosted demand for safe-haven gold.

For the year, gold is expected to remain range bound with any major upside potential capped as interest rates rise. However, at the same time, market pullbacks will likely sustain the hedge demand for gold, while jewellery and central bank gold demand may provide additional longerterm support. Strong resistance for gold is seen near the $1,9001,920 zone, while strong support is seen near $1,680 levels.

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Positive outlook on industrial metals The supply demand balance for most metals appears to be improving, implying that prices will pull back from their present

NEVERTHELESS, THE LONG-TERM FUNDAMENTALS OF COPPER ARE BULLISH AS COPPER DEMAND IS FORECASTED

TO RISE BY 16 PER CENT

BY THE END OF THE DECADE”

highs. However, they are expected to remain above their long-term averages. Inventories are low among several metals, and the outlook on the medium-term forecast for demand is positive due to increased expenditures in green initiatives, which are metal-intensive.

Copper will continue to prosper in the long run The global copper market could have a bearish undertone for the second half of the year, as new supply hits the market.

Refined output growth of 6 per cent will outstrip refined demand growth of 1.3 per cent this year.

The Democratic Republic of the Congo-based Kamoa-Kakula concentrator capacity is to double in the second quarter of 2022, while Anglo American predicts its 300,000 metric tonnes (t)/yr Peruvian Quellaveco mine will start this year. Nevertheless, the long-term fundamentals of copper are bullish as its demand is forecasted to rise by 16 per cent by the end of the decade, attaining 25.5 million tonnes per annum (tpa) by 2030. This is compared to a supply forecast showing a 12 per cent decrease versus 2021 levels. Moreover, current copper mines are near peak capacity due to ore quality and reserves exhaustion.

Iron ore outlook to remain sour Iron ore prices have rebounded nearly 45 per cent from the lows of $80 per tonne in November 2021 to $114 per tonne as

of January 2022, thanks to the recent measures by the Chinese government to frontload infrastructure investment to help the economy. However, the outlook for iron ore appears gloomy, courtesy of the turmoil in the country’s property sector and continuing steel production curbs in line with the country’s decarbonisation goals. As witnessed in the second half of 2021, steel output cuts are likely to feature again this year in China. Because iron ore is used to create steel, a decrease in steel production will put downward pressure on iron ore prices.

Aluminium appears strong The aluminum market is approaching a period of structural shortfalls, and there is no quick fix to resolve this this should likely see prices trading higher.

Nickle is likely to continue doing well Nickel remains in the spotlight due to fears of a shortage, as battery demand grows and supplies face headwinds. Nickel prices have risen to their highest level in nearly 11 years, as Indonesia - a major producer – has touted the idea of taxing nickel exports, just as stocks of the metal dwindle. As long as these imbalances continue, prices will remain elevated.

Agricultural commodities Prices are expected to ease as weather conditions improve, but they’ll likely remain above longterm price averages.

Overall, there are some downside risks across the commodities complex in 2022, however relative to the historical average, prices are likely to trade at elevated levels for another year. Of course, the course of the pandemic will remain a potential risk factor, be it upside or downside.

INSIGHTS F E AT U R E

RISING STAKES FOR GREEN CAUSES E

nergy transition investment follows familiar patterns in global capital markets. Large, established financial institutions supply hundreds of billions of dollars a year to finance construction of long-lived assets using familiar zero-carbon technologies — i.e., deployment.

Smaller institutions (some well-established, others quite new) supply tens of billions to fund company formation and the proving-out of new technologies and business models, or innovation.

Last year, energy transition and climate tech — including renewable energy, energy storage, electrified vehicles and heating, hydrogen, nuclear power, sustainable materials and carbon capture — attracted more than $900bn. Energy transition pulled in $755bn, a 25 per cent increase over 2020 investment, double of what was invested in 2015, and a more than 20-fold increase since 2004.

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WHERE THE BILLIONS POURING INTO THE ENERGY TRANSITION ARE GOING

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F E AT U R E

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Renewable energy is no longer the investment growth driver it once was. With $366bn invested last year, renewable energy is still a driver of investment volume (it is still almost 50 per cent of all investment). The investment growth distinction belongs to electrified transport, which exceeded $270bn last year.

Comparing compound growth rates shows these two trends very clearly. Electrified transport is growing at ten times the rate of renewable energy — and if that rate holds for just one more year, transport will be a bigger driver of energy transition investment than renewable power. It is worth watching energy storage’s growth rate as well, which at more than 30 per cent means the sector investment doubles in a little over two years.

Climate innovation funding reached $165bn in 2021. BloombergNEF tracks climate tech investment by both asset class and sector, and both reveal important trends.

Equity capital markets were open for climate tech at every level last year — the IPO window was wide open, with companies raising more than $40bn listings. Likewise, the special purpose acquisition company (SPAC) market boomed, with more than $35bn deployed by investors who had raised capital in hopes of buying climate tech companies. The private placement in public equity (or PIPE) market was also liquid, though smaller at just under $14bn.

Secondary share sales by public companies topped $21bn as well.

That leaves the final, and largest, asset class for climate tech: venture capital (VC)and private

Comparing compound growth rates shows these two trends very clearly.

Electrified transport is growing at ten times the rate of renewable energy — and if that rate holds for just one more year, transport will be a bigger driver of energy transition investment than renewable power”

equity (PE). VC and PE climate tech investment hit almost $54bn last year. Importantly too, it was fairly consistent throughout the year, whereas public market activity shrunk to nearzero in April and again in October 2021.

Climate tech VC and PE flowed into all sorts of sectors, but transport (41 per cent of total) and energy (27 per cent of total) took in more than two-thirds of all early-stage investment dollars.

Agriculture was next, followed by climate and carbon services companies. The buildings sector lagged far behind, raising only 3 per cent of total early-stage climate tech dollars last year.

As climate tech companies mature and move from VC and PE dollars to public markets liquidity, their capital needs increase. Making the move from innovation to deployment is not a matter of degree — it is a matter of orders of magnitude. Even if only a fraction of companies supported by last year’s $54bn in climate tech VC and PE succeed at global scale, their capital needs for deployment will be in the hundreds of billions of dollars. Combine their potential successes with continued incremental growth in renewable energy, and massive growth in electrified transport, and energy transition investment will hit the $1 trillion annual mark quite soon.

Bloomberg

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ONES TO WATCH

STOCKS AND INSTRUMENTS INVESTORS SHOULD LOOK AT DURING PERIODS OF HIGH INFLATION

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t might be cliche, but it’s worth saying again. Rising inflation is the biggest challenge of our times, and investors of the current generation are experiencing something they might not have seen in their entire lives. The pace of increase in prices in the US is the highest in four decades. Yet, most market participants are conditioned to a world where inflation was consistently below or near the Fed’s 2 per cent target. The changed scenario calls for a new investment paradigm. Higher prices mean the US Federal Reserve will combat inflation by

aggressively raising the Federal Funds rate and tapering bond purchases. Moreover, the US Central Bank might also reduce the monetary policy accommodation by reducing the balance sheet size. This process, termed ‘quantitative tightening’, involves selling bonds, which will reduce the amount of money in the economy.

This operation is the exact opposite of ‘quantitative easing’. The net impact of these moves will be a rise in US Treasury yields, raising the cost of money. Or in other words, an average layperson will have to cough up higher interest charges on their loans.

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WORDS: NADEEM KHAN, EXECUTIVE DIRECTOR, CENTURY FINANCIAL

INSIGHTS F E AT U R E

JPMorgan Chase, the largest bank in the US, with $3.2 trillion in assets at the end of the third quarter, is an appealing prospect for investors. The bank has quadrupled its quarterly dividend payment over the last decade, sending out a message that it is serious about sharing its success with shareholders”

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BUSINESSES TO WATCH

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The challenge for an investor is to identify suitable investment themes in this climate. For example, companies with low debt-equity ratios will outperform due to lower interest costs. On the other hand, those firms with a high base of fixed assets financed through loans will see their interest costs spike and net profits decline. So, investors should avoid them. Service sector businesses tend to have lower debt on their balance sheet. Microsoft is a classic example.

Banks and insurance firms could see a sharp improvement in their bottom line. Currently, the shortterm yield has risen faster than long-term ones, resulting in a flattening yield curve; however, that could change in the coming quarters, especially when the Federal Reserve starts reducing its balance sheet.

In addition, through quantitative tightening, bonds of longer tenor are sold, which raises the long-term rates, resulting in steepening of the curve. Practically, it means that the difference between short and longterm yields will rise in the next few quarters. The rising spread is a bullish scenario for banks, as they borrow short-term and lend for longer. Insurance companies also will see their profits rise since they will be able to invest premiums from their customers into higheryielding debt securities.

Another set of businesses that will do well are companies with strong brands. Good examples would be companies such as McDonald’s and Coca-Cola. These companies have good pricing power, and in an inflationary environment, they will be able to raise prices and protect their profit margins.

Inflation-linked bonds (or ILBs) issued by sovereign governments, such as the US and the UK, are another way to protect against inflation.

Investors should avoid growth stocks or companies with a high valuation. These companies have the bulk of their cash flow forecast in the distant future. When long-term yields rise, their future cash flows get discounted at a higher rate, which compresses their valuation. Electric vehicles and early-stage fintech companies are some examples.

RELIABLE CHOICES JPMorgan Chase, the largest bank in the US, with $3.74 trillion in assets at the end of 2021, is an appealing prospect for investors.

The bank has quadrupled its quarterly dividend payment over the last decade, sending out a message that it is serious about sharing its success with shareholders. The current dividend yield of 2.7 per cent is also healthy.

Furthermore, a solid balance sheet is one of JPMorgan Chase’s most vital assets, which will likely become even more impressive when the company starts investing in technology

$8.1bn

STARBUCKS CORPORATION POSTED RECORD FOURTH QUARTER EARNINGS IN 2021

22 %

year-over-year increase in US store sales

infrastructure to improve performance and efficiency.

Microsoft is one of the best-positioned cloud titans for the next decade. Microsoft’s dramatic growth over the past seven years was led by expanding its cloud services, including Azure, Office 365, Dynamics, LinkedIn, and its other cloud-based software. The company reports these businesses together as the Microsoft Cloud. For the quarter ended December 31 [in 2021], Microsoft reported revenue of $51.7bn, up 20 per cent from the corresponding period in the previous year, with profits of $2.45 a share. The most impressive aspect of its business is its strong free cash flow which has helped it have a rocksolid balance sheet. The cash in the balance sheet is at $125bn, compared with the debt of $80bn, making it a net cash company.

The Walt Disney Company creates magical and adventurous fantasies and rides, helping it have excellent brand equity among its clientele.

Moreover, relaxation of lockdowns and rising vaccination rates will allow Disney’s primary businesses, movies, cable, and theme parks, to be revitalised in the following quarters.

Spider-Man: No Way Home, produced

by Disney and Sony, is the first film in the pandemic era to deliver a gross of $1bn at the box office. The business is inextricably linked to consumer spending power in the US and worldwide, which will benefit from wage inflation across the world.

Starbucks Corporation, the American multinational chain of coffee houses, enjoys excellent customer loyalty. The company posted record fourth quarter earnings [in 2021] to the tune of $8.1bn, driven by a 22 per cent yearover-year increase in US store sales.

The company still expects to grow revenue in FY 2022 by 11.8 per cent to 13.6 per cent, while sustaining a 17 per cent operating margin. However, Starbucks expects its operating margin will improve to between 18 per cent and 19 per cent by FY 2023.

And the rising operating margins are despite a spiking wage bill, which shows its superior pricing power.

INSIGHTS F E AT U R E

THE ESG INVESTMENT BUBBLE

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REGULATIONS AND STRINGENT VETTING CRITERIA MIGHT BE NECESSARY TO REIN IN THE HYPE AROUND ESG INVESTING TO RETURN IT TO ITS MOST IMPACTFUL STATE

INSIGHTS F E AT U R E

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ew people have benefitted more from the boom at an annual rate of 10.1 per cent from the end of in ESG investing than Jerome Dodson. Almost 1984 through April 2018, compared with the 11.2 per four decades ago, Dodson founded Parnassus cent return of the S&P 500, according to the firm.

Investments – a little known firm outside of ESG Parnassus has steadily expanded, with assets circles – and watched it grow into the world’s largest increasing to $48bn at the end of last year from money manager dedicated to environmental, social $5.5bn a decade earlier. The San Francisco-based and governance factors. The 78-year-old retired in firm prospered as the universe of ESG funds October last year after he and his family sold their ballooned globally to about $4 trillion, according to stakes in the business. Dodson lauds how ESG has over data compiled by Morningstar. In 2021, Parnassus the years helped push corporations and investors attracted a record $4bn of new money and generated alike to act on issues such as worker rights and $320m of fees, more than any active manager of ESG environmental protections. But as more money piles funds, Morningstar said. into the strategy, many companies and investors are Dodson stepped down from running Parnassus in exaggerating their efforts and impacts, Dodson says.

2018 and became chairman. He continued to oversee The ESG bubble is “a little disconcerting,” Dodson one of the firm’s funds until the end of 2020. Four says. “It’s good that more people are talking about months ago, Dodson sold control of Parnassus to ESG. But if you look at how some money managers determine if a company is socially responsible, it’s not very rigorous and they’re not really strict in their criteria. We have a lot of money coming in and they use ESG as a marketing tactic.”

IT’S GOOD THAT MORE PEOPLE Stronger regulations are needed to clamp down ARE TALKING ABOUT ESG. BUT IF on so-called greenwashing and address underlying YOU LOOK AT HOW SOME MONEY issues such as climate change, Dodson says. “ESG MANAGERS DETERMINE IF A alone isn’t going to save the planet.” To counteract COMPANY IS SOCIALLY RESPONSIBLE, overstated claims, Dodson says investors need to IT’S NOT VERY RIGOROUS AND be more rigorous in their analysis of companies by THEY’RE NOT REALLY STRICT IN pressing them for specifics on the actions they’re taking on ESG issues, and disregard answers that are THEIR CRITERIA. WE HAVE A LOT OF too general. Investors themselves should specify what MONEY COMING IN AND THEY USE standards they are using in their strategies, while ESG AS A MARKETING TACTIC” regulators should require fund managers to provide more details about their ESG tactics, he says.

A deluge of money has flowed into ESG in the past Affiliated Managers Group. Dodson and his familyseveral years, making it one of the hottest areas of owned about 62 per cent of Parnassus, and today investing. The enormous growth has prompted other Dodson is worth about $150m, according to the current and former sustainability executives and Bloomberg Billionaires Index. Parnassus plans to start academics to criticise ESG for having limited impact in filing shareholder resolutions that press companies tackling systemic environmental and societal issues. to address ESG issues and is looking to hire someone Dodson echoes Matt Patsky, who runs Trillium to lead the effort, says company spokesman Joe Asset Management, one of the oldest ESG firms. He Sinha. It was something the firm hadn’t done under said last year that regulators’ efforts to rein in money Dodson’s leadership because, Dodson says, they were managers’ ESG claims are the “best thing to happen to too time-consuming. While Parnassus voted in favour the industry in years.” Regulators in Europe of proposals filed by other investors, the are seen as being closer than their US fund preferred to raise issues directly with counterparts to rolling out ambitious rules corporate executives in private meetings, aimed at stamping out greenwashing.

Dodson says.

ESG funds Dodson, who ran a small bank in the late Dodson says he sold his stake in ballooned 1970s where he created a savings account Parnassus to secure liquidity. He’s so far globally to that helped finance solar-energy projects spent his time in retirement cycling daily in San Francisco, was inspired early in his around San Francisco’s Embarcadero about career by Benjamin Graham’s book The waterfront, focusing on his charitable Intelligent Investor, which described how donations and monitoring investments. He to invest in undervalued stocks. Dodson says US stocks are overvalued and expects sought to pair that strategy with socially them to fall about 20 per cent from their responsible investing and started Parnassus January peak before recovering to “much in 1984. One of the funds he ran, which is more realistic valuations”. now called Parnassus Mid Cap Growth, rose Bloomberg

$4 trillion

COVER STORY CENTURY FINANCIAL

FIRMLY INVESTED IN GROWTH PHOTOS: MARK MATHEW

CENTURY FINANCIAL’S CEO AND CHAIRMAN BAL KRISHEN TELLS NEESHA SALIAN HOW INNOVATION, TECHNOLOGY AND A MOTIVATED TEAM WILL BE DRIVING THE INVESTMENT FIRM’S AMBITIOUS EXPANSION PLANS THIS YEAR

T

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he atmosphere is upbeat at Century Financial’s first employee meetup of the year.

The UAE-based financial services and investment firm has more than 170 team members supporting its operations, and they are all present to celebrate the company’s exemplary performance in 2021.

They are also awaiting direction on the firm’s ambitious plans, which include leveraging its ongoing diversification initiatives, to support further growth and expansion in 2022 and the years ahead.

20

Walking around the elegant banquet room – at V Hotel in Dubai – where the event is being hosted, I see consultants, analysts, fund managers and directors sharing stories – some of these are about the previous quarter’s wins, rising inflation and the Fed’s hawkish stance, while others analyse the opportunities in property technology and digital assets. The conversations are peppered with personal anecdotes, camaraderie

and warm laughter, particularly when Bal Krishen, the firm’s CEO and chairman, stops by to chat with colleagues.

His demeanour is downto-earth; his words are encouraging. It’s clear that Krishen is admired, not just for his pragmatism and vision, but also for his simplicity and humility.

These scenes give you an insight into the company’s great work culture, which is inspired by ‘Ubuntu’, an African philosophy that promotes a community-centric ethos. It speaks to the fact that we are all linked, and that we – as individuals – can only grow and progress through the development and advancement of people around us. Coincidentally, this way of thinking has also driven the amazing growth of both Dubai and the UAE for the past 50 years.

In a conversation with the CEO and chairman a week after the meetup, he reveals that these values have been the most effective when it comes to overcoming challenges, particularly the ones

that communities and companies faced during the Covid pandemic.

“We are a people-centric organisation, and have witnessed growth even in these tough times, primarily because we’ve been there with our people and for our people,” he stresses.

This people-focused approach provides a valuable support system for Century Financial’s multi-cultural team, who work in a high-pressure environment.

It’s also the reason why the firm has been consistently rated as a ‘Great Place to Work’ in the region [in 2021 as well], based on a thorough and independent analysis

C O VC EO RV E R STOS RT YO R Y

WE ARE A PEOPLE-CENTRIC ORGANISATION, AND HAVE WITNESSED GROWTH EVEN IN THESE TOUGH TIMES, PRIMARILY BECAUSE WE’VE BEEN THERE WITH OUR PEOPLE AND FOR OUR PEOPLE” conducted by Great Place to Work (GPTW) Middle East. Last year, the firm also topped GPTW’s list of ‘Best Workplaces for Millennials’ and ‘Best Workplaces for Women’ in a list featuring 30 other entities

in the GCC. These accolades were complemented by six other local and international awards that the firm won last year, acknowledging Century Financial’s position as one of the UAE’s top investment

consultancy firms, and its resiliency in the current environment.

The company’s approach to investor relations has also been pervaded by Ubuntu. Over 30 years, Century Financial has built a loyal client base, who rely on the firm’s expertise and a longstanding relationship based on trust, to help them successfully navigate through changing market trends, including the challenges and opportunities that have unfolded due to Covid, and those that this year will bring.

The key to the firm’s strong relationship with investors, Krishen explains, is offering them

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CCE ENNTTUURRYY FINANCIAL

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22

best-in-class support, backed by the latest technology and global best practices. Innovation is also critical, as is keeping a close eye on what investors are interested in.

“We care about our customers,

and are always open to exploring new areas of growth, more so, if it benefits investors,” he says.

Krishen explains, “Earlier, Century Financial was driven by customer preferences that

primarily tapered to investments in forex and commodities, with a focus on traditional investment products. Now, with changing investment preferences, we’ve introduced trending and contemporary products focused around ESG, digital assets and global stocks, among others. The entire emphasis has shifted to sound and proper investments, with an emphasis on value and long-term growth.”

Shifts in the investment landscape have also complemented Century Financial’s expansion plans, which include adding new business verticals. This, Krishen says, not only provides an additional revenue stream to the company, but also complements the existing business, while meeting the needs of the firm’s customers.

He adds, “We are committed to providing smart trading and investment decision-making solutions and have introduced

COVER STORY

‘Quantifier’, a quant and algo strategy building tool for investors.”

The tool is a product of the research and work of the firm’s Innovation Lab, which was launched in 2021 to provide and implement end-to-end investment solutions by leveraging artificial intelligence, machine learning and other technology tools.

Century Financial has been an early adopter of these technologies, which according to Deloitte Global’s Artificial Intelligence

- The next frontier in investment management report, are “helping advisors to generate more insights, customise content more effectively, and deliver it to clients with greater agility and speed”.

Recently, the firm launched Century Private Wealth, a bespoke wealth and asset management company, operating under the Category 3C licence regulated by the Dubai Financial Services Authority, to focus on asset management and wealth management. The asset

management arm just launched its first hedge fund, aimed at serving professional clients with a unique investment strategy.

Century Bank Brokers, also launched in 2021, includes a core team of banking veterans who offer a curated portfolio of retail and commercial banking solutions through partnerships with banks, non-banking finance companies and other financial institutions.

This year, the firm is looking at moving into property investments more aggressively.

“We’ve wanted to bring real estate into our portfolio for some time now, and are introducing Century Realtors to address this segment. We’re also working on launching a crowdfunding platform for real estate investments,” reveals Krishen.

With this launch, the firm will open up investment opportunities for a new type of investor. “Fractionalising ownership shares to offer lower minimum investments and undertaking the fundraising process in a digital marketplace has the potential to increase access to real estate investment by small and retail investors,” the CEO and chairman says.

The firm is also focused on the emerging investor segment comprising millennials and Gen Z. Krishen says that while Gen X forms a large part of the firm’s client base, changing market trends reveal that millennials and Gen Z are increasingly investing in international capital markets. Their preference: tech stocks, ESG investments and crypto assets.

Century Financial sees the opportunity to guide and educate this influential segment of investors, who have the buying power and are looking for good investment opportunities.

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WE’VE WANTED TO BRING REAL ESTATE INTO OUR PORTFOLIO FOR SOME TIME NOW, AND ARE INTRODUCING CENTURY REALTORS TO ADDRESS THIS SEGMENT. WE’RE ALSO WORKING ON LAUNCHING A CROWDFUNDING PLATFORM FOR REAL ESTATE INVESTMENTS”

CENTURY FINANCIAL

COVER STORY

02 2022 | GB INVEST

CENTURY FINANCIAL

24

Geographically, the company is aiming at expanding its interests into Saudi Arabia and other GCC markets.

“Saudi Arabia, in particular, has huge potential. The country’s leadership is firmly focused on diversifying its economy with the Vision 2030 initiative, and we are tapping into these opportunities,” says Krishen.

SAUDI ARABIA, IN PARTICULAR, HAS HUGE POTENTIAL. THE COUNTRY’S LEADERSHIP IS FIRMLY FOCUSED ON DIVERSIFYING ITS ECONOMY WITH THE VISION 2030 INITIATIVE”

In January, the company also signed a memorandum of understanding to invest $100m in Jammu & Kashmir (J&K), in India. The investment will cover three hotels and one commercial-residential complex in the union territory.

Krishen, originally a native of the Doda district of Jammu, says: “I have always believed that J&K has tremendous investment potential. Making a significant contribution to my home state has always been my dream. I can now see this dream being realised, it’s immensely gratifying.”

The vision of Century Financial’s CEO and chairman, however, doesn’t end here. It comes back to the Ubuntu philosophy, as it involves contributing to the upliftment and development of the underprivileged sections of society through education, employment and empowerment.

“These goals – which support society at large – are close to my heart,” he concludes.

02 | 2022

SPOTLIGHT

29 HOW NFTs ARE DISRUPTING THE WORLD OF ART, MUSIC AND RETAIL Simon Reid explains if NFTs are overhyped

37 THE 2022 OPEN BANKING REPORT This is set to be an exciting year for open banking, reveals Tarabut Gateway’s report

40 CRYPTO CRIME REACHES AN ALL TIME HIGH Chainalysis shares insights into the security aspects of the crypto industry

“The cryptocurrency market size was $1.49bn in 2020 and is expected to reach $4.94bn by 2030, increasing at a compound annual growth rate of 12.8 per cent for the forecasted period” — Ola Lind, director, FTFT Capital

SPOTLIGHT

COMMENT OL A L IN D

D IREC T OR

COUNTING ON CRYPTOCURRENCY CRYPTOCURRENCY USERS ARE INCREASING AT 113 PER CENT EVERY YEAR. ANALYSTS SAY EVEN IF IT SLOWS TO THE 63 PER CENT GROWTH RATE SEEN BY THE INTERNET, IT WILL RESULT IN FOUR BILLION USERS BY 2030

F T F T C A PI TA L

for fast and transparent recording of transactions between two parties.

THE MARKET OVERVIEW

The cryptocurrency market size was $1.49bn in 2020 and is expected to reach $4.94bn by 2030, increasing at a compound annual growth rate of 12.8 per cent for the forecasted period. In November 2020, the cryptocurrency market reached $3 trillion. Bitcoin, the most valuable cryptocurrency, in February 2021 reached $1 trillion in market value; Ether, the second largest, reached record highs, while Altcoins, including meme inspired Dogecoin, soared in popularity. Transparency or distributed ledger technology and an increase in venture capital investments are the primary reasons driving the sector forward. Cryptocurrency users are increasing at 113 per cent every year. Even if it slows to the 63 per cent growth rate seen by the internet simultaneously, analysts believe it would result in four billion users by 2030 or before.

THE MIDDLE EAST CRYPTOCURRENCY MARKET

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C 26

ryptocurrency known as virtual currency, employs cryptographic techniques to transmit digital information, ensuring valid and legitimate transactions. There is no central authority involved. In the cryptocurrency market, there are thousands of cryptocurrencies with various design objectives. The design objectives include offering a digital currency alternative to cash (Bitcoin, Monero, and Bitcoin cash), enabling low-cost payment systems (Ripple, Particl, and Utility

Settlement Coin), and enabling the underlying platform or protocol to function correctly (Ether and NEO). Blockchain is the technology that underpins cryptocurrencies. This ‘open, distributed ledger’ allows

In the Middle East, cryptocurrency adoption is at an all-time high, and regulatory framework supporting crypto-related financial services are expanding. The region’s crypto ecosystem is increasing, while the regulatory policy is being

BLOCKCHAIN IS THE TECHNOLOGY THAT UNDERPINS CRYPTOCURRENCIES. THIS “OPEN, DISTRIBUTED LEDGER” ALLOWS FOR FAST AND TRANSPARENT RECORDING OF TRANSACTIONS BETWEEN TWO PARTIES”

THE UAE HAS BEEN ONE

GROWTH IN CRYPTOCURRENCY NUMBERS

OF THE MOST WELCOMING REGIONS TO ESTABLISH 9,929

CRYPTOCURRENCY OTHER CRYPTOCURRENCY

7,557 6,826

VERTICALS. NUMEROUS

6,044 5,840

POLICIES HAVE BEEN

4,501

IMPLEMENTED IN DUBAI

2,817

66 2013

506

562

644

2014

2015

2016

1,335

TO BOOST INVESTMENT IN

1,658

2017

BLOCKCHAIN TECHNOLOGY MAR 2018

NOV FEB JUL 2019 2021 2021

AUG OCT NOV 2021 2021 2021

JAN 2022

SOURCE: STATISTA.COM

crafted in response to the growth in demand for cryptorelated financial services.

The UAE has been one of the most welcoming regions to establish cryptocurrency trading agencies and other cryptocurrency verticals.

Numerous policies have been implemented in Dubai to boost investment in blockchain technology enterprises. According to a recent expert poll, institutional investors and wealth managers in the country want to strengthen their exposure to digital assets between now and 2023.

TOP PREDICTIONS FOR 2022 AND 2023

Predicting the market by cryptocurrency types, experts say Bitcoin has the possibility of topping $100,000 by the end of 2023. According to analysts, Binance Coin (BNB) might reach $1,000 by the end of 2022. However, some analysts believe that even a price objective of $100,000 is

too low.Furthermore, within this year, analysts predict that the Solana (SOL) price will stabilise and hit $300, if not more. Following a relatively slow increase in June and July last year, its value pushed through in mid-August and kept rising until mid-September.

Dogecoin (DOGE) is estimated to increase up to $3 in 2022. Shiba Inu (SHIB) jumped in May 2021, but was quickly pushed down by DOGE. Shiba could reclaim its past highs, with a predicted price of $0.000084 in Q1 2022, continuing to increase to $0.000088 by Q3 2022. Analysts predict that the average price of LUNA might cross the $105 mark by 2022 with a maximum value of more than $120.

Ethereum also gained momentum during 2021, and it is important to note how its market value soared with the announcement of the ETH 2.0 upgrade. This upgrading initiative is projected to continue in 2022 according to experts, which is one of the primary factors that will drive

ENTERPRISES” ETH price to $6,000 by the end of 2022. BNB is one of the most popular cryptocurrencies today, with more than $1bn daily trading volume.

Nevertheless, the greatest threat to it is extreme volatility, with some experts predicting a price collapse.

However, analysts believe BNB will surpass the $1,000 milestone by the end of 2022.

THE FAST-EVOLVING CRYPTOCURRENCY MARKET

On the rapidly developing cryptocurrency sector and consumer acceptance of cryptocurrencies, the FTFTX team attributes this to the appeal of peerto-peer transactions in a decentralised system such as Bitcoin or a centralised system such as Ripple, the absence of a central authority, the anonymity and security cryptocurrency offers, as well as the speed of transfers, particularly international transfers.

Another reason contributing to the adoption of cryptocurrencies is blockchain technology. Blockchain is reshaping and revolutionising

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Cryptocurrency numbers

TRADING AGENCIES AND

SPOTLIGHT

COMMENT

the financial industry and profoundly impacting sectors like healthcare, real estate, e-commerce and others.

THE PROLIFERATION OF CRYPTO EXCHANGES

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Cryptocurrency exchanges facilitate trading cryptocurrency assets between a buyer and a seller. The assets can be traded for other assets or fiat.

With the continued expansion and acceptance of cryptocurrency, dozens of new digital currencies are introduced each month; consequently, cryptocurrency investors require cryptocurrency exchanges to trade, invest, and store their digital assets.

There are centralised exchanges (CEXs) owned and managed by a single entity.

CEX exchanges handle over 95 per cent of transactions.

Decentralised exchanges (DEXs)

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THE APPEAL OF CENTRALISED EXCHANGES IS USER-FRIENDLINESS, PROVIDING NEW INVESTORS WITH A FAMILIAR, COMFORTABLE PLATFORM FOR TRADING AND INVESTING IN CRYPTOCURRENCIES” enable users to conduct peerto-peer transactions without the assistance of a third party or an intermediary. Due to some of the drawbacks of centralised exchanges, some users prefer decentralised exchanges.

Besides the rising adoption of cryptocurrency and the monthly increase in the number of new cryptocurrencies added, the increased use of exchanges is also due to the anonymity and peer-to-peer exchange of cryptocurrencies, eliminating the possibility of

fraudulent trading associated with decentralised exchanges.

The appeal of centralised exchanges is user-friendliness, providing new investors with a familiar, comfortable platform for trading and investing in cryptocurrencies.

Overall, cryptocurrency investors will need to sift through a plethora of information to make knowledgeable investment decisions. Investors must make essential decisions about where and how to deal with cryptocurrency investments.

S P OT L I G H T F E AT U R E

THE NFT PHENOMENON

WHAT ARE NFTs AND WHY ARE THEY DISRUPTING THE WORLD OF ART, MUSIC AND RETAIL? SIMON REID EXPLAINS

NFTs: OVERHYPED OR THE FUTURE OF OWNERSHIP? In March 2021, Michael Winkelmann sold 5,000 pieces of art in a single sale at global auction house Christie’s.

Winkelmann had created one original digital piece of art a day for a period of 5,000 days (or 13 years, depending on your preference), before placing them together and selling the piece as an NFT under his artist name, Beeple.

The piece, titled Everydays: The First 5,000 Days, sold for $69m, catapulting NFTs into the public consciousness.

While the price tag may seem excessive, the rationale behind the purchase isn’t dissimilar to that of traditional art collectors who shell out millions to bag a one-of-akind piece by a notable artist. Why? Because NFTs are unique by design – an NFT is a scarce, verifiable, secure asset with proof-of-ownership at its core.

From Van Dyke to Basquiat, artists that create notable pieces of work have only ever had the first sale of their work to accrue money. Andy Warhol sold all 32 Campbell Soup can canvases for $1,000 in 1962. By 1996, the Museum of Modern Art purchased the set for over $15m. That’s all well and good – but what does this have to do with NFTs? When NFTs are created or ‘minted,’ they outline the content contained within them; for example, a digital NFT may also contain a physical canvas that is part of the NFT. Unlockable content such as a video of how it was made could also be included – but the most compelling aspect for NFT creators? You can write in a resale commission (usually around 10–15 per cent), which will give the NFT creator commission NFT – stands for Non Fungible Token.

Fungible – Fungible items are easily exchangeable items, for e.g., the US dollar which can be exchanged like-for-like.

Non fungible – Non fungible items are not interchangeable for other items because they have unique properties.

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he relentless growth of the non fungible token (NFT) market shows no signs of slowing down in 2022, with the leading NFT marketplace Opensea generating more than $700m worth of trading within the opening days of the year.

From original works of art to providing proof of ownership of almost any physical asset imaginable, NFTs are fast emerging from their niche in the crypto sector to find a visible and important position in the global market. The inability to recreate or divide these assets provide them with verifiable digital scarcity, making them the perfect medium to link to a particular asset as proof of ownership.

Put simply, owning an ERC-721 standard token is akin to owning a diamond – no two are the same, and some are more valuable than others.

S P OT L I G H T F E AT U R E

Pop artist Grimes sold an NFT collection that tipped

payments on every resale for as long as the NFT is in existence.

These one-of-a-kind collectables have seen a phenomenal rise on the Ethereum blockchain, with $41m worth of NFTs traded during 2018, rising to $40.9bn in value – on the Ethereum blockchain alone – in 2021 according to Chainalysis, a crypto analytics group cited and reported by the Financial Times in December.

Besides the importance of scarcity, the individual value of an NFT is typically based upon the following elements: • Utility: What the token can be used for and/or which asset it is tied to • Liquidity: The ability to easily exchange for cash (e.g., an NFT issued on the Ethereum network is far more liquid than those issued elsewhere) • Issuance and owner history: Whether the token was issued or previously owned by an influential company or individual

stored in a temperature-controlled space, with the proof-of-ownership logged on the blockchain – the very core of NFTs – while the authentication documents, videos and collateral are all included in the item’s NFT. Howie continues, “You can imagine if a previous owner was a prominent athlete or Travis Scott, for example, you can see on-chain who actually owned that sneaker...and of course with NFTs, the original seller of the sneaker will enjoy a royalty payment and the price appreciation as rare items pass through celebrity and VIP ownership.” If an owner ever wishes to take possession of the physical sneakers, Always Legit will burn the NFT and send the physical pair to the owner.

Other leading global sports brands including Adidas and Nike announced exciting moves into the NFT space in December 2021. Adidas revealed its collaboration with popular NFT collection Bored Ape Yacht Club, which followed hot on the heels of an earlier partnership announcement with Coinbase. In the same month, rival sports brand Nike took a major step into the NFT marketplace and Metaverse with the acquisition of a leading NFT fashion and collectibles start up called RTFKT. One of RTFKT’s flagship products is a hybrid NFT and physical shoe collectible inspired by the legendary CryptoPunks NFT collection, and the project attracted headlines earlier in the year when a digital footwear collaboration with prolific non fungible token artist FEWOCiOUS sold $3.1m in metaverse kicks.

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Speculative value also plays a significant part; like art and diamonds, an NFT is worth whatever someone is willing to pay. When selling NFTs, the creator or seller can state the sale price or place it up for auction with a reserve price.

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THE PAST, PRESENT AND FUTURE OF NFTs 2021 will go down in history as the year NFTs really took off and entered the vernacular, with March as the firm catalyst. Pop artist Grimes sold an NFT collection that tipped $6m in sales during the same month Beeple astonished Christie’s. The Kings of Leon also saw the potential with the NFT space, becoming the first rock band ever to release their new album as an NFT, again in March.

Several NFT-powered art marketplaces, across various networks, have sprung up in the last few years, allowing creators to put their blockchain-authenticated art under the hammer. Celebrities and influencers such as Paris Hilton haven’t let the opportunity to capitalise on the trend pass by; a hand-drawn portrait of her cat sold for 40 ETH (worth $17,000 at the time) in August last year. In January 2022, several pop-culture icons, such as rapper Eminem, musician Britney Spears and comedian Dave Chappelle, have all been reportedly snapping up Bored Ape Yacht Club NFTs for six-figure sums.

All sorts of innovative companies have established themselves in the new space, outside of the digital art world. Howie Schwartz, CEO of New York-based company Always Legit, utilises NFTs to facilitate the sale of investment grade sneakers. Howie explains, “Instead of buying a high-end pair of sneakers and having to warehouse them, then when you want to sell them, they have to be authenticated each time. What we do is we take the sneakers and store them in a secure vault, then mint an NFT that represents the ownership of that asset.

Investors buy and trade the NFTs of the sneakers that sit in our physical custody.” The sneakers are wrapped and

DOES THE UTILITY OF NFTs EXTEND BEYOND ART, SPORT, GAMING, AND MERCHANDISING? These immutable tokens are finding real-world use cases. Within supply chain management, NFTs are tackling counterfeiting by tracing the authenticity of a product from source to its end destination.

In the same vein, NFTs can also be used to counter copyright claims, and ownership disputes by embedding trademarks and intellectual property rights directly into the metadata of an NFT smart contract. When it comes to authentication, verification and proof of ownership, the possibilities for NFTs are virtually endless.

There is a new buzzword in the crypto community – and that word, is the Metaverse. Contrary to popular belief, this dynamic new concept was around well before Mark Zuckerberg seized his opportunity to rebrand Facebook to Meta. There will be hundreds of different Metaverses, all providing digital worlds built on gaming, business, education, entertainment and real estate... and every asset within them, will be an NFT. There is a sea change underway. How we interact, invest and consume is all about to evolve dramatically. The world just doesn’t quite know it yet.

The writer is the co-founder and COO of Evai.io at the DMCC Crypto Centre.

SPOTLIGHT

COMMENT HE A D OF W E A LTH A DV ISORY

JPMORGA N PRI VATE BA NK , MEN A

ART AS AN ASSET

WELL-MANAGED ART COLLECTIONS MAY GIVE YOU FINANCIAL FLEXIBILITY. BUT, IN THESE UNCERTAIN TIMES, WHAT IS THE BEST STRATEGY TO USE AND GROW THIS ONE-OF-A-KIND ASSET?

A

rt, and the passion for it, can help sustain us, especially during difficult times. Pandemic-related lockdowns gave art enthusiasts more time with some of their favourite pieces and to attend innovative global auctions held online, as the art market accelerated its adoption of the megatrend digitisation.

In the UAE, Dubai’s art market is picking up. The region has a vast potential, as the country is now investing more than ever into art. Art spaces like the Foundry x Emaar in Dubai Downtown are opening and giving new collectors the chance to discover and buy artworks. In addition, Christie’s has an annual auction at Alserkal Avenue in Al Quoz, which is an arts and culture district for Dubai with a line-up of galleries, facilities and platforms. It is a brilliant example of ingenuity and creativity of the region.

HOW TO OWN AN ART?

Owning each piece directly

can be a great way to start.

However, as a private art collection develops, owners often establish an intervening legal entity to hold title to their artwork. Doing so can give a consolidated view of the collection, allow centralised art collection management, and mean that only one country’s laws may apply to the lot. It can also help keep the collection together for future generations.

THE DIGITISATION OF ART

All the above has worked very well for traditional art collections, but what about nontangible art? The latest trend in art is creating and selling non fungible tokens (NFTs). NFTs, which are digital assets, can represent art, music, images, writings and videos. They are

bought and sold online using blockchain technology, just like cryptocurrencies.

NFTs’ native crypto marketplaces aim explicitly to circumvent and disrupt institutional gatekeepers, yet many major art institutions are increasingly offering NFTs. In addition, auction houses and galleries are capitalising on and co-opting NFTs with the featured artists’ cooperation.

Based on this trend, we’ll likely see more established commercial and non-profit art institutions embrace NFTs. Having said that, so far, the NFTs art market has been highly volatile and it does not have the same market history and track record as traditional artworks. Nevertheless, anyone interested in acquiring NFTs should consider three succession planning questions: If something happened to the owner, who would know about their NFT collection? How can the intended beneficiaries access these assets?

Finally, how can the owner legally transfer ownership to the beneficiaries?

HOW DOES ART FIT INTO PERSONAL FINANCES?

Art is a unique asset for many reasons, including the owner’s emotional attachment to it.

However, it is also an asset if you are acquiring art for significant prices.

Some of our clients see art investment as a way to diversify their portfolios. But we strongly recommend that you carefully evaluate holdings in the context of lifetime financial goals and estate planning.

AS A PRIVATE ART COLLECTION DEVELOPS, OWNERS OFTEN ESTABLISH AN INTERVENING LEGAL ENTITY TO HOLD TITLE TO THEIR ARTWORK”

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D A NIE L F L E MIN G

BRAND VIEW

COINMENA

02

2022

Fast forward to 2022, MENA crypto investors are not only investing in token projects, but are actively participating in various crypto sectors, including TALAL decentralised finance (or DeFi), TABBAA non fungible tokens (or NFTs) and decentralised autonomous CEO of CoinMENA organisations (or DAOs). In terms of access to crypto, investors can safely use regulated exchanges such as CoinMENA. Events in Dubai now attract a global audience, and many crypto professionals decided to move to Dubai after attending events here.

There is also great improvement on the funding side, as regional investors are now looking for exposure to crypto and crypto businesses. The regional market has definitely evolved, but relative to progress in other markets, we still have a long way to go which is why it’s so exciting.

The future of finance THE CEO OF BAHRAIN-BASED COINMENA – WHICH RECEIVED ITS SECOND CRYPTOCURRENCY LICENCE IN THE EU – TELL US WHY THE LONG-TERM OUTLOOK ON CRYPTOCURRENCIES IS VERY BULLISH How has the cryptocurrency market evolved in the Middle East?

The crypto market has evolved tremendously over the past five years. In the previous 2017-2018 crypto cycle, participants were mainly speculating on new

token projects with exploratory use cases or minimal traction. Investors didn’t have reliable on-ramps/off-ramps to deposit and withdraw their local currencies, and crypto events were mainly attracting a small regional audience.

Cryptocurrency investors enjoyed a good year in 2021 despite the volatility. What’s your outlook for cryptocurrencies and crypto assets in the year ahead?

First, I’d like to qualify my answer by saying that I’m definitely biased. I’m convinced cryptocurrencies are the future of finance and the long-term outlook is very bullish.

Volatility is a feature and not a bug.

Cryptocurrencies are the only truly free markets in the world. If the Nasdaq or any other stock exchange starts to crash, they can simply shut off trading and this happened a few times during the Covid crash of 2020. In crypto, that’s not possible, it’s open 24 hours a day, seven days a week, with no off switch or central authority to control unilaterally.

The second part of the volatility is that we are still in the very early stages of global adoption of cryptocurrencies.

Less than 4 per cent of the world owns crypto and around 0.5 per cent of global wealth, so a relatively small number of investors can have an oversized impact on price movement in the short-term.

Which brings me to my next point about my outlook, because adoption is still less than 4 per cent, I think crypto assets still have a lot of room to mature and grow as they become a more mainstream asset class.

GB INVEST

What are some of the most popular cryptocurrencies and assets listed on your exchange?

Currently, we have 13 crypto assets on our platform, and we plan to add a lot more in the near future. Obviously Bitcoin and Ethereum are the most established so they are quite popular. XRP is also popular in the region. We constantly keep adding new currencies based on what our customers want.

We recently added Chiliz, which many of the football club tokens are being built on, and Fantom, which hit a milestone last week by amassing over $12.2bn total value locked, overtaking Solana and Binance Smart Chain. Stablecoins are also quite popular as many users move funds around the world of crypto, using USDT and USDC.

What’s your advice to someone looking to invest in crypto assets?

I would say put some skin in the game – but start small, pay attention, learn more about it and adopt a long-term outlook, as we are still in the early stages of crypto adoption, especially in the region. You should definitely use a regulated exchange such as CoinMENA, to minimise counterparty risk and ensure you can invest safely. Avoid using any leveraged products that are often offered on unregulated exchanges, as they come with excessive risk.

Personally, my investment strategy is simple. I invest a small amount of money into Bitcoin and crypto every week, regardless of the price.

How do cryptocurrency and financial service firms manage risks in an increasingly digital world?

Managing risk is a core part of any financial institution, and it’s even more important when it comes to crypto exchanges. To manage risk, institutions need to work with specialised partners who have in-depth expertise in subsects of crypto and tech, such as transaction monitoring, custody and web infrastructure providers. TRM Labs or Ciphertrace are tools used by crypto institutions for know your transactions (or KYT). This allows exchanges to analyse incoming and outgoing crypto payments on-chain, by seeing if the users interact

Your company recently integrated Chainlink to bring enhanced transparency to its digital assets exchange. Tell us about it.

While most traditional exchanges rely solely on centralised internal pricing mechanisms, CoinMENA’s integration of Chainlink Price Feeds is an initial step into the world of decentralised finance, as we obtain tamper-proof, decentralised and transparent prices from Chainlink Oracles, a more effective solution when compared to traditional centralised data solutions.

What are your future plans, and how will they add value to investors?

We’ve just obtained our second cryptocurrency licence in the EU, enabling us to expand to more countries and increase the number of financial services we offer our global customers.

As I said earlier, we see ourselves as a crypto financial services company, which means we aim to offer traditional financial services such as borrowing, lending and staking, among others, which are built on Web3 and crypto rails. We see this as the future of finance, and we are extremely excited for how it unfolds.

Our goal is to be the leading crypto financial services in the region and compete on a global scale. We also have a few exciting announcements coming soon.

2022

What differentiates CoinMENA from other crypto exchanges?

We started CoinMENA because we saw a market need for a fully regulated crypto currency exchange that offers financial services built on crypto rails. Regional crypto investors and traders face issues when it comes to fiat to crypto and crypto to fiat on ramp and off ramp, which makes it much harder for the crypto exchange to offer other financial services. Investors lose trust when they can’t deposit and withdraw safely. At CoinMENA, we’ve focused on ensuring the investor journey is smooth.

Our interface is simple and client support is definitely one of our strong suits.

As an entity regulated by the Central Bank of Bahrain, we have access to banking and payment rails that allow our users to deposit and withdraw their funds efficiently. The other thing that differentiates us is that we don’t see ourselves as just a crypto exchange only. We aim to establish ourselves as the leading crypto financial service provider.

So right now, we function as an exchange where traders and investors can buy and sell crypto, but in the near future, we will start offering financial services built on Web3 (also Web 3.0) rails.

with any blacklisted wallets or stolen/ reported funds.

In addition to working with specialised partners, institutions need to implement strict information security policies and safe practices for end user devices to ensure cybersecurity risk is managed.

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YOU SHOULD DEFINITELY USE A REGULATED EXCHANGE SUCH AS COINMENA, TO MINIMISE COUNTERPARTY RISK AND ENSURE YOU CAN INVEST SAFELY. AVOID USING ANY LEVERAGED PRODUCTS THAT ARE OFTEN OFFERED ON UNREGULATED EXCHANGES, AS THEY COME WITH EXCESSIVE RISK”

S P OT L I G H T F E AT U R E

THE TAKE ON TOKENS

HOW TOKENISATION WILL REVOLUTIONISE CULTURE AS WE KNOW IT. VERNON WARD HAS THE DETAILS

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hat if there was a way, outside of the traditional stock market, to become a shareholder in your favourite luxury brand or superstar? How would that work – how could that even work? European football clubs have become the first brands to realise the potential of tokenising themselves, giving fans the opportunity to purchase club-specific crypto tokens that rise in value, while also giving them voting rights and exclusive content, essentially making fans shareholders.

So far over 24 European clubs across the five major leagues, including PSG, FC Barcelona and Manchester City, have launched, or are considering tokenisation.

Over the past two years, the capabilities of the crypto revolution have moved in more dynamic ways than were previously imaginable. No sooner had a small percentage of the world’s population understood the concept of the storeof-value, the instant global payment cryptocurrency model and digital assets, than the industry boomed into thousands of new utility use cases, from medicine to telecommunications and identity.

The NFT boom ushered in a radical new way for artists to buy and sell work,

with the provenance and exclusive assets stored on the blockchain within the NFT metadata. The concept quickly grew outside the art world with digital land being bought and sold, before NFTs expanded the proof-of-ownership model across digital and physical assets in various verticals. Then came the next buzzword in the space: Metaverse. Open digital worlds populated by avatars, creating entirely new ways for entrepreneurs to start businesses, students to access university education and gamers to simply earn while they play – all powered by crypto, NFTs and digital assets.

Although in its relative infancy, the new world is being developed as we speak.

Brands such as Disney have seen the trend towards the Metaverse, with the entertainment giant filing a patent for a ‘virtualworld simulator in a real-world venue’ to the US Patent and Trademark Office as early as July 2020. However, as we have seen, crypto doesn’t hang around. There is already another model on the horizon which brands are only just seeing the potential of – the advent of tokenisation, or fan tokens. Until now, whichever area of culture you find yourself most attracted to, from luxury brands to prominent personalities, bands and celebrities, you have always, essentially, been a bystander.

Fans of culture are accustomed to buying into the world of that particular brand or artist through the purchase of goods, records, films or theme park tickets. That

is all about to change with the new wave about to hit the crypto space – fan tokens, also known as social tokens.

We’ve seen the initial rise of the space with projects such as Chiliz, a sports orientated fan token project that has partnered with, and issued fan tokens for, premier teams spanning football, combat sports (including the UFC) and basketball among others.

The Chiliz market cap already sits at over $1.5bn while the space is growing rapidly owing to the exponential adoption of crypto (currently growing at twice the speed of internet in 1997). “The music industry, brands, the media industry, sports teams – these people have communities that are gigantic,” explains ex-hedge fund manager and prominent crypto entrepreneur Raoul Pal, speaking recently on the topic.

Pal goes on to explain that, as a fan, “Communities that you’re involved with, you (will) have a token in, and if the community is vibrant, then the value of that token rises over time. So, your cultural interest aligns with your

investment interests, which align with your business activities.”

The opportunities this new phenomenon offers all aspects of culture will be seismic; it will help consumers turn investors, creating multiple revenue streams while increasing consumer engagement for brands, from fashion to music.

The entire model is right at the very beginning and its success is dependent on community participation and engagement.

What we will see from brands – as we’ve already seen from the initial sports tokens – is that consumers are rewarded with exclusive content, offers, NFTs and discounts in addition to holding the brand-specific token, which itself is an asset.

Two days before 2022 commenced, Walmart filed several new patents and trademarks with the US Patent and Trademark Office, including plans to create its own cryptocurrency, Metaverse and range of NFTs. Walmart is the first major retail brand to state its intention to create its own tokens in such a way, the significance of which shouldn’t be downplayed.

Nike filed a range of trademark applications in November 2021 and further brands are lining up to explore the space. 2021 was the year of NFTs and the birth of the Metaverse. 2022 will go down as the year social tokens reinvented the relationship between consumers and culture via blockchain technology.

The writer is editor-in-chief of Evai. io at the DMCC Crypto Centre.

$1.5bn+ THE CHILIZ MARKET CAP

while the space is growing rapidly owing to the exponential adoption of crypto

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THE OPPORTUNITIES THIS NEW PHENOMENON OFFERS ALL ASPECTS OF CULTURE WILL BE SEISMIC; IT WILL HELP CONSUMERS TURN INVESTORS, CREATING MULTIPLE REVENUE STREAMS WHILE INCREASING CONSUMER ENGAGEMENT FOR BRANDS, FROM FASHION TO MUSIC”

SPOTLIGHT

COMMENT MU S F IQ UE A HME D

C O -FO UNDER

DIGITISING REAL ESTATE

TECHNOLOGICAL INNOVATIONS IN DIGITAL ASSETS, BLOCKCHAIN, AND NFTs ARE EXPECTED TO TRANSFORM THE REAL ESTATE ASSET, MAKING IT MORE LIQUID, ACCESSIBLE AND DIGITAL

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he global real estate industry is over $228 trillion in size and increasing, making it the most significant investable asset. However, most people are unable to access it due to high capital costs, complicated transaction processes and restricted deals.

The technological innovations in digital assets, blockchain, and NFTs will digitise the real estate asset class, making the investment experience accessible, liquid and 100 per cent digital.

In the future, with the liberation of regulatory policies in the MENA region, especially the UAE, more doors are being opened for the masses. For example, real estate crowdfunding has opened the door for the average person to participate in fractional ownership of residential properties for as little as Dhs500.

FUTURE TRENDS TOWARDS CRYPTO

The rapid adoption of digital assets has been hurtling forward at speed to disrupt many industries. The sector is now ripe for innovation and disruption, where it can revolutionise itself with the appropriate regulatory policies on digital assets for real estate from regional regulators.

As a result, representing an interest in fractional ownership of a real estate asset with a blockchain-based token can immensely benefit the industry and end-users. New business models can be enabled by the increasing maturity of digital assets, decentralised autonomous organisations (DAOs), and decentralised finance (DeFi) services.

Digital assets and blockchain technology will enable a more transparent operation, allowing tamper-proof recording of ownership shares, which cannot be altered after issuance. In

SM A R T C RO W D

addition, it will enable accurate secondary trading where peer-topeer buying/selling can flourish, making it possible to provide the ability to buy and sell ownership shares via the platform. This transaction of asset transfer is also stamped on the blockchain.

Achieving immediate liquidity of real estate assets by utilising principles of DeFi can enable sophisticated investors and digital asset holders to gain access to real estate investing.

There are many digital asset-enabled real estate products that can be created in the future such as: • Collateralised borrowing: With this, an investor can stake their property/SPV (or special purpose vehicle) ownership shares to borrow digital platform assets from the DAOs. • Tokenising funds for sophisticated investors: Existing funds are likely to be regulated through existing policies. NFTs/tokenisation can be a way to produce cost savings for funds and provide access to a broader investor base.

Other potential products include, but are not limited to, security tokens for single assets, utility and hybrid tokens for fractionalised private residential, and debt securitisation that is blockchain-based smart contracts to lower the administration costs of servicing debt.

Due to the UAE’s unique position, where an attractive real estate market exists, and the financial services industry is constantly innovating with an increasing appetite for safe digital assets, cryptocurrencyenabled business models are expected to flourish.

If multiple players and other key stakeholders can continue to work together, an innovative industry can be created, one that is a global leader - built on the core foundation of technology and regulatory innovation.

S P OT L I G H T F E AT U R E

THE TRANSFORMATION OF REGIONAL FINANCIAL SERVICES TARABUT GATEWAY’S 2022 MENA OPEN BANKING SPOTLIGHT EXPLORES HOW REGULATION, IMPLEMENTATION AND ADOPTION ARE ENABLING A NEW ERA OF FINANCIAL SERVICES ACROSS THE REGION open banking sector is undergoing a major transformation.

“2022 is set to be a huge year for open banking, helping to drive economic growth, increase revenues for financial services companies and support employment for thousands of people. Over the next 12 months, we will see far greater adoption and implementation of open banking by fintechs and financial institutions, providing customers with faster, better and more competitive products and services.”

OUTLOOK FOR THE YEAR According to the report, regional regulators, enterprises and fintechs will play a pivotal role in the development of innovative products and services.

Through aligned visions, the region could leapfrog more mature markets and establish the Middle East as a leading and competitive global financial hub.

The report also stated that policies and frameworks could be further defined across the UAE.

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ithout a regional framework for open banking, each country is defining its own path through regulation and market-led practices. Bahrain was the original pioneer for open banking in the MENA region, adopting specific rules in December 2018 and also the first to adopt a framework (Bahrain Open Banking Framework) in the latter half of 2020.

Other countries have followed suit. Abu Dhabi Global Market and Dubai International Financial Centre have provided market level guidance and testing sandboxes. The Saudi Central Bank (SAMA) has already taken bold steps towards fintech regulation, introducing its open banking policy, in line with Vision 2030. This will go live this year, with implementation and adoption to follow soon.

According to the Arab Monetary Fund, Oman is also looking to develop its fintech ecosystem, including the drafting of an open banking API Strategy, which is part of its Fintech Framework and Roadmap. These are some of the findings cited in Tarabut Gateway’s 2022 MENA Open Banking Spotlight report.

Abdulla Almoayed, founder and CEO of Tarabut Gateway, says that based on these developments, the

THE OPEN BANKING JOURNEY The report also predicts that by the end of 2022, there will be increased alignment between BNPL (or buy now, pay later) and SNPL (or save now, pay later) providers and open banking services. Such platforms are powered by the availability of financial data, and via open banking these businesses can provide enhanced service and experience, through deeper insight into customer behaviour.

The most common and live use cases for open banking in the region are integrations across regional banks and fintechs, to operate AIS (or account information services) and PIS (or payment initiation services). Over the course of the year, multiple regional jurisdictions are expected to grant licences. This will allow customers with a complete view of their finances across accounts and enable payments to be made directly from their bank accounts.

SPOTLIGHT

COMMENT

DOME NIK M A IE R

C EO

HOW DeFi IS RESHAPING FINANCIAL MARKETS DECENTRALISED EXCHANGES, ONE OF THE LARGEST CONTRIBUTORS TO DeFi GROWTH, REPORTED MORE THAN $1 TRILLION IN TRADE VOLUME OVER THE LAST YEAR

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ryptocurrencies grew exponentially over the last decade, reaching a market capitalisation of over $2.2 trillion by the end of 2021. One of the biggest contributors to this exponential growth was the decentralised finance (DeFi) sector, which aims to provide permissionless and fully automated banking services.

STRONG FUNDAMENTAL GROWTH BUT MIXED PRICE ACTION RESULTS

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Total-value-locked (TVL) represents the sum of all assets deposited in DeFi protocols. According to data from Defillama, TVL

grew from just over $18bn at the beginning of 2021 to $240bn by year end, a 1,200 per cent increase.

Although TVL is a useful metric to gauge the overall DeFi market, it does not necessarily lead to outperformance.

IBL OX X PROPRIE TA RY T R A D ING DMC C

In the previous year, only Curve was able to outperform the price increase of Ether.

Compared to the TVL of $24Obn, DeFi exposure represents only 0.016 per cent of global banks’ assets under management, indicating that global adoption is truly at its beginning.

DECENTRALISED EXCHANGE TRADING VOLUME SURGES

Decentralised exchanges (DEXs), one of the largest contributors to DeFi growth, reported more than $1 trillion in trade volume over the last year, an 858 per cent increase from 2020. Volume on DEXs jumped by a large percentage due to several factors: One of them is their unique and permissionless nature, allowing platforms to list a vast array of tokens utilising an automated market maker (AMM), a novel asset pricing algorithm. AMMs allow digital assets to be traded automatically by using liquidity pools instead of traditional orderbooks where buyers are matched with sellers.

Although AMM algorithms are a breakthrough in digital asset pricing, trading against liquidity pools can present its challenges, as unscrupulous token issuers can drain liquidity pool funds, sending a token’s value to zero.

Another disadvantage comes with the transparent nature of public blockchains as

ONE OF THE BIGGEST CONTRIBUTORS TO THIS EXPONENTIAL GROWTH WAS THE DECENTRALISED FINANCE (DeFi) SECTOR, WHICH AIMS TO PROVIDE PERMISSIONLESS AND FULLY AUTOMATED BANKING SERVICES”

DeFi PROJECTS IN THE UAE

Many DeFi projects look

towards the Gulf countries as a decentralised finance hub. This is largely attributed to the focused attention that government officials give to innovation. Last year, DMCC announced its crypto centre to attract companies working within the industry. Crypto Oasis was established and over 500 organisations are already operating out of the region.

Ralf Glabischnig, founder of Crypto Oasis, says: “We have decided to bring our Crypto Valley experience to the Middle East because we believe in the potential of this region. Dubai is the heart of the Crypto Oasis, the local version of Crypto Valley.”

Abu Dhabi Global Market also made extensive moves since 2018 to accelerate global blockchain and crypto development while the UAE’s Securities and Commodities Authority issued far-reaching regulations on crypto assets in late 2020. Establishing

LAST YEAR, DMCC ANNOUNCED ITS CRYPTO CENTRE TO ATTRACT COMPANIES WORKING WITHIN THE INDUSTRY. CRYPTO OASIS WAS ESTABLISHED AND OVER 500 ORGANISATIONS ARE ALREADY OPERATING OUT OF THE REGION” a regulated environment will drive sustainability of DeFi protocols and enable institutional adoption as ambiguity and lack of clarity hold institutions back far more than established rules and regulations.

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anyone can view transactions to be confirmed, and users can suffer from being front run, adversely affecting their execution price.

As one of the few market makers for DEXs, iBloxx recently rolled out an algorithm to prevent frontrunning, allowing fair order execution for our clients.

One of the biggest hurdles to achieving widespread institutional adoption is compliance. Initiatives like Aave Arc will likely open up DeFi access to institutional players by allowing them to participate in permissioned lending and borrowing with know your customer (or KYC) compliant counterparties. Such frameworks will cater to the need of a financial institution that has to meet higher regulatory standards.

SPOTLIGHT

COMMENT J A NE Y Y OUN G

HE A D

GL OB A L IN V E S T IG AT IONS, C H A IN A LY SIS

COMBATTING CRYPTO CRIME CHAINALYSIS REPORTS THAT CRYPTOCURRENCY-RELATED CRIME REACHED AN ALL-TIME HIGH IN 2021, WITH ILLICIT ADDRESSES RECEIVING $14BN, UP FROM $7.8BN IN 2020

users to instantly send funds anywhere in the world. Our data shows that the UAE in particular received an estimated $25.5bn in on-chain value between July 2020 and June 2021, and the country ranks third regionally in the Middle East for total cryptocurrency value received behind Turkey and Lebanon.

Furthermore, DeFi protocols also account for 60 per cent of UAE’s on-chain value received between this time period.

RISING RATE OF CRYPTOCURRENCYRELATED CRIME

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he last 12 months have been a breakout period for cryptocurrencies.

Despite the global economic damage resulting from the Covid-19 pandemic, there was substantial growth in the crypto ecosystem.

Many cryptocurrencies went beyond their existing price records, largely driven by increased demand from institutional investors, alongside significant consumer adoption of decentralised finance (DeFi) and non fungible tokens (NFTs).

As cryptocurrencies become more widely adopted, their use by both good and bad actors will naturally increase. This is particularly true given their pseudonymous nature and the ease with which they allow

When looking at cryptocurrency-related crime in the UAE, the transaction volume hovers at around 0.6 per cent, totalling approximately $153m in illicit value received between July 2020 and June 2021. This is in line with global trends, as our 2022 crime report shows cryptocurrency-based crime has hit an all-time high in 2021, with illicit addresses receiving $14bn over the course of the year, up from $7.8bn in 2020. While these numbers represent a significant rise, it doesn’t tell the whole story.

Cryptocurrency usage overall is also growing faster than ever before. Across all cryptocurrencies tracked by us, total transaction volume grew to $15.8 trillion in 2021 around the world, up over 550 per cent from 2020’s total. Given that roaring adoption, it’s no surprise that more cybercriminals are using

AS CRYPTOCURRENCIES BECOME MORE WIDELY ADOPTED, THEIR USE BY BOTH GOOD AND BAD ACTORS WILL NATURALLY INCREASE”

TRANSPARENCY IS KEY

The good news is cryptocurrency is increasingly providing unparalleled transparency.

Every transaction is recorded on

a public, unchangeable ledger.

This allows financial institutions to ensure they’re working with the safest possible customers.

Exchanges and other cryptocurrency businesses can monitor transactions on their platforms for illicit activity in real-time.

And government agencies can trace the flow of illicit crypto funds more easily than in most other forms of value transfer. Cryptocurrency’s inherent transparency makes it uniquely safe and efficient.

There’s an onus on governments and the industry to increase the resources devoted to countering threats and find more effective ways to collaborate. As it stands, many attackers — like ransomware groups — continue to operate because the potential rewards outweigh the costs. We need to work on effective strategies

WHEN LOOKING AT CRYPTOCURRENCYRELATED CRIME IN THE UAE, THE TRANSACTION VOLUME HOVERS AT AROUND 0.6 PER CENT, TOTALLING APPROXIMATELY $153M IN ILLICIT VALUE RECEIVED BETWEEN JULY 2020 AND JUNE 2021” to de-incentivise bad actors by raising the physical and financial costs of committing cryptocurrency-based crime.

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cryptocurrency. However, given the increase was just 79 per cent — nearly an order of magnitude lower than overall adoption — it might just be a sign that things are changing.

In fact, with the growth of legitimate cryptocurrency usage far outstripping the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume has never been lower. As of December 2021, transactions involving illicit addresses represented just 0.15 per cent of cryptocurrency transaction volume in 2021 despite the raw value of illicit transaction volume reaching its highest level ever.

SPOTLIGHT

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COMMENT

Traditionally, many exchanges that relied on other cryptocurrency services adopted know your customer (or KYC) and anti-money laundering (or AML) policies when assessing their riskiness. If the policy was up to scratch, many exchanges would happily treat the service as if it were safe. That approach will no longer count as a sufficient level of due diligence with institutional money flowing into cryptocurrency like never before.

Financial institutions, whether they are buying cryptocurrency of their own, offering custodial services, or accepting cryptocurrency businesses as banking clients, will treat other services with more scrutiny as risk-based compliance becomes the norm.

In the long run, these efforts will also remove some of the incentives to use cryptocurrency in criminal activity, as it becomes harder for cybercriminals to convert cryptocurrency into cash.

The excitement about the future of cryptocurrencies exists precisely because of the speed of innovation in the space. Over the past year, we have seen DeFi take off and an influx of institutional dollars. The global pandemic was an extreme test of cryptocurrency’s value as a safe haven asset, and Bitcoin’s price surged. But just as the industry is rapidly evolving, so too are bad actors who commit cryptocurrency-related crime.

The public and private sectors must get the resources and tools they need to work together to leverage cryptocurrency’s inherent transparency to ensure this new financial system is safe from abuse.

THE EXCITEMENT ABOUT THE FUTURE OF CRYPTOCURRENCIES EXISTS PRECISELY BECAUSE OF THE SPEED OF INNOVATION IN THE SPACE. OVER THE PAST YEAR, WE HAVE SEEN DeFi TAKE OFF AND AN INFLUX

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OF INSTITUTIONAL DOLLARS”

SPOTLIGHT

INTERVIEW

MAHER YAMOUT SENIOR SECURITY RESEARCHER KASPERSKY

If someone asks for even a small amount of your cryptocurrency on It’s very easy to fall prey to imposter social media, it’s likely websites, given that they are set up you might never get to replicate the original site with it back. Just because little to no difference. If there isn’t a others are replying to small lock icon indicating security the offer, don’t assume near the URL bar and no ‘https’ in it is legitimate” the site address, think twice before visiting the site. You may also find yourself suddenly directed to another platform for payment, although you clicked on a link that looks legitimate.

Sometimes people also receive an email from what looks like a legitimate cryptocurrency company. Is the email address and logo of the company you are aware of? Double check these minor details before you click on the link and invest. Similarly, impersonating bots are rampant even on social media. If someone asks for even a small amount of your cryptocurrency on social media, it’s likely you might never get it back. Just because others are replying to the offer, don’t assume it is legitimate. For example, discord cryptocurrency communities received private messages from trading platforms supposedly giving away cryptocurrency.

Potential victims received a link to register on the website of a cryptocurrency exchange, which was fake, but looked real. To get the free coins, they had to make a deposit and verify their account. To add to this, cybercriminals are also using fake news sites to lend credibility to their Bitcoin and Ethereum offers.

Lastly, fake apps available for download through Google Play and the Apple App Store are also used as tools for scamming. While the risk is greater for Android users, every investor should be aware of the possibility. Look for odd things like misspellings in the content or the name of the app, the colours, branding and logo.

If they do not look authentic then take note and reconsider downloading the app.

CRYPTOCURRENCY ORGANISATIONS HAVE VARYING CYBERSECURITY REQUIREMENTS, AND THEY MUST SECURE THEIR CUSTOMERS’ DATA AT ALL COSTS

Q

How well does the cryptocurrency industry stand up to the cybersecurity standards?

Every industry and organisation have different cybersecurity needs; however, both need to respect and protect customer data at every cost – this is a fundamental principle to follow. We work closely with cryptocurrency organisations to double down on their security strategies, solutions and action. A holistic cybersecurity infrastructure can help in this matter.

How are cybercriminals using cryptocurrency as a scamming tool? What weak links do you identify on these blockchain-based platforms?

Imposter websites, scamming emails, fake social media updates and messages, and malicious mobile apps are four common ways cybercriminals use to scam people in the name of cryptocurrency.

Recently, your company uncovered a series of attacks by APT actor BlueNoroff against SMEs worldwide. Tell us about this.

BlueNoroff is part of the larger Lazarus group and has switched to attacking cryptocurrency

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A HOLISTIC APPROACH TO CRYPTO SECURITY

SPOTLIGHT

INTERVIEW

02 2022 | GB INVEST

Cybercriminals are interested in crypto exchanges because these are mostly centralised applications. Typical threats for such applications include backdoors, embedded at the development stage, web vulnerabilities and phishing”

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startups by pretending to be a venture capital company. As most of cryptocurrency businesses are small or medium-sized startups, they can’t invest lots of money into their internal security system. Plus, startups often receive letters or files from unfamiliar sources. The actor understands this point and has been taking advantage of employees working at targetted companies by sending them a full-featured Windows backdoor with surveillance functions under the guise of a ‘contract’ or another business file.

We uncovered over 15 venture businesses, whose brand name and employee names were abused during the SnatchCrypto campaign.

If the document was opened offline, the file would not represent anything dangerous – most likely, it would look like a copy of some kind of contract or another harmless document. But if the computer is connected to the Internet at the time of opening the file, another macro-enabled document is fetched to the victim’s device, deploying malware. Then the actor tracks victims for weeks and months: they collect keystrokes and monitor the daily operations of the user, while planning a strategy for financial theft. Having found a prominent target that uses a popular browser extension to manage crypto

wallets, they replace the main component of the extension with a fake version.

What security measures should crypto exchanges take to prevent/detect attacks?

Cybercriminals are interested in crypto exchanges because these are mostly centralised applications. Typical threats for such applications include backdoors, embedded at the development stage, web vulnerabilities and phishing. We recommend crypto exchanges to do the following: • Provide their staff with basic cybersecurity hygiene training, as many targetted attacks start with phishing or other social engineering techniques.

• Carry out a cybersecurity audit of your networks and remediate any weaknesses discovered in the perimeter or inside the network.

• Install anti-advanced persistent threat and endpoint detection and response solutions, enabling threat discovery and detection, investigation and timely remediation of incidents capabilities. Provide the security operations centre team with access to the latest threat intelligence and regularly upskill them with professional training.

• Along with proper endpoint protection, dedicated cybersecurity services can help against high-profile attacks.

SPOTLIGHT

INTERVIEW

OLIVER OBITAYO CEO, IDNOW MIDDLE EAST

MOVING TOWARDS MORE HOMOGENISED REGIONAL FRAMEWORKS CAN CATALYSE A WAVE OF NEW FINTECHS TO EXPONENTIALLY SCALE GLOBALLY, SAYS IDNOW’S CEO

Q

How do you see the growth of the fintech sector in the Middle East region?

The growth of the fintech sector is driven by both regulation and innovation. Regulators have traditionally operated on a state or national remit rather than the regional focus. Moving towards more homogenised regional frameworks and applying international standards can catalyse a wave of new fintechs to scale across not just their home territory

digitalised models.

They are even forming their own fintechs, often operated under a different brand. So far, competition has driven attitudes rather than collaboration – the ambition of big banks to not fall behind agile startups has spurred incumbent organisations to level up their digital processes.

There is a mobilisation towards more efficient operating methods, including faster and more convenient ways of identity verification to speed up onboarding and conversion, prevent fraud and, of course, be compliant to changing/new regulatory requirements.

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GEARING FOR MORE GROWTH

When it comes to innovation of financial services, this is also but regionally and even globally. occurring at the State-run sandbox programmes enterprise level, where are also essential for pre-startup, brick and mortar helping to incubate ideas and banks and institutions provide camaraderie among fellow are moving into innovators to support growth. digitalised models.

When it comes to innovation They are even forming of financial services, this is also their own fintechs, occurring at the enterprise level, often operated under where brick-and-mortar banks a different brand” and institutions are moving into

SPOTLIGHT

INTERVIEW

02 2022 | GB INVEST

need to balance their growth plans with the rules of operating in each jurisdiction. To achieve sustainable growth, they must take on the right amount of regulatory risk and balance their expansion with compliance.

Having the right technology in place that can be deployed seamlessly in any country is vital for the fintech scale. With secure, compliant and seamless identity verification steps, robust onboarding processes help reduce the risk of fraud and protect businesses from money laundering activities.

Data residency laws and data privacy are fundamental for all businesses to follow.

For fintechs, it’s crucial to ensure the right kind of licencing for specific activities, which might include proving business maturity, auditing and hitting milestones/targets, before graduating to more comprehensive licencing and advanced activities. Government regulations must keep up with them to stimulate ecosystem growth.

When it comes to fintechs, they are learning from the existing banks and using those lessons to shape the future and do things differently. While big banks have the strength of scale and large customer databases, startups benefit from being able to create digital-first infrastructure without overhanging legacy systems. Fintechs are also taking advantage of an appetite for investment in the region. The recent example of Rain Financial’s $110m Series B round underlines this point.

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What are the regulatory risks every fintech company should have on their radar?

Every GCC state has different regulatory requirements, so fintechs

With the cryptocurrency industry expanding, regulations are becoming a challenge. So, how can customers stay ahead of a fastchanging industry regulation?

It’s essential for cryptocurrency organisations to select the right partner so that there isn’t any disruption or lag time in reacting to changes in regulation. Our technology and experience help support firms through growth and can identify investors.

The big challenge for cryptocurrency and NFTs is trust. Customers are wary because of online scams – take the recent example of Logan Paul and the purchase of fake Pokémon cards.

Scammers can take the upper hand without proper digital identity verification and flagging of fraudulent activity. In the same way for While big banks have cryptocurrencies, being able to the strength of scale identify fraudulent operators before transactions take and large customer place is essential in moving databases, startups crypto from trending to being benefit from being trusted, mainstream and full of able to create digitalopportunities. first infrastructure Compliance and verification without overhanging are a big part of this. While each legacy systems. jurisdiction decides regulation, Fintechs are also businesses can use more robust taking advantage processes of verification to their of an appetite advantage to build trust in their for investment in communities and differentiate from challengers. the region”

SPOTLIGHT

INTERVIEW

DAMIAN HITCHEN CEO SAXO BANK

THE DIGITAL-FIRST APPROACH SAXO BANK MENA’S CEO TALKS ABOUT THE GROWTH OF THE REGIONAL FINTECH ECOSYSTEM AND THE CHALLENGES FACED BY THE FINANCIAL SECTOR

Q

How did the pandemic turbocharge the financial sector?

The pandemic had a major impact on the financial sector, with a notable acceleration in the global trend for online trading and investment in the self-directed space primarily due to increased volatility in the worldwide capital markets.

Enabled by technological developments being made by the industry, a new generation of investors migrated to online trading, where they are better able to track and trade markets thanks to the enhanced information and education available on digital platforms.

This trend had been building for some time, thanks to the tech advancements and changing behaviours that have brought about the ’digital-first’ approach that has been embraced by both society and our industry, leading to digital and mobile platforms, apps and services, which have provided consumers with new ways to manage wealth.

How do you see the growth of fintech in the Middle East and what are the current trends in this industry?

Fintech is a broad definition for companies providing financial services via a technology-based delivery to disrupt or challenge the traditional delivery channels. We can see in the Middle East and North Africa (MENA) region across jurisdictions – both onshore and offshore – that there’s a real focus on fintech capability and offerings in the market.

According to reports, fintechs in the region have seen rapid growth, and there is evidence of genuine momentum in the ecosystem - from around 30 raising $80m in 2017 to projections forecasting 465 raising over $2bn by the end of 2022.

The challenge in the MENA region, and globally, for fintechs is to identify those startups with use cases that will be converted into real commercial solutions and valueadding services”

Many of these fintechs are supported by local government or regulatory initiatives such as the various ‘hives’ and ‘sandboxes’ we see here in Dubai and Abu Dhabi. The challenge in the MENA region, and globally, for fintechs is to identify those starups with use cases that will be converted into real commercial solutions and value-adding services. Many will not complete that journey, so to deliver winners that add value to the ecosystem and ultimately end-users or consumers, it is critical that governments, regulators, providers of capital and established financial firms continue to support the ecosystem.

What are the main challenges faced by the financial sector, and how can they overcome them?

The industry is facing many challenges. From robo-advisories to fintech solutions, many financial services disruptors are bringing real competition to the markets and causing global banks and major players genuine concern.

With the incredible development of technology over the last decade, the balance has shifted significantly. Technology has brought more providers to the market, and more information for the end-consumers to make accurate decisions.

Therefore, if a firm does not embrace the digital journey and stay relevant in our ever-changing world, it will very quickly become obsolete.

What are your plans and growth strategies for the year?

We will continue to enhance our platform services and functionality to our clients. You can expect the delivery of a new investor platform, multiple new products and services, a continued focus on supporting women in investing and if the environment allows it, a return to physical events, seminars and contact with our valued clients.

Our view is that while the last two years have been a positive rollercoaster ride, 2022 is shaping up to be an even more exciting year for our clients as they take greater control of their financial futures.

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MENA

NEWS FEED THE LATEST FROM GLOBAL AND REGIONAL FINTECH AND CRYPTO COMPANIES

CRYPTO STARTUP BACKED BY GOOGLE FUND HITS $8BN VALUATION

Investors including an Alphabetaffiliated growth fund pushed the valuation of crypto startup Fireblocks to $8bn in its latest financing round – it is four times what the company was valued at in July. Fireblocks raised $550m in the Series E round, which was co-led by D1 Capital Partners and Spark Capital, according to a statement. CapitalG, the independent Alphabet fund that manages over $3bn, was among investors along with General Atlantic, Index Ventures and Parafi Growth Fund.

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BITCOIN-PAYING SOLAR POWER COMPANY PLANS AFRICAN EXPANSION

Sun Exchange, a South African firm that crowdsources funds for solar panels and leases them to customers, plans to expand to other countries on the continent. The company, backed by a group partly-owned by billionaire Patrice Motsepe’s African Rainbow Capital Investments, raised $1.4m for a solar panel and battery storage project at a Zimbabwean fruit and berry producer. It is reported to be the biggest crowdfunded project in Africa.

ARGENTINE FINTECH UALÁ LAUNCHES IN COLOMBIA AMID LATAM EXPANSION

Mobile payments startup Ualá is kicking off operations in Colombia, its third market in Latin America after Argentina and Mexico.

Buenos Aires-based Ualá, valued at $2.5bn in its latest funding round, is launching operations in Colombia after working with local regulators over the last two years to get a licence as a financing company to offer debit cards, said founder and chief executive officer, Pierpaolo Barbieri, in an interview to Bloomberg. Colombia has a bustling fintech sector, with more than 300 companies active in the country, according to the local industry association.

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WALMART-BACKED FINTECH TO BUY TWO COMPANIES, REBRAND AS ONE Walmart’s fintech venture agreed to buy two small companies and rebrand itself in a step toward providing an app that enables customers to save, borrow and receive money. The venture, Hazel, will acquire fintech platforms Even and One for an undisclosed amount, Walmart said in a statement. The combined business will operate under the One brand name after the deals close, which is expected to happen in the first half of this year.

With inputs from Bloomberg

JPMORGAN AGREES TO TAKE A 49% VIVA WALLET STAKE IN FINTECH DEAL JPMorgan Chase & Co agreed to purchase a 49 per cent stake in Greece-based payments firm Viva Wallet. This is the latest in the bank’s series of acquisitions and investments, as it seeks to stay ahead of the competition.

The deal is subject to a potential investment in Viva Wallet, and that at the time Viva Wallet was considering seeking a valuation of at least EUR1.5bn.

IN THE UAE

EVERDOME METAVERSE COIN TO BE LISTED ON THE CRYPTO EXCHANGE OKX

Everdome, the Metaverse experience which offers a high-tech, immersive, and hyper-realistic virtual environment, is announcing that their new token, Dome, will officially be listed on OKX.com. The move follows the project’s recent completion of its pre-sale events, which were exclusively available for Hero (Metahero’s token) holders, followed by a second pre-sale on Tenset Gems Platforms.

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SPOTLIGHT

COMMENT

KOKILA ALAGH

ISHAN PANDEY

FOUNDER, KARM LEGAL

JUNIOR ASSOCIATE, KARM LEGAL

AN IDEAL HUB FOR BLOCKCHAIN COMPANIES THE UAE OFFERS A BUSINESS-FRIENDLY ENVIRONMENT FOR CRYPTO AND BLOCKCHAIN-BASED BUSINESSES

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T

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he cryptocurrency market saw a boom during the pandemic, with retail and institutional investors flocking to this new investment class, as the risks of inflation and quantitative easing became a reality worldwide. Where corporations have been hesitant to get into crypto and blockchain, compelling use cases that solve real-world issues may be able to ease them in. The UAE has come a long way to successfully provide a business-friendly and healthy environment for crypto and blockchain-based businesses. The tax-free business environment accompanied by innovative regulations make it an ideal destination for blockchain companies.

The Abu Dhabi Global Market was the first freezone in the UAE

to issue guidelines and a regulatory framework for virtual assets.

It provides a licencing regime for crypto-focused businesses such as a framework for digital securities offerings, virtual asset custodians, multi-lateral trading facilities exchanges, digital settlement facilities for clearing and settlement of digital securities.

The UAE’s Securities and Commodities Authority (SCA) has issued regulations and guidance on crypto assets.

The regulations provide certainty and have opened new opportunities for blockchainbased startups who want to do business in the UAE. The regulations issued by the SCA have opened new doors and opportunities. For example, Dubai Multi Commodities Centre (DMCC), a freezone that falls under the regulatory remit of SCA issued

special licences such as the distributed ledger technology service provider licence and proprietary trading in crypto commodities licence for businesses interested in setting up and operating from DMCC. The Financial Action Task Force (FATF) came up with new recommendations for virtual assets and virtual assets service providers (VASPs).

The regulator lifted the software veil behind decentralised finance (DeFi) based protocols and observed that even though such protocols are decentralised in nature, if there is a commercial nexus between the legal entity (which launches or releases the software protocol) and the software (DeFi solutions provider), then they could be defined as a VASP. This is groundbreaking in nature as several regulators will now adopt these recommendations as part of their national regulations, which will soon make DeFi, a largely unregulated sector, a regulated one.

In 2021, the UAE incorporated FATF recommendations concerning VASPs in its anti-money laundering regulations where the penalty for operating an unregistered or unlicenced VASP is a minimum of six months of imprisonment or a fine of Dhs200,000 to Dhs5,000,000.

We may soon see the blockchain and crypto industry operating in a regulated environment similar to other sectors and industries. This has been compounded by the fact that blockchain companies are understanding the need for compliance and providing an investor protection framework for retail investors.

Amidst this, the UAE will be one of the leading destinations for setting up a business with the mainland and the special freezones catering to the needs of entrepreneurs and investors.

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