How does the FTX collapse affect Dubai's crypto ecosystem?

With the FTX contagion affecting various sectors of the global crypto ecosystem, Dubai-based industry leaders commented on how the debacle will affect the budding crypto hub within the United Arab Emirates (UAE). 

From stricter regulations to better projects leading the way, various professionals gave their perspectives on how Dubai and the UAE’s crypto landscape will be affected by the collapse of the FTX exchange.

Kokila Alagh, the founder and CEO of KARM Legal Consultants, believes that the FTX collapse will lead to more scrutiny and diligence before projects are approved within Dubai’s licensing process. She explained that:

With the misuse of funds or limited disclosures by FTX, these licensing authorities now need to deep dive into the technology. Mere financial documents submission won't be enough, continuous and a real-time monitoring of these platforms might be one of the ways forward.

Alagh also told Cointelegraph that the FTX collapse may lead to better projects taking the lead within the space. “Any major setback in a growing sector makes way for stronger projects to lead and clear the projects which do not have a strong foundation,” she added.

Irina Heaver, a partner at Keystone Law Middle East, also believes that tighter regulations are on the way. Heaver told Cointelegraph that founders must be prepared for greater scrutiny from the authorities as well as from users and investors. She explained that:

They also each must implement stricter internal compliance and audit functions, consult a lawyer if in doubt, and take additional steps, beyond those currently required, to prove to the users that the project is doing the right thing.

According to Heaver, the authorities must also consider taking a good look at influencers who promote “rug pulls, pump and dump schemes, and bogus token sales.” Citing shark tank star Kevin O’Leary’s promotions of FTX exchange and how people may have put their funds in FTX after being convinced, Heaver believes that promoters must also face scrutiny.

Meanwhile, Talal Tabbaa, the CEO of CoinMENA, a trading platform that secured a provisional license from VARA, said that Dubai’s history is full of examples of big challenges and rising to the occasion. He explained that:

The collapse of one company won't change the vision of the UAE to become a global crypto hub. In fact, the FTX incident confirms how important it is to have a comprehensive regulatory framework in place.

The executive also pointed out that Luna, Voyager, Celsius and FTX incidents were failures of governance and effective risk management and not a failure of crypto. "They were institutional failures rather than technical failures," he noted. According to Tabbaa, this distinction is very important.

The CoinMENA CEO also compared the incident to the dot-com bubble. According to Tabbaa, when the dot-com bubble burst, it was not a problem of the internet but a failure of companies building on the internet. The executive noted that the same thing applies to the crypto space at the moment.

The FTX exchange has been one of the earliest exchanges to secure an approval from the Dubai Virtual Asset Regulatory Authority (VARA), a regulator overseeing virtual asset service providers that aim to operate locally. In July, the FTX exchange was approved under the Minimum Viable Product (MVP) program to proceed with testing and operations.

However, given the circumstances surrounding the FTX exchange, VARA has recently revoked the approvals for FTX’s local counterpart, FTX MENA. The regulator also confirmed that the entity has not yet gotten approval to onboard clients, confirming that no clients were exposed yet.