VARA 2.0 – A new story written for Dubai and its crypto Investors

Dubai never misses a chance to startle the world with its charm. This time the headlines are unmissable for crypto insiders. With the release of Version 2.0 of its Rulebooks, VARA has made it quite obvious that you must either adapt or risk falling behind (VARA 2.0).

But before we jump right into this news and take a dive into what VARA 2.0 is all about, let us know a little bit about VARA first. 

So, what is VARA, and what is its full form?

Before anything else, the Virtual Assets Regulatory Authority is called VARA. Now that you know let us take the plunge. Dubai, in particular, and the United Arab Emirates (UAE) have become a global hub for virtual assets because of their creative approach to regulating virtual assets and virtual asset service providers.Founded on February 28, 2022, under the aegis of the UAE’s Virtual Asset Law, by creating VARA, Dubai took a bold step at a time when other significant jurisdictions have been sluggish or reluctant.

Virtual asset service providers (VASPs) and virtual assets are governed exclusively by VARA throughout the mainland and free zones of Dubai, with the exception of the Dubai International Financial Centre (DIFC), which is governed by the Dubai Financial Services Authority (DFSA). 

Since its inception, VARA has granted licenses to about two dozen firms to provide virtual asset services. Discussions indicate that hundreds of other companies are at various phases of the licensing process.

“As the world’s first independent regulator for virtual assets, VARA serves as a transparent and trusted guiding authority for the emerging world of virtual assets,” the Government of Dubai proudly stated. By developing a framework for industry regulation that is simple to copy, VARA hopes to expand its purpose internationally.

Breakthrough changes brought by VARA 2.0 

VARA 2.0 is the latest development in Dubai’s continuous efforts to provide a future-proof regulatory framework that strikes a balance between innovation and strong market safeguards. This rulebook was announced on May 19, 2025.

Here are a few of the major changes brought by VARA 2.0: 

• stronger restrictions over margin trading,
• token distribution services, 
• more precise definitions for collateral wallet arrangements, and 
• uniform compliance standards for all licensed operations. 

These improvements aim to increase operational resilience, risk transparency, and market discipline within Dubai’s VA ecosystem.

VARA 2.0 has improved supervision tools for the following regulated virtual asset [VA] operations:

• Consulting services
• Broker-dealer services
• Services for custody
• Services for exchange
• Services for lending and borrowing
• Investment services and VA management
• VA settlement and transfer services
• Rulebook for Virtual Asset Issuance

Margin trading remains a golden key for investors. In this mode of trading, with little capital, traders may manage sizable positions thanks to margin trading. It magnifies profits as well as losses. On the other hand, traders can reduce the likelihood of large liquidations during a market downturn by tightening their leverage.

Talking more about how the regulators have put in place laws to limit token hype and margin trading – here is our take on it. VARA 2.0 states that to provide margin trading services now, VASPs need to be specifically approved by VARA, and those who are already on the approved list must abide by the Exchange Services Rulebook. VASPs are not allowed to offer margin trading to retail investors; it is only available to qualified and institutional investors.

In order to control the risks involved with margin trading, such as margin calls and possible losses, VASPs are obliged to have strong risk management procedures in place. 

Another significant step in formalizing the way virtual assets are supplied to the public and private markets in Dubai is the addition of regulations for token distribution in VARA 2.0. Any organization that issues or distributes tokens must adhere to explicit licensing criteria under the revised regulations.

All affected VASPs have been given a 30-day transition period in accordance with international regulatory best practices, with complete compliance needed by June 19, 2025. Each licensed company will get direct communication from VARA’s Supervision Teams, who will offer activity-specific guidance as required.

“Our commitment remains to ensure that innovation and compliance go hand in hand. These rulebook updates reinforce the foundations of a responsible, scalable ecosystem,” said Ruben Bombardi, General Counsel and Head of Regulatory Enablement, VARA.

Blockchain Revolution and UAE

Every nation is in this race to be the next “Crypto Capital” of the world. There are countries which have even passed executive orders to loosen the federal regulations around the crypto industry. The United Arab Emirates has always stayed ahead in this race.

Dubai has established itself as a regional leader thanks to its aggressive commitment to blockchain innovation and regulation. The amount that is being wired for various purposes in cryptocurrencies is insane! The UAE received $34 billion in cryptocurrency transactions between July 2023 and June 2024, a 42% year-over-year increase, according to Chainalysis’ Geography of Crypto Report 2024.

Both retail and institutional transactions have seen this impressive growth, with institutional-sized transfers rising by 55% and tiny retail transactions rising by over 80%.

So, is there something that Dubai is doing that is so right? There are many answers to this, but off the top – the regulators know how to strike a delicate balance between embracing innovation, technology, and wealth creation while controlling the future of cryptocurrency and blockchain.

While doing the above, they have also put in place strong regulations to mitigate the potential risks of financial crime that such new technological frontiers may unintentionally bring. The AML norms around this industry are airtight, and the regulators don’t blink an eye over it. 

There are still a few cracks to fill. If the UAE wishes to become a leading regulator of virtual assets, it must take into account consumer protection and its advantages, providing financial access and economic inclusion, and levelling the playing field in addition to regulatory concerns related to financial crime, both domestically and globally.

Another feature that can set the UAE apart as a respectable participant in the global crypto market is its leadership in regional and international coordination to end regulatory arbitrage and facilitate cross-border compliance.

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