Middle East investors embrace tokenisation to build sustainable wealth

(Image credit: Image Credit: The Digital Artist / Pixabay)

UAE’s surge in crypto investments has taken off drastically this year despite not even featuring in the top 10 countries for digital token sales last year.

According to data by CoinSchedule, the UAE has surpassed both the US and the UK to become the biggest contributor to crypto token sales globally this year.

Florian Glatz, co-founder of Fundament, said the data show the efforts being made by local authorities to establish the country as a blockchain hub.

The country has raised $210.5 million so fare this year or more than 25% of the total funds while the Cayman Islands came in second with $103.8m and Singapore with $89.7m.

The data show that the US, which has been dominating token sales, has fallen to sixth place with $37.2m.

Glatz said that Security Token Offerings (STOs) have proved popular with institutional investors, more comfortable with their link to traditional stores of value.

STOs are just like Initial Coin Offerings (ICOs) but with paperwork, regulatory approvals and ownership.

“STOs distribute security tokens, which as the name suggests, are representative of an underlying asset (security such as real estate) that holds real-world monetary value, affording investors with greater protection, and operate within a regulated framework,” he said.

The UAE saw $67m in investment via STOs in the first quarter of 2019, amounting to over half of the total global investment through STOs.

While capital inflows into the region are more substantial, of the 47 STOs launched, Glatz said that only two can be attributed to the UAE.

Financial Services Regulatory Authority of Abu Dhabi Global Market has put in place a framework to regulate spot crypto asset activities.

Moreover, the UAE and Saudi Arabia have unveiled a new cross-border payment purposed cryptocurrency between the two countries.

Europe...an attractive spot for realty investment

In addition to attracting FDI to the Middle East, Robin Matzke, co-founder of Fundament, said that tokenisation could prompt local Middle Eastern investors to look for similar investment opportunities abroad, especially as they become more comfortable with the technology as an innovative means of building wealth. 

However, he said that Europe is a particularly attractive destination for real estate investment, boasting a growing economy, low unemployment and strong demand for new residential/ commercial units.

“Tokenised real estate investments, in booming markets like Germany, are preparing a fertile ground for investors from the Middle East region. Saudi Arabian asset management firm Sedco Capital, Sidra Capital, Bahrain’s Investcorp and Gulf Islamic Investments are just a few major firms focusing property investment in Germany, France and the UK amounting to over $931m,” he said.

While Trump’s tweets and Facebook’s Libra have been dominating the conversation around blockchain, the Middle East continues to make major strides in the area of blockchain regulation. 

Recently, Saudi Arabia relaxed its 49% limit for foreign strategic investors in shares of listed companies, as the Kingdom opened up the region’s largest bourse to a more diverse investor base.

Blockchain adoption on the rise

Like many countries, Matzke said that Saudi Arabia and the UAE were among those that issued warnings to investors about investing in ICOs due to concern over market volatility, rampant scams and lack of regulation.

“Several months later, ongoing development has seen the industry as a whole move away from ICOs in favour of STOs,” he said.

 The UAE financial regulator, Securities and Commodities Authority (SCA), asserts that concrete legal frameworks for tokenised assets will be published soon to improve legal security. The Central Bank of Bahrain has already approved 30 companies through its regulatory sandbox, 11% of which constitute “crypto services” including ATMs and tokenisation.

Advancements in blockchain adoption throughout the Middle East have accelerated dramatically with the Dubai government setting out plans to use the technology for all government documents by 2020 as well as the UAE Central Bank collaborating with Saudi Arabia’s Monetary Authority and exploring the use of its cryptocurrency “Aber” for cross border transactions. 

Glatz said that as investors, both foreign and local, grow more comfortable with tokenisation as a means of investing and building sustainable wealth, both the Middle East and other regions around the globe that embrace tokenisation, will prosper.

Single and unified framework

In the long term, Glatz said that the regulatory regimes around asset tokenisation in the Middle East and Europe will converge into a single, unified framework, further strengthening the allocation of capital across these two regions.

“Today’s migration to a decentralised financial infrastructure that transcends borders will offer the incentive for lawmakers to tear down incompatible regulations in securities laws, investor protection rules and contract laws that govern the transfer of securities,” he said.

For tokenisation to deliver on its promise of being a superior form of investment, he said the market will have to prove it’s an appetite for these new investment instruments by investing significant funds into major projects.

“It is expected that tokenised real estate funds, of which the first serious projects are now appearing in Europe, could be such a game-changer,” he said.