A New Dirham-Based Tether and High Risks Due to Deep Socioeconomic Integration with Iran
In early January 1403, news that had initially been announced in August resurfaced in crypto circles, attracting more attention. At first glance, this may seem like just another piece of cryptocurrency news. However, Tether (Tether) is set to issue a new stablecoin based on the UAE Dirham.
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As published on Tether’s official website: Tether, the largest company in the digital asset industry, has announced its plans to launch a new stablecoin pegged to the United Arab Emirates Dirham (AED). This token will be introduced in collaboration with the major Emirati technology holding, Phoenix Group PLC, and will be supported by Green Acorn Investments Ltd. This Dirham-pegged stablecoin (AED Stablecoin) will join Tether’s existing stablecoin portfolio, including USDt, EURT, CNHT, MXNT, XAUT, and aUSDT. Following its pioneering approach, this token will seek licensing under the new Payment Token Services Regulation issued by the Central Bank of the United Arab Emirates.
The new Tether stablecoin represents a digital version of the UAE Dirham, where each token is fully backed by cash reserves based in the UAE. In line with Tether’s strong transparency and reserve standards, it ensures that each Dirham-pegged token is tied to the AED’s value, guaranteeing stability and confidence in its worth. This Dirham-backed stablecoin provides users with a simple and cost-effective way to access the benefits of the UAE Dirham while leveraging the transparency and efficiency of blockchain technology. This digital asset facilitates international trade and remittances, reduces transaction costs, and serves as a hedge against currency fluctuations, thus playing a crucial role in the UAE’s financial ecosystem and beyond.
Paolo Ardoino, CEO of Tether, commented: “We are pleased to announce this initiative to develop the Tether Dirham stablecoin and add it to our stablecoin family. The UAE is emerging as a global economic hub, and we believe our users will find this Dirham-pegged token a valuable and versatile addition. The Tether Dirham stablecoin will become an essential tool for businesses and individuals looking for a secure and efficient way to transact in AED—whether for international payments, trade, or diversifying digital assets.”
The global stablecoin market is currently valued at $150 billion, with USDt alone accounting for over $115 billion. The industry is projected to reach $2.8 trillion by 2028. Since 2022, cryptocurrency adoption in the UAE has increased significantly due to the establishment of the Virtual Asset Regulatory Authority—the world’s first independent crypto regulatory body. Favorable regulatory conditions in cities like Dubai and Abu Dhabi have turned them into global hubs for digital asset innovation and blockchain technology.
Seyed Mohammad (Bijan) Alizadeh Fard, Founder and CEO of Phoenix Group, stated: “We are very pleased to collaborate with Tether in launching a Dirham-backed stablecoin and are confident in its potential to transform the digital economy for users in the region and beyond. This partnership with Tether not only highlights our commitment to innovation and excellence but also reflects our dedication to providing financial solutions that meet our customers’ needs. Abu Dhabi’s progressive stance on blockchain, digital assets, and innovation makes it the perfect launchpad for this initiative.”
Tether Dirham Regulation
According to a CoinTelegraph report from October 2024, the Central Bank of the UAE (CBUAE) granted an in-principle approval (IPA) for the Dirham-pegged stablecoin under the Payment Token Services Regulation framework. This makes it the first officially licensed Dirham-pegged stablecoin in the UAE. The approval clarifies crypto payment regulations, following concerns about restrictions in the CBUAE’s new licensing framework. Notably, the framework only permits licensed Dirham-pegged tokens for payments, while algorithmic stablecoins and privacy coins are banned.
Use Cases of Tether Dirham
The regulatory framework classifies Tether Dirham as a currency or payment instrument, enabling three major use cases:
1. Payment tool for e-commerce and digital payments
2. Trading pair in centralized and decentralized exchanges; this means various cryptocurrencies can be traded against Tether Dirham as a base trading pair.
3. Collateral, storage, and value exchange in DeFi projects; a UAE Dirham-based stablecoin creates new opportunities for decentralized finance (DeFi) services for companies operating in the UAE.
Risks of AED Tether for the Sovereignty of the Iranian Rial
Iran’s heavy reliance on the UAE dirham is well known—a financial dependency that has been shaped by the oppressive sanctions imposed on the country. This reliance, combined with a lack of innovation and new initiatives, has led to a situation where a significant portion of Iran’s cross-border trade is conducted through an informal currency brokerage system known as the “trust system,” utilizing intermediary companies in the UAE. Consequently, Iran’s foreign exchange transactions, before settling in any other currency, are first converted into the UAE dirham.
Moreover, the geographical proximity of Iran and the UAE, along with their deep social, economic, and commercial ties, significantly amplifies the risks posed by AED Tether for Iran.
The stablecoin AED Tether (USDT-AED) could introduce numerous risks to Iran’s economy and the sovereignty of its national currency, the rial. In summary, seven key risks can be identified with the introduction of AED Tether:
1. Decreased Demand for the Iranian Rial in Foreign Trade
If a dirham-pegged stablecoin gains widespread adoption in the region, particularly in international trade, Iranian companies and individuals may prefer using it over the rial or even the U.S. dollar for settlements. This shift could reduce demand for the rial and place further pressure on its value.
2. Increased Use of the Dirham in Informal and Underground Transactions
An AED-pegged Tether could serve as an efficient tool for the rapid and unofficial transfer of capital from Iran. This development would undermine the Iranian government’s control over financial and currency flows.
3. Encouraging Capital Flight from Iran
If this stablecoin becomes a reliable store of value, individuals may prefer to convert their assets into dirhams or its corresponding stablecoin, potentially leading to significant capital outflows from Iran.
4. Weakening Iran’s Monetary Sovereignty
Monetary sovereignty refers to a country’s ability to control its monetary policies and domestic exchange rates. The growing financial reliance on a foreign currency or its associated stablecoin could erode Iran’s economic independence and limit its control over monetary policy.
5. Increased Volatility in Iran’s Currency Market
The introduction of this stablecoin could add further volatility to Iran’s foreign exchange market. High demand for AED Tether could drive fluctuations in unofficial exchange rates. The anticipated surge in demand for AED Tether is already foreseeable, particularly because this digital currency enables decentralized financial transactions that are otherwise unavailable to Iranian users.
6. Competition with Iran’s Digital Rial, CBDC, or Ramzrial
If the Central Bank of Iran eventually launches a digital rial after years of delays, AED Tether could present itself as a more attractive alternative, especially if it offers additional functionalities such as international trade settlement and value storage.
7. Deepening Iran’s Economic Dependence on the UAE
The widespread use of an AED-pegged stablecoin could further entrench Iran’s economic reliance on the United Arab Emirates. This dependency could heighten Iran’s vulnerability in times of political or economic tensions.
Recommendations for Managing Iran’s Risks Against AED Tether
Two broad recommendations can be considered to manage Iran’s exposure to AED Tether.
The first category consists of restrictive measures. Historically favored by Iranian lawmakers, these measures could include banning the purchase, sale, and offering of AED Tether on Iranian cryptocurrency platforms. Besides imposing regulatory restrictions or even penalties, no other restrictive action is practically feasible for Iran. However, past experiences have repeatedly demonstrated the ineffectiveness of such restrictive policies.
In economics, where competitively viable alternatives exist, no amount of regulation or prohibition can prevent the success of a more justified option. Therefore, Iran must undertake a significant paradigm shift in its approach to financial innovation, particularly in areas such as expanding payment tools—currently monopolized by the central bank—allowing decentralized financial services based on the rial, facilitating the creation of rial-backed stablecoins, and developing new instruments for international transactions. Additionally, Iran should enhance the visibility of the domestic crypto market by granting greater freedoms to its participants.
If current policies, particularly those upheld by the Central Bank of Iran, persist, the sovereignty of the rial will soon face a serious collapse. There is a strong possibility that one of the key motivations behind the creation of AED Tether—mentioned in its business model—is its potential accessibility and penetration into Iran’s 90-million-strong market. In this scenario, Iran’s strength does not lie in outdated central bank policies but rather in empowering private sector initiatives. By fostering innovative trading platforms, tokenization, and decentralized financial services, Iran can protect and strengthen its national economy and monetary sovereignty.
Sources:
https://tether.io/news/tether-to-develop-uae-dirham-pegged-stablecoin/
