Crypto is Expanding in the Middle East, but What Challenges Lie Ahead?

It's no secret that the Middle East and North Africa (MENA) region has been one of most prominent forces within the global crypto fray in recent years, processing an impressive $338.7 billion in transactions between Q2 2023 and Q2 2024 alone — a figure that has positioned MENA as the seventh-largest crypto player globally.

From the outside looking in, the market's expansion seems to have been driven overwhelmingly by institutional and professional entities, with 93% of the aforementioned transactions valued at $10,000 or more. And, while centralized exchanges have remained a central gateway for crypto access within the region, reports have shown that decentralized finance (DeFi) platforms too have gained immense popularity in recent years, particularly across Saudi Arabia and the United Arab Emirates (UAE).

Saudi Arabia, with its predominantly young population — approximately 63% under 30 years old — has been bursting with enthusiasm for DeFi while the UAE has established itself as a regulatory powerhouse, providing clarity on various aspects of crypto participation and cementing its position as a hub for a wide array of DeFi and crypto-centric ventures.

A burgeoning regulatory frontier

Over the past year, asset preferences across the region seem to have also been evolving, with stablecoins and altcoins steadily gaining share over traditional cryptocurrencies like Bitcoin and Ether. This shift has been particularly pronounced in Türkiye, Saudi Arabia, and the UAE, where stablecoin volumes have significantly exceeded the global average.

For example, in Türkiye, a country that has historically faced economic instability and high inflation, stablecoins have emerged as a reliable store of value for retail users while in the UAE, where the local currency is pegged to the U.S. dollar, these offerings have emerged as a gateway to broader crypto services and trading opportunities.

The UAE, in particular, has been pioneering financial innovation by exploring dirham-pegged stablecoins to enhance its local payment systems, with the country’s central bank recently signing off on the same. On the matter, Shahaf Bar-Geffen, CEO and Founder of COTI, privacy-focused Layer2 Israel-based decentralized payments provider, believes that this trend has been made possible thanks to stablecoins eliminating users’ reliance on traditional financial (trad-fi) infrastructures, which are hampered by inefficiencies and access restrictions, adding:

“Stablecoins and potentially CBDC’s offer a path to accelerate economic growth by providing a fast and frictionless means to exchange value. With accessible, cross-border transactions, an increasing number of companies and individuals will be able to join the global economy.”

Furthermore, it bears mentioning that the UAE’s Virtual Assets Regulatory Authority (VARA) has established clear guidelines covering market conduct, information management procedures, and anti-money laundering protocols.

However, despite these measures, security concerns have continued to grow, especially with global funds stolen (through hacking cryptocurrency platforms) surging to $2.2 billion in 2024 — with the number of incidents rising to 303 from 282 in 2023. This has marked the fourth consecutive year that hacking losses have exceeded $1 billion, highlighting the escalating security risks accompanying market growth.

Here again, Bar-Geffen believes that an even clear framework is needed, one that extends consumer protection without stifling innovation. “If this can be achieved, crypto can become a powerful tool for transformation, leading to financial inclusion and economic growth," he added.

The road ahead

Looking ahead, it seems quite reasonable to assume that over the coming few years, the MENA region will continue to dominate global crypto-related conversations, especially as adoption grows across diverse demographics and institutions. And, despite certain challenges related to security and illicit activities still persisting, the legitimate use of crypto in the region has significantly outweighed criminal applications, with crypto-related crime consistently representing less than 1% of the overall market.

Therefore, as regulatory frameworks and security measures in the region mature and evolve, the Middle East stands poised to cement its position as a global leader in the cryptocurrency revolution. Interesting times ahead!