ADGM proposed a dedicated regime for fiat-backed stablecoins

The Financial Services Regulatory Authority of Abu Dhabi Global Market published a proposed framework on August 20, 2024 for issuing fiat-referenced tokens, a defined class of fiat-backed stablecoin. Consultation Paper No. 7 of 2024 would make issuance a regulated activity and attach reserve, redemption, capital, disclosure and risk-management requirements to it.

The development mattered because ADGM was moving from general guidance on fiat tokens toward a dedicated issuer rulebook. Stablecoins can circulate repeatedly on public blockchains without returning to the issuer after each payment, so their safety depends on the quality and availability of assets behind them and the enforceability of redemption rights. The paper treated those features as prudential questions, not merely token-design choices.

It was still a consultation. The FSRA requested comments by October 3, 2024, and said it would consider whether the proposals needed modification before ADGM and the regulator enacted a final framework. No issuer, token or reserve arrangement received approval on August 20.

A narrow definition with redemption at its center

The proposal defined an FRT as a digital asset transferred and stored electronically using distributed-ledger technology, used as a medium of exchange, referenced to a fixed amount of one fiat currency, and redeemable from its issuer for that fiat amount on demand.

That definition intentionally excluded a wider universe of products marketed as stablecoins. Asset-referenced and commodity-backed tokens were outside this consultation, and the FSRA said algorithmic stablecoins deriving stability from arbitrage or an algorithm would not be permitted in ADGM. The regulator also distinguished FRTs from “Virtual Assets,” which it described as lacking an issuer obligation to redeem at a specified value.

The draft amendments identified FRT issuance as a new regulated activity, although the consultation asked whether it should instead sit inside an expanded money-services category. Either path would place issuance within financial-services supervision rather than treat it as unregulated software deployment.

Full backing, segregation and monthly checks

Under the proposal, reserve assets had to equal at least the par value of all FRTs outstanding at the end of every business day and be valued daily on a mark-to-market basis. Permitted holdings centered on cash and same-currency, high-quality liquid instruments: short-dated government or central-bank debt, qualifying overnight reverse repurchase agreements, approved government money-market funds and other instruments authorized by the FSRA.

Reserves would be segregated with permitted third-party custodians so token holders had a priority claim if an issuer became insolvent. An issuer offering multiple FRTs would maintain a separate reserve pool for each. Independent monthly attestations would report reserve value and composition, outstanding token par value, backing adequacy and liquidity. An external audit of reserves and related controls would occur annually.

The FSRA proposed minimum capital, separate from reserves, equal to the higher of $2 million or annual audited expenditure, with at least $2 million in common equity tier 1 capital. It also proposed annual stress tests, with additional testing when requested.

Redemption and the unresolved yield question

Holders would have a right to redeem at par on demand. The proposed ordinary deadline was two business days after a request, subject to disclosed conditions and exceptional FSRA-approved extensions during stress. Issuers would have to submit a white paper to the regulator at least 20 business days before initial issuance and disclose the token’s stabilization mechanism, reserves, risks, holder rights, fees and technology.

One unusual policy choice remained open: the FSRA proposed allowing issuers to distribute reserve income to holders, but only after full redemption claims were satisfied and only when reserves exceeded outstanding par value. The token could not be promoted as an investment or savings product. On August 20, that was a question for consultation—not permission to market a yield-bearing stablecoin or evidence that any such product was safe.