Dubai's DFSA Says Tokenisation Needs On-Chain Cash and Interoperability to Scale

The paper, Scaling Tokenisation: The Road Ahead, was released at the regulator's Future Tokenisation Forum during the first Dubai Future Finance Week. Contributors included BlackRock, Ripple, Robinhood, Soter Insure and Standard Chartered. The DFSA, which regulates the Dubai International Financial Centre, said the paper does not predict a single path for the technology or prescribe a technological, regulatory or commercial outcome. Instead, it sets out where market participants broadly agree and where their views differ.

The paper matters for the Gulf because Dubai and Abu Dhabi are competing to host the institutions building tokenised markets. The DFSA runs its own Tokenisation Regulatory Sandbox for firms testing tokenised investments in the DIFC. Across the country, Abu Dhabi Global Market issued one of the first regulatory frameworks for virtual assets eight years ago, and Coinbase said in August it would make Abu Dhabi its international tokenisation hub, according to Khaleej Times.

The white paper identifies investor perceptions of risk as the main obstacle to large-scale deployment. These include weaknesses in the bridges that connect blockchains and the bad actors who exploit them. Regulation will not remove those risks, it says, but can help institutions manage their exposure.

A widely accepted digital cash asset on-chain is described as a prerequisite for tokenisation to deliver its benefits. Such an asset would let investors trade safely during periods of stress without waiting for traditional exchange hours. The paper puts the potential scale in context. Based on end-2025 figures from the Securities Industry and Financial Markets Association, 10 per cent of global securities would be worth about $32 trillion. If tokenisation came to represent a significant share of global bond and equity markets, trillions of dollars of digital cash could be needed to settle trades and maintain liquidity. The paper says this would probably require a mix of settlement assets rather than one form of digital cash.

Interoperability is the other main barrier. Many regulated firms have built tokenised cash and securities on private, permissioned blockchains, either on their own systems or in consortia. Market participants worry that weak connections between these platforms, whether public or private, hold back liquidity. The paper says wider adoption will probably need connections between blockchains, between traditional exchanges and regulated digital asset platforms, and between tokenised and conventional market infrastructure.

Mark Steward, the DFSA's chief executive, said tokenisation is moving "into live use across financial products, payments, and market infrastructure" and that the regulator hoped the paper would "stimulate further discussion among industry, investors, regulators". At the forum, the DFSA also said it is preparing further tokenisation publications covering regulatory, legal and operational issues.