Digital asset custody transforming financial services in the Middle East

The Middle East is currently experiencing significant growth, driven by visionary leadership and a tech-savvy youthful population. This dynamism is fostering innovations across various sectors, particularly in finance. An increasing appetite for fresh opportunities, coupled with a willingness to challenge the status quo, is rapidly reshaping the financial landscape toward a digital future.

At the forefront of this transformation is digital asset custody, offering a secure and streamlined approach to the storage and management of digital assets, including cryptocurrencies and security tokens. Fueled by a substantial surge in global crypto transactions – with a more than 480 percent increase documented in the MENA region by June 2023, according to Chainalysis – this technology is poised to redefine financial services, ushering in an era of unprecedented transformation and opportunity.

The rise of digital assets in the Middle East

The Middle East is showing a growing interest in digital assets, with the UAE emerging as a global center for crypto trading and blockchain innovation. Dubai hosts nearly 40 licensed crypto firms under the Dubai Virtual Assets Regulatory Authority, reflecting the government’s dedication to cultivating a secure digital asset ecosystem. Furthermore, as of November 2022, approximately seven crypto companies, including custodians and exchanges, were licensed under the Abu Dhabi Global Market’s Financial Services Regulatory Authority, with at least 18 more in the licensing process.

While current figures are unavailable, it’s evident that the number of licensed crypto firms under ADGM has increased since late 2022. Security tokens, representing ownership of real-world assets on a blockchain, hold significant potential for enhancing financial inclusion. According to a report by PricewaterhouseCoopers, 72 percent of high-net-worth individuals in the Middle East are interested in investing in alternative assets, including digital assets.

This surge in interest can be attributed to the transparency and immutability of blockchain technology, offering a level of trust and security often absent in traditional financial systems.

Challenges and the role of digital asset custody

Despite the enthusiasm, challenges remain. Regulatory uncertainty surrounding digital assets can be a hurdle for institutional investors, whereas security concerns, fueled by high-profile hacks on crypto exchanges, add to the hesitation.

Several large exploits took place between September to November in 2023 impacting both DeFi (decentralized finance) and CeFi (centralized finance) platforms such as Mixin Network ($200 million), CoinEx ($43 million), Poloniex Exchange ($130 million), HTX ($113.3 million), and Kyber Network ($54.7 million). While these incidents can be concerning, there is hope. TRM Labs’ analysis found that virtual asset service providers in countries with full licensing and supervision regimes have witnessed lower rates of illicit activity than those in less regulated jurisdictions.

This underscores the importance of digital asset custody, providing institutional-grade security for storing and managing digital assets. Leveraging industry-leading security protocols, including multi-signature key management, robust access controls, cold storage infrastructure and regulatory compliance ensures the safety of assets, where companies like Liminal come into play.

Beyond security, custodians like Liminal offer a multitude of advantages. They streamline digital asset management by eliminating manual processes, leading to faster settlements and lower operational costs. In addition, their focus on regulatory compliance ensures assets are managed according to the latest legal standards, fostering trust and attracting institutional investors. This broader participation brings stability and legitimacy to the digital asset market.

Transforming financial services in the Middle East

Digital asset custody is pivotal, not only for security but for unleashing the complete potential of digital assets, reshaping the financial landscape in the Middle East. Here are insights into how this transformation will unfold:

• Financial inclusion: Digital assets offer secure and affordable financial services, fostering economic participation and growth among the unbanked population.
• Investment innovation: Tokenization is poised to unlock novel investment opportunities across sectors, from real estate to infrastructure, fostering a more diverse and dynamic financial ecosystem.
• Cross-border transactions: Blockchain technology’s inherent efficiency presents the prospect of faster and cheaper transactions, potentially reducing remittance costs in the MENA region hovering around 6.2 percent, according to the World Bank’s report published in June 2023, thus enhancing regional trade and investment.
• Programmable money:  Blockchain-powered smart contracts can automate financial processes, minimizing costs and errors while streamlining transactions.

The road ahead

The future of finance in the Middle East is unequivocally digital. With digital asset custody solutions facilitating secure and compliant participation, the region stands poised to lead the global digital asset revolution.

However, this transition comes with challenges. Regulatory frameworks must adapt to the unique nature of digital assets. Collaborative efforts among governments, financial institutions, and technology providers will be indispensable in nurturing a robust and flourishing digital asset ecosystem.

About Amir Tabch

Amir holds the position of CEO for the Middle East region at Liminal Custody Solutions, a frontrunner in digital asset custody & wallet infrastructure. His illustrious path to Liminal encompassed key leadership roles, including Chairman & CEO of Copper Securities (formerly Securrency Capital), & Lead Director & CEO of SC Meta Markets. 

During his tenure as Head of Global Markets at EIBank, Amir’s visionary approach catalyzed transformative improvements in trading efficiency, marked by substantial reductions in operational risks & execution timelines.

In his early career at the National Bank of Abu Dhabi (now First Abu Dhabi Bank), in his capacity as Head of Global Wealth & Asset Management Trading, Amir played a crucial role in introducing cutting-edge asset management & trading platforms, as well as innovative investment solutions. This included the inauguration of the bank’s first investment advisory department & its premier range of investment products.

Since 2016, Amir has been a key INED, board member, & board advisor. He consistently contributes to thought leadership forums & is a frequent CEO columnist for Economy Middle East. 

Amir Tabch is the CEO for the Middle East at Liminal Custody Solutions. 

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