Fiat-Referenced Virtual Assets (FRVAs) represent VARA's most consequential regulatory innovation. Introduced in September 2023 and substantially updated in the May 2025 Rulebook V2.0, the FRVA Rules create the world's most detailed regulatory framework for stablecoins — addressing issuance, reserve management, redemption, disclosure, and ongoing compliance.
VARA defines a Fiat-Referenced Virtual Asset as "a type of Virtual Asset that purports to maintain a stable value in relation to the value of one or more fiat currencies but does not have legal tender status in any jurisdiction." An FRVA is neither issued nor guaranteed by any jurisdiction and fulfills its functions only through use and acceptance within its community of users. In practical terms, FRVAs include stablecoins like USDT, USDC, and any future USD, EUR, or GBP-pegged tokens operating in Dubai.
Critical exclusions: FRVAs do not include representations of equity claims, central bank digital currencies (CBDCs), tokenized bank deposits used for interbank settlement, or any token pegged to the UAE Dirham (AED) — which falls under the exclusive purview of the CBUAE.
FRVAs are classified as Category 1 VA Issuances — the highest regulatory tier under VARA's framework. Issuers must obtain a full VARA license and receive pre-approval before any FRVA can be offered. This contrasts with Category 2 issuances (utility tokens, NFTs, governance tokens) which require only licensed distributors without direct VARA pre-approval.
FRVA issuers must maintain 100% backing through reserve assets held in segregated accounts at regulated financial institutions. Reserve assets are not Client Money or Client VAs under the Compliance and Risk Management Rulebook. VARA requires independent monthly audits confirming: the total number and value of FRVAs in circulation, and the total value and composition of reserve assets.
Issuers must also undergo comprehensive audits of smart contracts used in FRVA issuance on a regular basis (as directed by VARA) and vulnerability audits of internal and external systems. Reserve assets must be denominated in high-quality liquid instruments approved by VARA.
Before offering an FRVA, issuers must publish detailed whitepapers including: the reference currency and stabilization mechanism, creation and redemption policies, reserve asset composition and management strategy, smart contract audit results, risk assessments covering management, custody, investment, and liquidation of reserves, and marketing guidelines.
FRVA issuers are prohibited from: offering interest, yield, or any incentive benefits for acquiring, holding, or using an FRVA. Referencing currencies of sanctioned countries under UAE federal AML/CFT laws. Issuing algorithmic stablecoins that maintain their peg through token minting/burning without full collateralization (explicitly prohibited following the May 2022 Terra/Luna collapse).
| Feature | VARA FRVA | EU MiCA (EMT) | US (Proposed) |
|---|---|---|---|
| Classification | Category 1 VA | E-Money Token | Payment Stablecoin |
| Reserve Requirement | 100% backing | 100% backing | 100% proposed |
| Audit Frequency | Monthly | Annual | TBD |
| AED/Local Peg | CBUAE exclusive | N/A | N/A |
| Incentive Ban | Yes | Yes | No |
| Algo Stablecoins | Prohibited | Restricted | Unclear |
VARA's FRVA rules have attracted significant attention from global regulators. As Pinsent Masons noted, VARA's approach provides certainty across the full lifecycle of stablecoin issuance, management, and redemption — unlike many jurisdictions where stablecoin oversight remains fragmented. Major stablecoin issuers including Tether and Circle are evaluating VARA licensing as a path to regulated operations in the Gulf region.
Sources: VARA Rulebooks, Pinsent Masons, CMS Law-Now, DLA Piper. Not legal advice. See Disclaimer.
Beyond financial auditing, VARA requires FRVA issuers to undergo comprehensive smart contract audits on a regular basis as directed by VARA. This includes code review by independent security auditors, vulnerability assessments of internal and external systems, and ongoing monitoring for smart contract exploits. These requirements reflect lessons learned from the Chainalysis-documented billions in DeFi exploits since 2020 and position VARA's framework as the most technically rigorous stablecoin regulation globally.
FRVA issuers face continuous compliance obligations beyond initial licensing. Monthly independent reserve audits must be published, confirming 1:1 backing. Capital adequacy requirements include paid-up capital, net liquid assets, insurance coverage, and VARA-defined reserves. Marketing materials must comply with VARA's Marketing, Advertising and Promotions Regulations — which apply to all crypto businesses in Dubai, licensed or not. Any material change to reserve composition, redemption policies, or technical infrastructure requires VARA notification and, in many cases, pre-approval.
VARA's FRVA framework continues to evolve. Expected developments include: enhanced cross-border interoperability standards with Singapore MAS and EU regulators, integration with the UAE's broader digital economy strategy including CBDC pilot programs, potential harmonization with CBUAE payment token requirements for streamlined multi-regulator compliance, and refined reserve asset eligibility criteria reflecting evolving market infrastructure. The framework's flexibility — built on rulebooks rather than rigid legislation — allows VARA to adapt quickly to market developments while maintaining core consumer protections. For stablecoin issuers and VASPs, staying current with VARA's regulatory evolution is essential for long-term compliance.
VARA's FRVA rules impose strict requirements on the composition of reserve assets backing stablecoins. Reserve assets must be held in high-quality liquid instruments approved by VARA, maintained in segregated accounts at regulated financial institutions, and denominated in currencies aligned with the FRVA's reference currency. The prohibition on using sanctioned currencies as reference currencies extends to reserve composition — no reserve assets may be held in instruments denominated in currencies of FATF-sanctioned jurisdictions. These standards exceed those of most competing frameworks and reflect VARA's commitment to ensuring that every FRVA in circulation is genuinely backed by accessible, liquid assets that can be redeemed at par value on demand.