Dubai: When many regulatory frameworks globally were attempting to fit virtual assets into legacy rules designed for physical and traditional financial assets, Dubai chose a different path. The emirate established a separate entity dedicated solely to overseeing this emerging sector: the Virtual Assets Regulatory Authority (VARA). The reasoning behind this decision is as deliberate as it is instructive. We spoke with Dan Johnson, General Manager at VARA, to gain deeper insight into why Dubai opted for a purpose‑built regulator and how it approaches virtual asset oversight.
What gap or challenge did Dubai see in the virtual assets space that led to the establishment of VARA, and why was it important to create a dedicated regulator rather than rely on existing financial authorities?
Dan Johnson: Dubai recognised early that virtual assets were not merely an emerging technology trend, but a meaningful component of the future economy. Under the D33 agenda, the emirate aims to double the size of its economy over the next decade, with technologies such as blockchain, Web3 and artificial intelligence playing a central role. This created both a significant opportunity and a clear imperative, as the sector could only reach its potential within a solid regulatory foundation, one that most jurisdictions had not yet established.
Virtual assets became a natural focus because they are not simply new products added onto existing rules. The blockchain technology that underpins them introduces distinct combinations of market infrastructure, custody mechanisms, consumer risk and financial crime exposure. These characteristics require purpose‑built regulatory design, tailored authorisation pathways and dedicated supervisory expertise. Existing regulatory regimes were developed around established asset classes and conventional intermediaries. By contrast, the virtual assets market involves new operating models, including cross‑border activity, hybrid business structures, and novel forms of custody, exchange and issuance that those frameworks were never designed to accommodate.
In response, Dubai established VARA in 2022 as a dedicated regulator focused exclusively on virtual assets. This made it possible to develop a framework tailored specifically to the sector, with a single authority responsible for regulatory development, licensing, supervision and enforcement.
The result is a more coherent and transparent system that provides firms with greater clarity, reduces fragmentation, and sends a clear signal that innovation is welcome, but only within a structured, accountable and trusted environment.
How would you describe VARA’s regulatory philosophy, and how does it balance innovation with market integrity and consumer protection?
Dan Johnson: VARA’s regulatory philosophy is built on a simple principle: innovation and market integrity should reinforce each other, not exist in opposition. The framework is activity‑based and technology‑agnostic, meaning regulation focuses on the services being provided — such as custody, exchange, issuance or advisory — rather than on specific tokens or technologies. This provides clarity for firms while ensuring the framework remains relevant as the market evolves.
The regime is also principles‑based rather than overly prescriptive. VARA sets clear expectations around governance, risk management, consumer protection and market conduct, while allowing firms flexibility in how they meet those standards. This approach is particularly important in a fast‑moving sector.
Equally important is VARA’s emphasis on engagement rather than an enforcement‑first mindset. The authority consults regularly with virtual asset service providers, technical experts and investors, and uses tools such as pilot regimes and phased permissions to allow new products to be tested in controlled environments before broader rollout.
This flexibility is matched with strong oversight, including regular reporting, independent audits, client‑asset safeguards, reconciliation and proof‑of‑reserves. In practice, responsible innovation depends on trust, and trust depends on clear, credible and consistently applied regulation.
In practical terms, how does VARA’s regulatory framework differ from those in jurisdictions such as the EU, the UK or Singapore?
Dan Johnson: Direct comparisons between jurisdictions are not always straightforward, as each regulator responds to different market structures, policy objectives and risk appetites. What distinguishes VARA is that it was designed specifically for virtual assets from the outset, rather than adapted from an existing financial services regime.
In practical terms, the framework is organised around modular, activity‑based rulebooks tailored to the services a firm actually provides — whether custody, exchange, issuance, brokerage or advisory. This enables more targeted requirements and a clearer alignment between risk and regulation.
What informed Dubai’s choices on applicable laws and legal structures for virtual assets, and why were they important for market participants?
Dan Johnson: The primary considerations were legal certainty, investor protection and the ability to support innovation within a credible framework. For markets to function effectively, participants need clarity on how virtual assets are recognised, how ownership is established, what rights attach to those assets and how those rights can be enforced. Without this clarity, firms and investors are exposed to legal uncertainty.
Dubai placed virtual asset activity within a clearly defined legal and regulatory perimeter, with specific licensing categories, enforceable obligations and rules that reflect how these businesses operate in practice. As many firms combine activities such as trading, brokerage and issuance, the framework is designed to accommodate that reality while maintaining strong safeguards, particularly around custody and client assets.
This clarity has been critical for market confidence. It improves predictability for firms, helps investors understand the protections in place and supports institutional participation. A recent example is the Guidance on the Virtual Assets Issuance Rulebook, which provides practical clarity across different issuance models and reinforces the expectation that innovation must be underpinned by governance, robust disclosure and accountable market conduct.
What is your view on the EU’s MiCA framework, and where does VARA align with or diverge from it?
Dan Johnson: MiCA represents an important step forward in creating greater clarity and consistency across the European market, particularly with respect to licensing, disclosures and market conduct. At a high level, it aligns with VARA’s objectives, including investor protection, transparency and market integrity.
That said, each framework reflects the structure, priorities and risk appetite of its respective market. What differentiates VARA is that Dubai moved early, developing a purpose‑designed framework for virtual assets in 2022, at a point when many jurisdictions were still determining their regulatory approach.
The key distinction lies in implementation. VARA’s framework is designed to remain agile, using tools such as pilot regimes — including in areas such as tokenisation — phased permissions and close supervisory feedback loops that allow new use cases to be tested before scaling. The rules are intended to evolve iteratively to keep pace with a fast‑moving and innovative sector.
How does VARA approach the regulation of decentralised models?
Dan Johnson: Decentralisation does not eliminate the need for accountability. Even systems designed to operate without a central intermediary present identifiable risk points, particularly in relation to financial crime. The absence of a traditional gatekeeper does not remove exposure.
VARA does not regulate the technology or the token itself. Instead, it focuses on the activity and on where responsibility sits in practice. Where identifiable parties exercise influence, provide access, facilitate transactions or benefit commercially, those activities may fall within the regulatory perimeter.
Genuinely decentralised models raise complex questions globally, especially around consumer recourse and financial crime prevention. This is an evolving area where international coordination and shared best practice will be increasingly important.
In practice, VARA applies a risk‑based approach. The central question is not whether a model describes itself as decentralised, but whether it creates risks for users or for market integrity. Where such risks exist, appropriate oversight, accountability and protection are required.
How does VARA manage the risk of over‑regulation versus under‑regulation?
Dan Johnson: Striking this balance is a fundamental challenge for regulators in the virtual assets sector. VARA begins with proportionality, ensuring regulatory requirements reflect the risks of the activity and do not impose unnecessary friction on responsible firms.
Clear rules and expectations are a key part of this approach. In practice, innovation is more likely to remain and scale in jurisdictions where expectations are well defined, consistently applied and supported by ongoing dialogue. Uncertainty is often a greater deterrent to innovation than regulation itself.
At the same time, under‑regulation introduces systemic risks. As virtual assets become more integrated with mainstream finance, applying safeguards comparable to those in traditional finance is essential to supporting stability. These safeguards are not barriers to growth; they are what make sustainable growth possible.
VARA addresses this through risk‑based supervision combined with staged licensing, pilot regimes and close supervisory engagement. This allows new business models to be tested in a controlled manner without compromising market integrity.
What role could VARA play in shaping global standards for virtual asset regulation?
Dan Johnson: VARA is well positioned to contribute meaningfully to the development of global virtual asset standards by sharing regulatory experience, supervisory insight and lessons learned from licensing innovative business models. This is especially important given the inherently cross‑border nature of virtual assets.
There is a growing convergence around core regulatory principles and increasing recognition that virtual assets require purpose‑built frameworks rather than adapted legacy regimes. While this convergence may take time, it points toward a more coherent global baseline.
Jurisdictions that invested early in specialised regulation are likely to help shape those emerging standards. VARA’s role is to help make that convergence practical, credible and workable, supporting greater interoperability and, over time, mechanisms such as licence passporting.