VARA’s Role in UAE Commodity Token Regulation
The Virtual Assets Regulatory Authority (VARA), established under Dubai Law No. 4 of 2022, serves as the primary regulator for virtual asset activities in the Emirate of Dubai, excluding the Dubai International Financial Centre (DIFC). For commodity tokenization — the process of representing physical commodities like gold, oil, and other traditional assets as blockchain-based digital tokens — VARA licensing determines which entities can legally issue, trade, custody, and provide advisory services for commodity-backed virtual assets.
As of early 2026, VARA has licensed 23 entities across various virtual asset activity categories. This analysis provides a detailed examination of the licensing framework as it applies specifically to commodity-related Virtual Asset Service Providers (VASPs), including the application process, capital requirements, compliance obligations, and ongoing supervisory expectations.
Virtual Asset Activity Categories for Commodity VASPs
VARA’s regulatory framework defines seven categories of Virtual Asset Activities, several of which are directly relevant to commodity token operations:
1. Advisory Services
Entities providing advice on commodity token investments — such as recommending XAUT over PAXG based on client risk profiles, or advising institutions on oil token portfolio allocation — require an Advisory Services license.
Requirements include employing qualified advisors with demonstrable commodity market expertise, maintaining professional indemnity insurance, and implementing suitability assessment procedures that evaluate client understanding of commodity token risks.
For Islamic finance advisory services, additional Shariah governance requirements apply. Advisors recommending Shariah-compliant commodity tokens must have access to qualified Shariah scholars or recognized Shariah advisory boards.
2. Broker-Dealer Activities
Commodity token broker-dealers facilitate transactions between buyers and sellers without operating an exchange. This category covers entities that match orders, execute trades on behalf of clients, or provide market access for commodity tokens.
VARA’s broker-dealer requirements include best execution obligations (ensuring clients receive the best available price for commodity tokens), segregation of client assets from proprietary holdings, and transaction reporting obligations that enable VARA’s market surveillance function.
3. Custody Services
Custody licenses are required for entities holding commodity tokens on behalf of clients. For gold tokens, this creates a dual-custody dynamic — the physical gold is custodied by vault operators (Brink’s, Swiss vaults), while the digital tokens representing that gold are custodied by VARA-licensed digital asset custodians.
VARA’s custody requirements include:
- Segregated storage: Client tokens must be segregated from the custodian’s own holdings
- Private key management: Multi-signature or institutional-grade key management systems required
- Insurance: Coverage for digital asset theft, loss, or unauthorized access
- Business continuity: Disaster recovery and key succession planning
- Regular reporting: Periodic proof-of-reserves or attestation reports
For commodity tokens specifically, VARA expects custodians to maintain awareness of the underlying physical asset custody arrangements and to disclose any material changes to clients.
4. Exchange Services
Exchange licenses permit entities to operate platforms for commodity token trading. This includes order book exchanges, automated market makers, and other trading venue models.
VARA exchange requirements are the most comprehensive, covering:
- Market integrity: Surveillance systems to detect manipulation, wash trading, and insider dealing
- Listing standards: Due diligence on commodity tokens listed for trading, including verification of underlying asset backing
- Consumer protection: Clear risk disclosures, complaint handling procedures, and dispute resolution mechanisms
- Technology standards: System resilience, capacity management, cybersecurity, and change management procedures
- AML/CFT: Full compliance with UAE anti-money laundering and counter-terrorism financing requirements
5. Lending and Borrowing
For commodity tokens used in lending protocols — such as using XAUT as collateral for stablecoin borrowing — VARA requires a specific lending and borrowing license. This category has particular relevance for Islamic finance structures, where commodity-based lending (murabaha) follows specific Shariah rules.
6. Management and Investment Services
Entities managing commodity token portfolios or investment funds require this license category. For example, a fund investing across gold tokens, oil tokens, and tokenized bonds would require management and investment services authorization.
7. Transfer and Settlement Services
Services facilitating the transfer of commodity tokens between parties, including payment processors and settlement platforms, require this category of licensing.
Capital Requirements
VARA imposes minimum capital requirements calibrated to the specific virtual asset activity and the scale of operations. While VARA does not publicly disclose fixed capital thresholds (preferring a risk-based assessment), the general framework requires:
- Minimum base capital: Varies by activity category, with exchange and custody services requiring the highest base capital
- Operational risk capital: Additional capital based on the entity’s operational risk profile
- Liquid asset requirements: A portion of capital must be maintained in liquid form (cash, bank deposits, or approved liquid assets)
- Wind-down capital: Sufficient capital to fund an orderly wind-down of operations if the entity ceases activities
For commodity token VASPs, the capital assessment considers the value of commodity tokens under management, custody, or trading. An entity custodying $100 million in gold tokens will face higher capital requirements than one custodying $1 million.
Application Process
Pre-Application Phase
VARA encourages prospective licensees to engage in pre-application dialogue. This phase involves:
- Initial inquiry: Submission of a brief description of proposed activities to VARA
- Classification determination: VARA confirms which activity categories the proposed operations fall under
- Gap analysis: Assessment of the applicant’s readiness against VARA requirements
- Regulatory engagement: Meetings with VARA staff to discuss the application approach
For commodity token VASPs, this phase is particularly important because the classification of the specific commodity token (as a virtual asset, commodity token, stablecoin, or other category) determines the applicable regulatory requirements.
Formal Application Phase
The formal application requires submission of:
- Business plan: Detailed description of commodity token activities, target market, revenue model, and growth projections
- Governance documentation: Board composition, senior management qualifications, organizational structure, and conflict of interest policies
- Financial documentation: Audited financial statements, capital adequacy calculations, and financial projections
- Technology documentation: System architecture, cybersecurity framework, business continuity plans, and technology audit reports
- Compliance framework: AML/CFT policies, sanctions screening procedures, suspicious transaction reporting processes, and consumer protection measures
- Risk management: Risk assessment methodology, risk appetite statement, and risk mitigation strategies
Assessment and Approval
VARA’s assessment process evaluates the application across multiple dimensions including fitness and propriety of key personnel, adequacy of financial resources, soundness of governance and risk management, and compliance with all applicable VARA rules and regulations.
The assessment timeline varies but typically extends several months for comprehensive applications. VARA may issue conditions or require modifications to the business plan or governance framework before granting a license.
Ongoing Compliance Obligations
Reporting Requirements
Licensed commodity token VASPs must submit regular reports to VARA including:
- Financial reports: Quarterly and annual financial statements
- Capital adequacy reports: Periodic confirmation of compliance with capital requirements
- Activity reports: Trading volumes, custody assets under management, number of clients, and other operational metrics
- Incident reports: Immediate reporting of material incidents including security breaches, system failures, and significant operational disruptions
- AML/CFT reports: Suspicious transaction reports, sanctions screening results, and compliance statistics
Audit Requirements
VARA requires licensed entities to undergo:
- Annual financial audit: By an approved auditor
- Technology audit: Periodic assessment of IT systems, cybersecurity controls, and digital asset infrastructure
- AML/CFT audit: Independent assessment of anti-money laundering compliance
- Smart contract audit: For entities issuing commodity tokens, periodic audit of the underlying smart contracts (particularly relevant for gold token and oil token issuers)
Supervisory Engagement
VARA conducts ongoing supervisory activities including on-site inspections, thematic reviews across the licensed population, and individual entity assessments triggered by risk indicators or market developments.
Interaction with Other UAE Regulators
ADGM/FSRA
Entities operating across both Dubai mainland (VARA jurisdiction) and Abu Dhabi (ADGM jurisdiction) may require dual authorization. VARA and ADGM maintain coordination arrangements to prevent regulatory arbitrage while allowing legitimate multi-jurisdictional operations.
For commodity token VASPs, this is particularly relevant because major commodity trading infrastructure spans both jurisdictions — DMCC operates in Dubai under VARA oversight, while ADX operates in Abu Dhabi under ADGM/SCA oversight.
Central Bank of the UAE
The Central Bank maintains authority over payment services and monetary policy. Commodity tokens used as payment instruments or stablecoin-like products may require additional Central Bank authorization beyond VARA licensing.
Securities and Commodities Authority (SCA)
The SCA oversees securities and commodity derivatives markets. Tokenized commodity derivatives or security tokens backed by commodity assets may fall under SCA jurisdiction. The coordination between VARA and SCA continues to evolve as the regulatory framework matures.
Practical Considerations for Commodity Token VASPs
Jurisdiction Selection
Entities considering UAE operations must choose between VARA (Dubai mainland), ADGM (Abu Dhabi), DIFC (Dubai financial free zone), or multi-jurisdictional approaches. For commodity token operations specifically:
- VARA is best suited for consumer-facing commodity token trading and custody
- ADGM is typically preferred for institutional commodity token operations and fund management
- DIFC may be relevant for commodity token advisory and brokerage but has a separate regulatory framework
Technology Partner Requirements
VARA expects licensed entities to use enterprise-grade technology infrastructure. For commodity token VASPs, this includes institutional-grade wallet infrastructure, real-time monitoring systems, and blockchain analytics tools for AML/CFT compliance.
Shariah Governance Integration
For commodity token VASPs targeting Islamic finance markets, integrating Shariah governance into the VARA licensing framework requires additional documentation including Shariah board appointments, Shariah compliance policies, and product structuring documentation demonstrating compliance with relevant AAOIFI standards.
Conclusion
VARA’s licensing framework provides a comprehensive, if demanding, pathway for commodity token VASPs to operate legally in Dubai. The framework’s strength lies in its activity-based classification, which allows entities to license specific commodity token activities (custody, exchange, advisory) rather than requiring a single monolithic license. For the UAE’s growing ecosystem of gold token platforms, oil tokenization projects, and Islamic commodity finance structures, VARA licensing represents both a barrier to entry and a competitive moat — entities that achieve licensing demonstrate a level of regulatory compliance that distinguishes them in the global commodity token market.