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Mon 2 Jul 2018 10:39 AM

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'Investing in asset-backed tokens is less risky,' says Dr Habib Al Mulla

Chairman of Baker McKenzie Habib Al Mulla said such tokens inspire investor and regulator confidence in the crypto domain

'Investing in asset-backed tokens is less risky,' says Dr Habib Al Mulla
Speaking at the Arabian Business Startup Academy, Dr Habib Al Mulla said investors are more likely to get value for their money if they opt for asset-backed tokens.

Digital tokens that are backed by tangible assets such as shares, bonds or real estate offer less risk when compared to cryptocurrencies, according to the chairman of Baker McKenzie Habib Al Mulla.

Speaking at the Arabian Business Startup Academy, Dr Habib Al Mulla said investors are more likely to get value for their money if they opt for asset-backed tokens.

“Investing in asset-backed tokens is less risky… This is because the asset-backed tokens are supported by tangible, underlying assets that have an intrinsic value, such as company shares or even property,” he said.

Dr Al Mulla added that such tokens can inspire investor confidence around the crypto domain, and have already seen regulators in financial free zones become more receptive to the digital payments.

“This, I believe, should address the regulators’ fears, especially in the wake of the latest crypto crash, which has somewhat tainted the crypto sphere. We can already see this happening in DIFC and Abu Dhabi Global Market (ADGM) financial free zones. Regulators have been receptive to business models that deal with asset-backed tokens. It’s only a matter of time before this happens,” he said.

The chairman said this will likely lead to bespoke regulations in the UAE surrounding the issuance, dealing and trading of asset-backed tokens inside and outside financial free zones in the “not too far future.”

While UAE regulators do not have existing regulations that deal explicitly with asset-backed tokens, Dr Al Mulla said asset-backed tokens can still be traded on a regulated exchange in financial free zones.

Through the use of waivers or rule modifications, asset-backed tokens can be deemed as securities to accommodate the establishment of token exchanges, he said, adding that some tokens are already being traded on blockchain-based exchanges.

“We can already see tokens with a very rich variety of underlying assets being traded on blockchain-based exchanges. The underlying assets can include any type of ownership interest from equity - company shares for example - to bonds and even ownership in real estate,” said Dr Al Mulla.

Considering property is one of the UAE’s main economic drivers, the trading of real estate-backed tokens can create “much needed” liquidity in the market, the chairman said.

“It’s a matter of time and of who is going to come up with this sooner than anyone else. Evidently, these are exciting times to be in the crypto sphere…” he said.

The Arabian Business Startup Academy is a quarterly workshop that serves as a hub for conversation on the region’s latest business opportunities, start-up disruptions, funding deals, legal and regulatory steps to follow and much more.

This quarter's event saw Dr Al Mulla share his views on the future of blockchain, the fast-growing platform for digital assets, and cryptocurrencies, the virtual means of exchange which it supports.