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In November 2022, FTX collapsed. $32 billion- gone in ten days. Billions in customer funds, missing. Sam Bankman-Fried, sentenced to 25 years in federal prison. The crypto industry was in freefall, and the question every serious operator was asking was the same: where do we go from here?
They went to Dubai.
Not because regulation was absent. Because, for the first time, it actually made sense.
Before VARA, crypto regulation was an improvisation. Jurisdictions applied decades-old securities law to assets that didn't fit the definition. Agencies fought over who had authority. Founders received contradictory guidance, operated in legal grey zones, and built compliance programmes against rules that hadn't been written yet.
The consequences were predictable. Without enforceable standards around custody, client fund segregation, governance, and capital adequacy, the market rewarded opacity. FTX was the most catastrophic example- but Terra Luna, Celsius, Voyager, and Three Arrows Capital all failed for the same underlying reason: the absence of a legal framework with teeth. This created space for systemic risk to accumulate unchecked.
Dubai's answer was Law No. 4 of 2022- establishing VARA as the world's first regulator built exclusively for virtual assets. The legal architecture it created deserves serious attention.
Most regulators approached crypto by analogy - asking which existing legal category it most resembled and applying those rules. VARA took a different approach entirely, building its framework around function rather than form. The licensed activities-exchange services, custody, broker-dealing, lending, token issuance, asset management- map directly onto what the industry actually does, rather than what lawyers could argue it resembled under legacy law. This is not a minor drafting distinction. It is the difference between a framework that creates genuine legal certainty and one that creates expensive litigation about whether that certainty applies.
VARA's twelve rulebooks cover governance, compliance, risk management, technology infrastructure, market conduct, and token issuance in operational detail. Its approach is outcomes-focused and risk-based- setting standards for what firms must achieve rather than prescribing the exact process by which they get there. This is sophisticated regulatory design. It demands real supervisory judgment rather than box-ticking, and it produces compliance programmes that actually reflect how risk moves through the business.
Critically, VARA enforces. Between August 2024 and August 2025, it issued notices against 36 firms for unlicensed operations and marketing violations. Its extraterritorial reach - extending to any firm targeting Dubai users regardless of incorporation- has been actively tested. When a regulator enforces its framework consistently and transparently, it creates the legal certainty that makes a regulated market worth operating in. Enforcement is not a deterrent to serious operators. It is the mechanism by which their licences acquire value.
For legal practitioners advising in this space, VARA raises issues that go well beyond licensing mechanics.
The first is jurisdictional. VARA's extraterritorial reach- asserting regulatory authority over any entity marketing to or targeting Dubai users, regardless of where that entity is incorporated- challenges the traditional assumption that jurisdiction follows physical presence. This has significant implications for how practitioners structure cross-border virtual asset businesses and assess regulatory exposure across multiple jurisdictions simultaneously.
The second is structural. VARA's outcomes-focused, risk-based framework creates a different kind of legal liability profile than prescriptive rule-based regimes. Where prescriptive rules create bright-line compliance tests, outcomes-based regulation requires firms to demonstrate that their controls are effective in practice- a standard that is harder to satisfy on paper and harder to defend when things go wrong. Practitioners advising VARA-licensed entities need to understand that regulatory compliance here is not a documentation exercise. It is an ongoing supervisory relationship with a regulator that has real enforcement capacity.
The great migration to Dubai was not a tax arbitrage story. It was a legal arbitrage story - and the arbitrage was in favour of clarity, enforceability, and a regulator that understood what it was regulating. For practitioners, the task now is to engage with that framework with the depth it demands. The firms that chose Dubai already have.
