Original author: Yellow View
Introduction
In the immediate aftermath of the Web3 wave, PayFi (Payment Finance, the concept first proposed by Lily Liu, President of the Solana Foundation in 2024) as an innovative track linking traditional payment and block chain technologies is rapidly reshaping cross-border payment patterns. Imagine that users can achieve immediate, low-cost global transfers with block-chain technology, without the need for bank intermediaries, but also enjoy the value anchor of a stable currency. This is not just technological upgrading, but the dawn of financial democratization。
As the Web3 hub in the Middle East, the United Arab Emirates, represented by VARA in Dubai (Virtual Assets Regulatory Administration, Virtual Assets Control) and ADGM in Abu Dhabi (Abu Dhabi Global Market, Abu Dhabi Global Marketplace), has built the global leading framework for encryption friendship. However, for entrepreneurs and investors targeting the UAE market, PayFi's charm is hidden behind “ mined areas ” — — and operational compliance risks. As in any emerging market, the regulatory &ldquao; the double-edged sword &rdquao; the effect is clear:Opportunities are abundant, and violations are costly。
IN THE FIRST HALF OF 2025, THE CENTRAL BANK OF UAE (CBUAE) FAILED TO PERFORM ITS FUNCTIONS AS AML/CFT (ANTI-MONEY-LAUNDERING/COUNTER-TERRORISM FINANCING), AND A TOTAL OF MORE THAN AED 20 MILLION (APPROXIMATELY USD 5.4 MILLION) WERE ISSUED TO PAYMENT AGENCIES。
This paper will be made available as “ identifying risks and providing pathways ”& nbsp; core, systematic analysis of PayFi's operational compliance risks in the Emirates. We will take into account the latest regulatory developments and real casesidentification “ red line ”, provides risk-prevention strategies and ideas。
PayFi— — from concept to opportunities for globalization in oasis
1.1 What's PayFi? Why is it in 2025 & ldquo; fire & rdquo
PayFi is the payment arm of DeFi (decentralized finance), focusing on the use of block chains and smart contracts to optimize payment processes: speed, security and inclusiveness. Unlike traditional payments (e.g. SWIFT, an average cross-border transfer takes three to five days), PayFi achieves near real-time settlement by stabilization currency (e.g. USDT, USDC) or by means of a payment agreement. Typical applications include:
- Cross-border remittances: Immediate transfer services for transnational commerce and international labour。
- Commercial payments: electronic platform integrated encrypted payment gateway。
- Embedded Finance: The seamless realization of virtual assets in the Web3 game。
Messari estimates that PayFi's liquidity target is USD 200-250M, with strong growth. PayFi is red in its effectiveness in addressing pains: the high friction of traditional payments (5-7 per cent exchange rate conversion losses) and regulatory/industry barriers. PayFi's de-brokering design makes it the preferred option for emerging economies — — for example, Africa's mobile payment revolution has been facilitated by block chains “ big steps forward &rdquao。
1.2 UAE: PayFi “ Gold Coast ” or “ Supervised Labyrinth &rdquo
Why did the UAE become PayFi's &ldquao; Shanti &rdquao? The answer lies in its strategic positioning. As a member of the G20+ that restored the status of the FATF white-listed countries (successful cap removal in 2024), the UAE expected 20 per cent of its GDP in 2025 for the digital economy, and in April, Web3 Federal PayFi Summit further boosted market enthusiasm, while the Dubai Vision 2031 plan created virtual assets as a backbone industry, with giants such as Huma Finance and Athar Finance completing business milestones in 2025。
Specific opportunities:
- Tax paradise:Business income tax is only 9 per cent (2023 years) and value added tax (VAT) is exempt from encrypted transactions。
- Sandbox mechanism:The VARA ' s Innovation Testing License allows the project in “ the controlled environment ” testing for 6-12 months without full licence plates。
- Infrastructure:Abu Dhabi ' s ADGM supports Fiat-Referenced Tokens (FRT, moored French currency), perfect for PayFi ' s stable payment needs。
- Talent and finance:IN 2025, UAE ENCRYPTED START-UP FINANCING EXCEEDED USD 1 BILLION AND MIDDLE EASTERN INVESTORS ACCOUNTED FOR 40 PER CENT。
- Regulatory exploration:The latest proposal by DIFC eliminates the ceiling on the Fund ' s crypto and benefits PayFi embedded funds。
UAE from “ Encrypted Heaven &rdquao; upgraded to &ldquao; PayFi Laboratory &rdquao; but not too soon. UAE has& ldquo; federation + emirates + free zone & rdquo;The three-tier compliance architecture, PayFi operations, may address both CBUAE ' s payment method and VRA ' s virtual asset rules. A slight imprudence would be faced with a combination of &ldquao from different regulators; multiple surprises &rdquao。
UAE & nbsp; PayFi Regulatory Framework — — who is in “ customs &rdquo
The UAE regulatory system is like a sophisticated network covering the entire chain from traditional payments to block chain innovation. In 2025, with the landing of the CBUAE new law, the PayFi project had to deal with the challenge of a unified framework, dissecting it from the following layers:
2.1 Core regulatory bodies and division of labour
PayFi, UAE “ divided ” Pattern, each of the four pillars functions as follows:
A little tip:If you're PayFi's start-up company, you're the first VRA— — it covers almost 90 per cent of virtual asset activity and has a approval cycle of only 3-6 months. However, cross-regional operations (e.g. issuance of FRT at ADGM) require double filing to avoid &ldquao; jurisdictional vacuum &rdquao。
2.2 licensing requirements: from “ introductory ” to “ family barrel ”
PayFi is not “ i.e. insert &rdquo。According to VARA ' s type 7 VASP permit, payment of the relevant business requires at least a double permit from Advisory+Payment Services. The application threshold includes:
Capital funds:MINIMUM AED 100,000 (APPROXIMATELY USD 27,000) AND HIGH-RISK PROJECTS AMOUNT TO AED 1,000,0001。
Anti-money laundering and control systems:Performance of AML and “ Travel Rule & rdquo; obligation to monitor and report transactions as required。
3. Technical audits:The block chain nodes are technically certified to protect against potential malicious attacks。
4. Localization:AT LEAST ONE UAE RESIDENT EXECUTIVE WITH AN OFFICE IN DUBAI。
But remember: Sandboxes ≠ Exemption, and AED 500,000 violations during the test period。
2.3 Global interface: &ldquo for FATF and MiCA; spill ” impact
UAE regulation is not isolated. In 2025, FATF ' s VASPs guidance required PayFi platform to trade the full path along the tracking chain, and the United Arab Emirates has fully adopted it. The European Union's MiCA (Markets in Cripto-Assets) also has an indirect effect: UAE businesses are subject to reserve disclosure if they enter the euro stabilization currency。
through this framework, we can see that the uae regulates the balanced art of & ldquo; innovation friendly + risk zero tolerance & rdquo;. next, we will further analyse the operational compliance risks。
operational compliance risk profile — — case-driven “ alarm ”
3.1 Risk I: AML/CFT under-monitoring & mdash; — “ Money Laundering Black Hole ” Invisible Killer
Interpretation: According to the CBUAE AML Guidance, the PayFi platform is guided by risk-based implementation of anti-money-laundering obligations, including customer reconciliation (CDD), transaction monitoring and suspicious transaction reporting (STR), etc. The first penalty for breach of the regulations is AED5 million, and in serious cases the person faces revocation of the licence plate。
Case profile: AML default on Fuze platform
In August 2025, VARA issued a ticket to Fuze, the encrypted payment platform registered in Dubai, because of significant deficiencies in its AML/CFT system, including ineffective monitoring of high-risk transactions and failure to report suspicious activities in a timely manner, which led to potential money-laundering loopholes. Fuze, a VASP that provides a stable currency payment service, treats millions of dollars a month, but leaves its customers out of the equation. The VARA investigation resulted not only in the imposition of an undisclosed fine but also in the appointment of an independent &ldquao; a skilled person &rdquao; and Skilled Person to oversee the overhaul to ensure that the platform is fully equipped with the wind panels within three months。
3.2 risk ii: fatal injury from licence and operating violation — — “ unlicensed driving &rdquo
Interpretation: Section 15 of the VARA Act No. 4/2022 provides that any VASP activity is subject to prior authorization, i.e. & ldquo; illegal operation & rdquo; ADGM required that FRT file prior to issue, otherwise it was considered a violation。
Case profile: VARA group of 19 VASPs & ldquo; sweep & rdquo;
In early October 2025, VARA launched a law enforcement operation against 19 unlicensed encrypted payment and virtual asset service providers, most of them involved in PayFi-related stable currency transfers and marketing activities, which were extended to Dubai without VASP licences. One of the typical enterprises was cited for several months for operating irregularities, attracting more than 1,000 bulk users. VARA issued a restraining order and imposed fines ranging from 100,000 to 600,000 AEDs (totalling over AED 5 million), with some companies subject to independent compliance review.
3.3 risk iv: data privacy and cyber security & mdash; — “ hacker + leak ” double blow
Interpretation: DIFC ' s Data Protection Act (PDPL, 2021) requires PayFi to consent to the processing of personal data and to report any security incidents in the data category. VARA FRVA rules add a new cyber standard: the platform is subject to penetration tests to protect against DDoS. The fines for violations were as high as 10 million AEDs。
CASE PROFILE: PRIVATE DISCLOSURE ON DIFC REGISTRATION PLATFORM
In mid-2024, a DIFC registered FinTech payment platform (involving encryption wallet services) leaked some 50,000 user data, including trading history and KYC information, as a result of cyber fishing attacks, resulting in a high incidence of subsequent fraud. The DFSA survey found that the platform did not enforce multiple factor authentication (MFA) and encrypted storage, in violation of the PRDPL Article 28 data incident reporting obligation. The platform was fined AED 4 million and forced to shut down for three months, and user class actions further magnified the loss。
3.4 risk iv: sanctions and cross-border compliance & mdash; — “ geopolitical ” accident “ mine ”
Interpretation: CBUAE is linked to OFAC law enforcement and PayFi is required to ensure sanctions compliance and information-sharing and validation of the landing of Travel Rule。
CASE PROFILE: OFAC JOINT TICKET FROM CBUAE BANK
In July 2025, CBUAE imposed an AED 3 million fine on an unnamed UAE bank because its payment system dealt with stable currency transfers involving high-risk jurisdictions (suspecting Iran-related) and failed to implement OFAC sanctions screening and Travel Rule sharing, resulting in cross-border compliance gaps. The bank's encrypted payment route, which was used for legal money transfers to MENA, was involved in investigations because of loose surveillance, and assets were partially frozen for up to six months。
practical guidance on risk prevention — — from “ passive response ” to “ active escort ”
THE LAW IS NOT A SHACKLE, BUT A SOLID SHIELD FOR COMPLIANCE WITH LONG-TERM DEVELOPMENT. BASED ON THE ABOVE-MENTIONED RISKS, ENTREPRENEURS (PROJECTERS) AND INVESTORS (LP/VCS) EACH HAVE DIFFERENT RISK IDENTIFICATION AND PRECAUTIONARY FOCUS, AS FOLLOWS:
4.1 generic precautionary framework: construction of &ldquao; compliance closed loop &rdquao;
1. Risk evaluation initiated:Compliance assessments and audits are conducted prior to the start-up/investment, covering key areas such as business model sustainability, compliance control, technical security, etc。
2. Internalization of policies:Develop a compliance manual and advance implementation of team training to develop a compliance culture。
3. Technology empowerment:Integrated and effective chain-based analytical monitoring tools to enhance risk monitoring and mitigation。
4. Ongoing monitoring:Risk identification, monitoring and release process effectiveness are regularly assessed and updated as appropriate。
4.2 for entrepreneurs: project landing & ldquo; five-step & rdquo;
Step 1: Permit route planning
- Assessment jurisdictions: e.g. Dubai PayFi preferred VRA。
- Business planning: use a sandbox bridge to test and turn full cards。
Step 2: Conformity winds and three lines of defence
- Build teams that match the scale of operations。
- Automation of risk monitoring through information systems。
step 3: sanctions screening & ldquo; firewall & rdquo;
- Initial and ongoing sanctions compliance screening of landing clients。
- avoid, to the extent possible, risk exposures such as &ldquao; long arm jurisdiction &rdquao; connections used。
Step 4: Data and security fortress
- High-level information security and data protection configuration。
- Periodic system availability and penetration tests to ensure dynamic compliance。
4.3 for investors: & ldquo; & rdquo; systems
investors should not read only white papers — — compliance is the key to alpha (excess proceeds)。
1. INITIAL SCREENING: CHECKING THE STATUS OF VARA OR OTHER REGULATORY AUTHORIZATION THROUGH OFFICIAL CHANNELS. GREEN LIGHT: FULL CARD; RED LIGHT: ONLY PROJECT PARTIES CLAIM TO HOLD CARDS。
2. In-depth mapping: through specialized bodies, reviewing data and reports。
3. Risk classification: risk assessment of product business patterns。
4. Withdrawal mechanism: contract embedding of a compliance trigger clause (non-compliance or foreclosure)。
Compliance first, PayFi's Middle East landing lane
The PayFi operation in the United Arab Emirates, while rapidly developing, has entered an institutional and normative regulatory phase。IN 2025, THE CENTRAL BANK OF THE EMIRATES, TOGETHER WITH THE DUBAI VIRTUAL ASSETS CONTROL AUTHORITY (VARA), STRENGTHENED THE ANTI-MONEY-LAUNDERING (AML/CFT) AND LICENSING MECHANISMS AND ESTABLISHED COMPLIANCE THRESHOLDS THROUGH TYPICAL LAW ENFORCEMENT CASES。
In August 2025, VARA imposed penalties on Fuze, the encrypted payment platform, for deficiencies in the anti-money-laundering system, and in October of the same year, a collective fine was imposed on 19 virtual asset service providers operating without authorization, showing a regulatory attitude to “ unlicensed operations ” and zero tolerance for leakage from wind control。These measures reflect the UAE principles of risk orientation and proportionality in the area of virtual asset control and provide a predictable legal boundary for PayFi ' s compliance framework。
In the future, if the PayFi enterprise wishes to operate as an AWF, it should apply for a licence and embed a compliance assessment mechanism at the early stages of business planning to ensure that permits, customer reconciliation, data protection and sanctions screening are in line with local and international standards。
Stronger regulation does not mean that innovation is limited, but rather that market confidence and financial security are established by the rule of law。it is foreseen that the uae will continuously promote the legalization and transparency of virtual asset payment systems under the principles of “ open innovation, prudential regulation ” and provide a model path for a regional digital financial order。