Compliance Handbook

How to Issue Tokens Under VARA Regulations

Category 1 vs Category 2 Issuance, Whitepaper Requirements, and Licensed Distributor Pathways

Published February 16, 2026 · UAE Tokenization Regulations Editorial Team

Token issuance under VARA regulations demands comprehensive planning across legal structuring, technology development, compliance implementation, and ongoing operational management. The regulatory framework's distinction between Category 1 and Category 2 pathways provides flexibility for different token models while maintaining investor protection standards that support sustainable market development.

This implementation guide provides step-by-step instructions for practitioners navigating this aspect of UAE virtual asset compliance. Designed for compliance officers, in-house legal teams, VASP founders, and regulatory consultants, the guide translates regulatory requirements into actionable operational procedures that can be implemented within existing compliance workflows. All regulatory citations reference official publications from the relevant UAE regulatory authorities, with guidance current as of February 2026.

Regulatory Framework Context

The UAE's virtual asset regulatory architecture encompasses five distinct authorities: VARA governing Dubai mainland and free zones (excluding DIFC), ADGM FSRA operating as an independent international financial center in Abu Dhabi, DIFC DFSA functioning as a separate common-law jurisdiction within Dubai, the SCA/CMA providing federal-level securities oversight, and the CBUAE retaining exclusive authority over payment tokens and AED-denominated stablecoins. Each regulator maintains distinct requirements, and practitioners must identify the applicable regulatory authority before implementing compliance measures. All guidance in this handbook reflects the regulatory framework as of February 2026, incorporating VARA Rulebook 2.0 (effective June 2025), ADGM FRT framework (effective January 2026), and DIFC Consultation Paper 168 proposals.

Implementation Considerations

Compliance implementation in the UAE requires navigating jurisdictional complexity that goes beyond simply meeting a single regulator's requirements. Multi-jurisdictional operators — holding licenses in both VARA and ADGM, for example — must maintain parallel compliance programs tailored to each regulator's specific rulebook requirements. The August 2025 CMA-VARA mutual recognition agreement is reducing some of this burden through shared frameworks, but operational compliance teams should continue to treat each jurisdiction's requirements independently until formal harmonization is confirmed. Technology compliance, AML/CFT programs, and governance structures must be documented separately for each licensing jurisdiction, even where underlying systems are shared across entities.

Practical Recommendations

Engage specialist UAE virtual asset legal counsel before committing to a regulatory pathway — the choice of jurisdiction has cascading implications for licensing costs, capital requirements, operational structure, and client access. Begin banking engagement immediately upon receiving initial VARA or ADGM approval, as account opening typically takes 3-6 months and can delay operational launch. Build OECD CARF-compliant data collection infrastructure from inception rather than retrofitting existing systems. Invest in technology compliance from day one — the cost of implementing TGRAF, penetration testing, and custody standards increases significantly when bolted onto existing infrastructure versus being designed into the platform architecture from the ground up. For the latest regulatory guidance, consult official sources: VARA Regulations, ADGM Digital Assets, and DFSA. This guide is for informational purposes only and does not constitute legal, financial, or regulatory advice.

Category 1 Issuance Process

Category 1 tokens (FRVA/ARVA) require prior written VARA approval before any public issuance. The process involves: obtaining a VASP license with Issuance Services authorization, preparing a comprehensive whitepaper (50+ pages) complying with VARA's template requirements, commissioning independent smart contract audits from VARA-approved third-party assessors, demonstrating 100% reserve backing (for FRVA stablecoins), establishing continuous attestation and periodic audit mechanisms for reserves, and submitting all documentation for VARA review. Budget 6-12 months from initial engagement to market launch. Category 1 issuance carries the highest compliance burden but provides the strongest regulatory credentials for institutional adoption.

Category 2 Licensed Distributor Pathway

Category 2 tokens (utility tokens, NFTs) do not require prior VARA approval but must be distributed through a Licensed Distributor — a VASP holding appropriate VARA authorization for distribution activities. The issuer prepares a whitepaper meeting VARA standards, confirms the token does not have security-like characteristics (which would trigger SCA/ADGM/DIFC securities regulation), and engages the Licensed Distributor for client-facing distribution. The Distributor bears responsibility for KYC/AML, suitability assessments, and disclosure requirements, creating a compliance buffer between the token issuer and end investors.

Smart Contract Audit Requirements

Both Category 1 and Category 2 token issuances require independent smart contract security audits before deployment. Engage auditors with specific experience in the blockchain protocol on which the token will be deployed — Ethereum, Polygon, Solana, or other supported networks each have platform-specific security considerations. Audit scope should cover: code correctness verification, vulnerability analysis, access control review, upgrade mechanism assessment, economic attack vector analysis, and integration testing with dependent systems. Retain audit reports and remediation evidence for VARA inspection. Post-deployment monitoring should include automated alerting for unusual contract interactions, governance mechanism usage, and reserve balance changes for Category 1 FRVA tokens.

Post-Issuance Obligations

Token issuance creates ongoing compliance obligations beyond the initial launch. Category 1 FRVA issuers must maintain continuous reserve attestation, publish periodic audit reports, and provide VARA with ongoing evidence of reserve adequacy. All issuers must monitor secondary market activity for signs of market manipulation, maintain updated whitepapers reflecting any material changes to token functionality or economics, and ensure continued compliance with VARA marketing regulations for all post-issuance promotional activities. The issuer retains regulatory responsibility for the token's compliance lifecycle regardless of whether distribution is delegated to Licensed Distributors, requiring sustained investment in compliance monitoring and regulatory engagement throughout the token's market presence.

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