VARA Lending and Borrowing Services License Requirements and Compliance

VARA Lending and Borrowing Services Overview

VARA Lending and Borrowing Services License: What you Need to Know

The Dubai Virtual Assets Regulatory Authority (“VARA>”) serves as the dedicated regulator overseeing Virtual Asset Service Providers (“VASPs”) across Dubai. Its mandate is to create a secure, transparent, and sustainable environment for virtual asset activities, ensuring that innovation is balanced with investor protection and financial stability.

1. What are Lending and Borrowing Services?

Under VARA, lending and borrowing services involve a contractual arrangement where one or more lenders transfer or lend Virtual Assets to one or more borrowers, who are obligated to return the same Virtual Assets, either on demand or at the end of an agreed term. These services may be provided for the lender’s own account or on behalf of others.

In practice, VARA-regulated lending and borrowing services allow:

• Lenders to make their Virtual Assets available in return for a yield or interest, without selling their holdings.

• Borrowers to obtain temporary access to Virtual Assets, typically for liquidity needs, trading strategies, hedging, or operational purposes, by posting acceptable collateral.

Under VARA’s rulebook, VASPs providing lending and borrowing services must comply with stringent capital adequacy, disclosure, collateral management, risk controls, and record-keeping standards. These measures ensure that every transaction is transparent, secure, and fully backed by adequate collateral, protecting both clients and market integrity.

2. What are the key licensing requirements?

To obtain a lending and borrowing services license from VARA, VASPs must meet a number of regulatory requirements, including but not limited to the following:

Capital Requirements

Applicants must maintain a minimum paid-up capital equal to the higher of AED 500,000 or 25% of their fixed annual overheads. This requirement ensures that VASPs have sufficient financial resilience to operate safely within the virtual asset ecosystem.

VARA requires all VASPs to maintain their paid-up capital in secure, regulator-approved forms. At all times, the capital must be held in one of the following ways: Capital must be maintained in a VARA-approved form such as a UAE bank trust account, a surety bond, or another arrangement approved by the regulator.

Collateral Requirement

In traditional finance, lenders rely on banking regulation for protection; in crypto, collateral is the primary safeguard. This is why VARA emphasizes continuous monitoring and real-time risk controls as it’s the backbone of stability in VA lending markets .

Collateral is a mandatory requirement in VARA-regulated lending and borrowing. Borrowers must post Virtual Assets or other approved collateral before a loan is issued, and the VASP must monitor this collateral on an ongoing basis to ensure it remains sufficient. If the value drops below required levels, the VASP must request additional collateral or take protective action.

In addition, VARA requires VASPs to publish a quarterly asset and liability report showing the Virtual Assets they hold, lend, borrow, or receive as collateral, and how those assets are safeguarded. This gives clients a clear, practical view of whether the VASP is maintaining proper collateral coverage and managing exposure correctly.

Additional Disclosure Requirements

• Maintain clear internal policies that guarantee clients can access and withdraw their virtual assets at all times, including during periods of market stress.

• Publish full details on interest calculations, including whether rates are fixed or variable, how frequently interest accrues, and any limits or tiering that may affect returns.

• Explain how the service works, who is eligible to use it, and any regulatory restrictions that apply. VASPs must also publish quarterly reports showing the value of assets they hold, lend, borrow, or receive as collateral, and how those assets are protected.

• Ensure governance transparency by describing the protocols and systems used in the lending and borrowing operations, as well as any associated risks.

• Clarify how client assets are used, including whether they are re-lent, pooled, or deployed for liquidity, so clients fully understand the model and related risks.

• Send monthly client statements showing the total value of virtual assets, all lending and borrowing activity, interest earned or paid, and collateral posted. VASPs must also use independent valuation methods to ensure accurate and market-reflective reporting.

• Maintain adequate liquidity at all times, monitor it regularly, and report any shortfall or risk of shortfall to VARA immediately to ensure redemption obligations can always be met.

• Process client withdrawals within 24 hours, unless delays arise from external factors outside the VASP’s control, and clearly inform clients when certain assets are not eligible for withdrawal.

• Retain all records for at least eight years, including agreements, instructions, and transaction details, and make them available to VARA upon request.

• Enter into a detailed written agreement with each client before services begin, and obtain explicit client consent before using any of their virtual assets for lending or borrowing purposes.

Application Fees

The application fee for the Lending and Borrowing Services License under VARA is AED 100,000, with an annual supervision fee of AED 200,000.

How Rasma Legal Can Support You

Rasma Legal helps businesses navigate every stage of the VARA licensing and compliance journey. Our team has successfully worked with VARA across multiple licensing categories and understands the practical and regulatory requirements for operating in Dubai’s fast-evolving digital or crypto asset market. Whether you are applying for a VARA license or strengthening your ongoing compliance, we provide the strategic guidance and hands-on support you need to build a secure, compliant, and scalable VA business.