Source: ADGM Academy Research Centre. Read the original report (PDF).
ADGM Academy Research Centre and the National University of Singapore Asian Institute of Digital Finance published a joint research paper in February 2025 titled “AI Applications in Web3 SupTech and RegTech: A Regulatory Perspective.” I have reviewed the full paper. It is not a theoretical exploration. It documents live pilot projects deploying AI to solve concrete regulatory problems in the Web3 space, and it signals the direction that Gulf crypto compliance is heading.
Why This Paper Matters Now
The UAE leads the world in cryptocurrency adoption. Over 30% of the UAE population, approximately 3 million people, own digital assets. The global cryptocurrency market capitalisation surpassed USD 3 trillion at the time of writing, rivalling some of the world largest companies. With this scale of adoption comes regulatory complexity that traditional oversight tools were not designed to handle.
ADGM’s Financial Services Regulatory Authority (FSRA) has maintained a comprehensive regulatory framework for virtual assets since 2018, one of the earliest such frameworks globally. The new challenge is not whether to regulate digital assets, but how to regulate them at the speed and scale that Web3 ecosystems operate. Manual compliance monitoring is simply not viable when smart contracts execute thousands of transactions per second across decentralised protocols.
SupTech vs RegTech: The Distinction That Matters
The paper draws a clear distinction between two complementary technology applications. SupTech, Supervisory Technology, is the use of AI and data analytics by regulators to enhance their oversight capabilities. It allows regulators to monitor regulated activity in real time, identify issues faster, assess risks continuously, and enforce regulations without relying on periodic manual audits. RegTech, Regulatory Technology, is the use of AI by businesses to streamline their own compliance processes, reduce the cost of meeting regulatory requirements, and improve reporting accuracy.
In the Web3 context: SupTech gives ADGM FSRA the ability to monitor on-chain activity, flag anomalous transactions, and assess smart contract risk at scale. RegTech gives companies operating within ADGM the tools to automate their compliance obligations, generate audit-ready reports, and conduct AI-powered due diligence on counterparties and transactions.
The Three AI Pilots: What Was Actually Tested
The paper documents three live pilot projects conducted jointly by NUS AIDF and ADGM. Each addresses a real operational problem in Web3 regulation.
Pilot 1: Smart Contract Suitability Assessment with AI: Automated AI tools to assess whether smart contracts meet regulatory suitability criteria before deployment. Manual smart contract audits are time-consuming and expensive. AI-powered assessment can evaluate contract code against regulatory requirements at a fraction of the cost and time, enabling more scalable oversight of DeFi protocols and tokenised products.
Pilot 2: Audit Report Assessment: AI applied to the analysis of audit reports submitted by regulated entities. Rather than human reviewers spending hours parsing dense technical documentation, AI tools can extract key compliance signals, flag inconsistencies, and prioritise which reports warrant deeper investigation. This directly addresses the supervisory bandwidth problem that emerges as the number of regulated entities scales.
Pilot 3: Smart Due Diligence with AI: AI-powered due diligence processes for assessing counterparties, transactions, and entities in the Web3 ecosystem. This addresses the unique challenge of conducting KYC and AML compliance on pseudonymous blockchain actors and decentralised protocols where traditional identity verification methods do not apply.
The Risks the Paper Acknowledges
The paper does not present AI-powered regulation as a solved problem. It highlights the genuine risks that emerge from Web3 technology itself, and which make better regulation both urgent and difficult. The collapse of Terra (LUNA) demonstrated how algorithmic stablecoin failures can cascade rapidly through interconnected DeFi systems. Smart contract vulnerabilities, like the Curve Finance exploit, show how code flaws can result in substantial financial losses with limited recourse.
These are not edge cases. They are structural risks of a decentralised, pseudonymous, rapidly-evolving technological environment. The paper argues that AI is not just a convenience for regulation. It is a necessity if oversight is to keep pace with the speed of innovation and the complexity of on-chain risk.
What This Means for Businesses Operating in the Gulf Digital Asset Space
If you are building a business that touches crypto, DeFi, digital assets, or blockchain-based financial infrastructure, and you are doing it in or from the UAE, this paper describes the regulatory environment you are entering. ADGM FSRA is not building a static compliance checklist. It is building AI-powered supervisory infrastructure that will monitor your activity in real time, assess your smart contracts algorithmically, and conduct AI-assisted due diligence on your operations.
This is a more demanding compliance environment than manual audit-based regulation. It is also a more credible one. ADGM’s approach signals to institutional partners, counterparties, and investors that entities regulated within ADGM are subject to standards that match the sophistication of the technology itself.
For companies evaluating where to base a Web3 or digital asset business: ADGM is building the most advanced AI-powered regulatory infrastructure for virtual assets in the Gulf region. Being subject to that infrastructure is not just a compliance requirement. It is a credibility signal to the institutional market you are trying to access.
The Broader Implication: The UAE as the Global Web3 Regulatory Standard-Setter
The partnership between ADGM FSRA and NUS AIDF is not accidental. It reflects a deliberate strategy to position the UAE at the frontier of digital finance regulation, building frameworks that respond to innovation and actively shape its development. The paper concludes with a forward agenda: continued collaborative development of AI regulatory tools, broader adoption of the framework by other regulators, and ongoing pilot expansion across additional use cases.
The UAE did not wait for other jurisdictions to establish the global standard for Web3 regulation. It is building that standard, publishing the methodology, and inviting global collaboration. For the Gulf digital asset ecosystem, that is a competitive advantage that compounds over time.
Source: ADGM Academy Research Centre and NUS Asian Institute of Digital Finance, AI Applications in Web3 SupTech and RegTech: A Regulatory Perspective. Full Paper, February 2025. Available at adgm.com.
Frequently Asked Questions
What is ADGM’s approach to regulating crypto and Web3?
The Abu Dhabi Global Market (ADGM) uses AI tools to analyse transaction patterns, assess regulatory compliance in real time, and identify systemic risks across digital asset markets. ADGM introduced a comprehensive Virtual Asset Activities Framework, one of the first globally, providing legal clarity for crypto businesses operating in the UAE.
Is crypto and Web3 legal in the UAE?
Yes, with proper licensing. The UAE has two primary regulatory pathways for digital asset businesses: the Abu Dhabi Global Market (ADGM) Virtual Asset Activities Framework and Dubai’s Virtual Assets Regulatory Authority (VARA). Both provide legal structure for exchanges, custodians, and other virtual asset service providers. Unlicensed digital asset activity remains prohibited.
What is the difference between ADGM and VARA for crypto regulation?
ADGM operates in Abu Dhabi’s financial free zone with a principles-based approach suited to institutional financial services and complex digital asset structures. VARA is Dubai’s dedicated crypto regulator covering a broader range of participants including retail exchanges. Institutional and DeFi projects typically engage with ADGM; consumer-facing businesses with VARA.
How does UAE Web3 regulation affect international crypto companies?
The UAE’s regulatory clarity makes it one of the most attractive jurisdictions globally for compliant crypto businesses. ADGM and VARA licensing provides legal certainty, access to UAE banking, and the ability to serve clients across the GCC. The AI-powered compliance monitoring reduces the burden through automated reporting and real-time monitoring.
Is the UAE a good location for blockchain and Web3 businesses?
Yes. The UAE is the leading jurisdiction in the Middle East for blockchain and Web3 businesses, and among the top five globally. The combination of regulatory clarity (ADGM + VARA), zero corporate tax in free zones, institutional capital access, and the UAE Blockchain Strategy 2021 creates a highly supportive operating environment.
Questions I get asked
What is ADGM's approach to regulating crypto and Web3?
The Abu Dhabi Global Market (ADGM) uses AI tools to analyse transaction patterns, assess regulatory compliance in real time, and identify systemic risks across digital asset markets. ADGM introduced a comprehensive Virtual Asset Activities Framework, one of the first globally, providing legal clarity for crypto businesses operating in the UAE.
Is crypto and Web3 legal in the UAE?
Yes, with proper licensing. The UAE has two primary regulatory pathways for digital asset businesses: the Abu Dhabi Global Market (ADGM) Virtual Asset Activities Framework and Dubai's Virtual Assets Regulatory Authority (VARA). Both provide legal structure for exchanges, custodians, and other virtual asset service providers. Unlicensed digital asset activity remains prohibited.
What is the difference between ADGM and VARA for crypto regulation?
ADGM operates in Abu Dhabi's financial free zone with a principles-based approach suited to institutional financial services and complex digital asset structures. VARA is Dubai's dedicated crypto regulator covering a broader range of participants including retail exchanges. Institutional and DeFi projects typically engage with ADGM; consumer-facing businesses with VARA.
How does UAE Web3 regulation affect international crypto companies?
The UAE's regulatory clarity makes it one of the most attractive jurisdictions globally for compliant crypto businesses. ADGM and VARA licensing provides legal certainty, access to UAE banking, and the ability to serve clients across the GCC. The AI-powered compliance monitoring reduces the burden through automated reporting and real-time monitoring.
Is the UAE a good location for blockchain and Web3 businesses?
Yes. The UAE is the leading jurisdiction in the Middle East for blockchain and Web3 businesses, and among the top five globally. The combination of regulatory clarity (ADGM + VARA), zero corporate tax in free zones, institutional capital access, and the UAE Blockchain Strategy 2021 creates a highly supportive operating environment.
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