How AED stablecoins work: reserves, the 1:1 peg and redemption
An AED stablecoin is a blockchain token designed to stay worth one UAE dirham because its issuer holds at least one dirham of reserves for every token in circulation and redeems tokens at par; in the UAE, issuers of dirham payment tokens are licensed by the Central Bank under the Payment Token Services Regulation, which bars them from paying interest.
Key takeaways
- An AED stablecoin holds its value through two duties of the issuer: a reserve worth at least the face value of all tokens, and redemption at par.
- The Central Bank's Payment Token Services Regulation (Circular 2/2024), effective from , requires redemption by the same time on the next business day.
- The reserve is reconciled daily and audited monthly, and issuers may not pay interest.
- On Zand Trust showed AED 806.3M of Zand AED in circulation against AED 806.4M of reserves.
- A stablecoin is a claim on a private issuer, not central bank money.
What an AED stablecoin is
An AED stablecoin is a digital token on a blockchain that is built to be worth one UAE dirham at all times. Each token stands for one dirham that the issuer has received and keeps in a reserve, and the holder can return the token to the issuer for that dirham. Tokens move between wallets at any hour, while the dirhams stay in the reserve until someone redeems.
Dirham payment tokens are issued by firms licensed by the Central Bank of the UAE under the Payment Token Services Regulation, and the licence explainer sets out who licenses banks, custodians and stablecoin issuers. There are more stablecoin and banking guides in Insights.
Stablecoin, payment token and virtual asset: the terms
Three terms describe the same object, and each has its own user.
- Stablecoin is the market's word for a token built to hold a steady value against a currency. The regulation uses it only for algorithmic stablecoins, which it prohibits.
- Payment token is the Central Bank's legal term: a virtual asset that "purports to maintain a stable value" by reference to the fiat currency it is denominated in.
- Virtual asset is the widest term, a digital representation of value or of a right held on a distributed ledger. The Central Bank and Dubai's Virtual Assets Regulatory Authority (VARA) both use it.
Par value means one dirham for one token, and an attestation is an auditor's report on the supply and the reserve. The glossary defines payment token, reserve attestation and redemption at par.
How the 1:1 peg is kept
The peg is kept by two duties that Articles 21 and 22 of the Payment Token Services Regulation place on the issuer: hold a reserve worth at least the face value of all tokens, and redeem any token at par. No algorithm holds the price at one dirham. Figure 1 shows both flows.
Issuance: dirhams in, tokens out
Tokens are created only when dirhams arrive. A client pays dirhams, the issuer adds them to the reserve, and the token's smart contract creates ("mints") the same number of tokens in the client's wallet. Article 21 requires that transfer without delay. A licensed issuer may issue dirham tokens only to UAE residents, although the regulation does not limit where a token is then sent.
On Ethereum such tokens typically follow ERC-20, "a standard interface for tokens" whose totalSupply function lets anyone read the number of tokens in existence and compare it with the published reserve.
Redemption at par: tokens in, dirhams out
Redemption is the reverse trade, and it anchors the peg. The holder returns tokens, the contract destroys ("burns") them, and the issuer pays out the same number of dirhams from the reserve. Article 21 requires redemption at par without delay, and in any case by the same time on the next business day, unless the Central Bank permits otherwise. The right has no time limit, and a redemption fee must be proportionate to the issuer's actual costs.
That right pulls a market price back to one dirham. If a token traded at AED 0.99 on a venue (an illustrative figure), a client of the issuer could buy it and redeem it for AED 1.00.
A worked example with illustrative numbers. The figures below are invented to show the arithmetic. They are not Zand AED data, and they leave fees out.
| Step | Tokens | Reserve |
|---|---|---|
| Start | 0 | AED 0 |
| 1. A company pays AED 2,000,000 and tokens are minted | 2,000,000 | AED 2,000,000 |
| 2. It pays a supplier 1,250,000 tokens | 2,000,000 | AED 2,000,000 |
| 3. The supplier redeems 1,250,000 tokens, which are burned | 750,000 | AED 750,000 |
Step 2 changes who owns the tokens and nothing else. Only issuance and redemption change the supply, and each moves the reserve by the same amount.
What a reserve is allowed to hold
The reserve of a dirham token is cash first. Article 22 requires a licensed issuer to hold it as cash in a separate escrow account, in the same currency as the tokens, at a UAE-licensed bank outside the issuer's group.
An issuer wholly owned by a bank has one alternative: at least 50% in cash on those terms, and the rest in UAE government bonds and Central Bank Monetary Bills (M-bills) with an average duration of six months or less. With AED 100 million of tokens in circulation (an illustrative figure), it would keep at least AED 50 million in cash. Its capital requirement rises from 0.5% to 2% of tokens outstanding, on top of AED 15 million.
The reserve is ring-fenced: no other person may have a claim on it, and customers must have a legal right to be paid from it if the issuer becomes insolvent.
Reserves and attestations: what to check
Six facts can be checked before a business relies on any stablecoin. Under Article 22 a licensed issuer must reconcile its records with the reserve daily, report the result to the Central Bank, and have an external auditor confirm every month that the reserve covered the tokens in circulation at all times.
| Check | What to look for | Where it should be |
|---|---|---|
| Issuer and licence | The legal entity and its licence reference number | The issuer's website, where the regulation requires the number, and the Central Bank's register |
| Reserve composition | Asset types, currency and who holds them | White paper and reserve reports |
| Who attests and how often | The auditor's name, its independence from the issuer's group and the period covered | Monthly reserve report |
| Redemption terms and fees | Who may redeem, the deadline, the fees and any minimum | Customer agreement and fee schedule |
| Contract addresses | The official token contract on each network, matched against your wallet or a block explorer | The issuer's website |
| As-of date | A date on every supply and reserve figure | Next to the figure |
An attestation covers stated figures at a date or over a period, so it is narrower than an audit of the issuer's accounts. Controls over systems are separate again: Zand Bank lists the attestations covering digital asset infrastructure on its security page.
Example: how Zand AED (AEDZ) is structured
Zand AED (AEDZ) is a dirham stablecoin issued by Zand Trust, a wholly owned subsidiary of Zand Bank PJSC. The bank is the parent and not the issuer, in line with the regulation: a bank may not issue a payment token itself and may set up a subsidiary to do so. A Zand Bank release dated announced the Central Bank's approval of the launch. The Zand Trust site says the issuer is licensed under the Payment Token Services Regulation. The About page covers Zand Bank and its subsidiary Zand Trust.
The figures carry dates. On the Zand Trust transparency page showed AED 806.3M in circulation and AED 806.4M of reserves, so at that rounding the reserve was larger by AED 0.1M. Both figures move daily. The page charts the reserve as cash and UAE Monetary Bills, both permitted for an issuer wholly owned by a bank, and lists a reserve report for each month from February to September 2026.
Zand AED on stated dates
- Issuer
- Zand Trust
- In circulation
- AED 806.3M on
- Reserves
- AED 806.4M on
- Reserve categories
- Cash and UAE Monetary Bills
- Monthly reports listed
- 8, February to September 2026
- Attestation firm
- Crowe LLC, monthly
- Ethereum contract (ERC-20)
- 0xFC347c996BD66C1d92E2045c80b413ef3fc84A90
- Solana contract (SPL)
- BMrgsEdrqfP4EAhiRbK5fFkq8xgQrqDAcZrv8R2pG4zG
- Last reviewed
Where the current figures are
The product page carries the latest dated supply and reserve figures, the report archive and the redemption steps.
AED stablecoins compared with USD stablecoins and bank transfers
An AED stablecoin, a US dollar stablecoin and a bank transfer all move value, under different rules. In the UAE the sharpest difference is permitted use. Under Article 2 of the regulation a dirham payment token from a licensed issuer may be used for any lawful purpose, while a foreign-currency payment token may be used only to buy virtual assets or their derivatives. Those rules apply outside the financial free zones.
| Criterion | AED stablecoin | USD stablecoin | Bank transfer in AED |
|---|---|---|---|
| Currency | UAE dirham | US dollar | UAE dirham |
| Rules for UAE use | Issuer licensed by the Central Bank. Any lawful purpose | Issuer registered with the Central Bank. Only to buy virtual assets or their derivatives | Banks licensed by the Central Bank. Any lawful payment |
| Settlement | On a public blockchain, at any hour | On a public blockchain, at any hour | Through bank payment systems, some with cut-off times |
| Typical users | Companies settling in dirhams with counterparties that hold wallets | Virtual asset traders and firms settling in dollars | Any company or person with a bank account |
| Drawbacks | Reliance on one issuer and its reserve, network fees, key handling | Narrow permitted use in the UAE, currency conversion, a different issuer and rulebook | Cut-off times. Cross-border payments can pass through several banks |
ZandMint, Zand Bank's ramp between bank money and stablecoins, names USDT and USDC next to AEDZ. Converting a dirham token into a dollar token changes the currency and the issuer whose reserve you rely on, so the checks above start again.
Do AED stablecoins pay interest?
Can I earn interest on an AED stablecoin? No. Article 12 of the Payment Token Services Regulation bars an issuer from paying a customer interest, or any other benefit, related to the length of time the customer holds a token, and from arranging for someone else to pay it.
No interest, and no other benefit for holding longer, may be paid on a dirham payment token.
A dirham token advertised with a rate or a reward for holding is therefore a warning sign. It usually means one of two things: the token is not issued under the UAE regime, or the return comes from a third party that lends or re-uses the tokens, which adds a counterparty risk the reserve does not cover.
AED stablecoin and the Digital Dirham: the difference
An AED stablecoin is a private claim backed by a reserve, while the Digital Dirham is central bank money. The Central Bank's primer of July 2025 calls the Digital Dirham the UAE's central bank digital currency (CBDC) and a liability of the Central Bank, like cash. An AED stablecoin is a liability of its issuer. The regulation draws the same line: a CBDC is excluded from its definition of a virtual asset, so it is not a payment token.
According to the primer, the Digital Dirham will be distributed through licensed financial institutions that provide wallets, will bear no interest at launch and is legal tender under the amended Central Bank Law. This article does not state how far the rollout has gone.
Risks to understand
A dirham peg and a ring-fenced reserve reduce price risk and leave five other risks in place.
- Issuer and reserve risk. The token is a claim on one firm. If the reserve were short or tied up in a dispute, redemption could be late or incomplete.
- Redemption access. Redemption at par is a right against the issuer. A holder who is not its client may have to sell at the market price.
- Loss of peg. On a trading venue the price can fall below one dirham when sellers outnumber buyers.
- Smart-contract and network risk. A flaw in the token contract, congestion or a chain outage can block or delay a transfer.
- Operational risk. A transfer to a wrong address usually cannot be reversed, and lost keys mean lost tokens. Firms that prefer not to manage keys can read about custody of digital assets for institutions.
Dubai's regulator, VARA, requires marketing of virtual assets to carry a prominent risk disclaimer. The warning used across this site follows.
Risk warning
Virtual Assets may lose their value in full or in part, and are subject to extreme volatility. The investor can lose all the money or other value they invest, and does not benefit from any form of financial protection.
This article is for information only and is not investment advice. Read the full risk disclosure for stablecoins.
How businesses use AED stablecoins
Businesses use AED stablecoins for three jobs: settling invoices, moving treasury balances and passing between bank money and tokens. Two companies with wallets can settle a dirham invoice on a blockchain outside banking hours. A group can move dirham value between its entities and trading venues. A ramp such as ZandMint converts bank dirhams into tokens and back.
A Zand Bank release of lists the uses it aims to support with its dirham stablecoin and USDC: payments, settlement, treasury operations, trading and cross-border transactions. That is an announcement of plans, not a measure of adoption.
Tokens are bought with dirhams from a bank account and redeemed into one, so most companies start by opening a corporate bank account in the UAE. Charges are listed under Zand AED purchase and redemption fees.
Frequently asked questions
What is an AED stablecoin backed by?
An AED stablecoin is backed by a reserve worth at least the face value of all tokens in circulation. Under the Payment Token Services Regulation the reserve is cash in a separate escrow account at a UAE bank. An issuer wholly owned by a bank may hold up to half of it in UAE government bonds and Central Bank Monetary Bills instead.
Is an AED stablecoin the same as USDT?
No. An AED stablecoin is denominated in dirhams and issued by a firm licensed by the Central Bank of the UAE. USDT is a US dollar token from a different issuer. In the UAE a dirham payment token may be used for any lawful payment, and a foreign-currency payment token only to buy virtual assets or their derivatives.
Can an AED stablecoin lose its peg?
Yes. On a trading venue the price can move away from one dirham when sellers outnumber buyers or when holders doubt the reserve. The anchor is redemption at par by the issuer, so the peg depends on the reserve being intact and on holders being able to reach redemption.
How often are AED stablecoin reserves audited?
Every month. Article 22 of the Payment Token Services Regulation requires an external auditor, independent of the issuer and its group, to confirm that the reserve covered the face value of the tokens in circulation at all times during the preceding month. The issuer must also reconcile its records with the reserve every day.
Sources
Every source below was opened on 12 October 2026. The Zand AED supply and reserve figures were read on 6 October 2026. Zand Bank's own pages are cited by address.
- Central Bank of the UAE, "Payment Token Services Regulation" (Circular 2/2024, effective from 31 August 2024), CBUAE Rulebook, rulebook.centralbank.ae/en/rulebook/payment-token-services-regulation.
- Central Bank of the UAE, "Digital Dirham: A Primer on the UAE's Central Bank Digital Currency", Policy Paper No. 1/2025, July 2025, centralbank.ae/media/lczb23l4/cbdc-short-report_july.pdf.
- Dubai Virtual Assets Regulatory Authority, "Regulations on the Marketing of Virtual Assets and Related Activities 2024", rulebooks.vara.ae/entiresection/419.
- Zand Trust, "Transparency" (supply, reserve categories and monthly reserve reports), zandtrust.com/en/transparency.
- Zand Bank, release "Zand Launches UAE's First AED-Backed Stablecoin on Public Blockchain", 17 November 2025, www.zand.ae/en/news/zand-launches-uaes-first-aed-backed-stablecoin-on-public-blockchain.
- Zand Bank, release "Zand Expands Stablecoin Access and Adoption in Global Markets with USDC", 25 August 2026, www.zand.ae/en/news/zand-expands-stablecoin-access-and-adoption-in-global-markets-with-usdc.
- Zand Bank, "ZandMint" product page, www.zand.ae/en/products/zand-mint.
- Ethereum Improvement Proposals, "ERC-20: Token Standard", created 19 November 2015, eips.ethereum.org/EIPS/eip-20.
For information only. This article is not investment, legal or tax advice, and nothing in it is an offer to buy, sell or hold any token.
Check the reserve behind Zand AED
The Zand AED page shows the issuer, the dated supply and reserve figures, the monthly reports and how redemption works.