Saudi Arabia has ramped up its economic diversification efforts driven by its ambitious Vision 2030. 

In a bid to diversify its economy away from a dependence on oil, the kingdom has embraced emerging technologies, such as blockchain and artificial intelligence (AI), and tapped into booming markets like gaming.

But while the country has yet to leave a significant mark in the global game and AI development, the ripples of its investments in the gaming sector could extend far beyond — at least, that’s what Web3 experts say.

“Based on our work and communications that we have, Saudi [Arabia] is very, very interested in Web3,” Animoca Brands co-founder Yat Siu told Cointelegraph.

Given the kingdom’s partnerships with entities such as The Sandbox and even Animoca, Siu sees that there’s an effort from Saudi to venture into the new iteration of the internet. The executive said:

“I think Saudi [Arabia] understands the principle that Web3 gaming or blockchain gaming — the one that we actually prove the owner assets — is going to be the future of gaming.”

Thanks to the interest of its young, tech-savvy population, Saudi Arabia, along with the United Arab Emirates, is driving the growth of the Middle East’s gaming market. According to a Boston Consulting Group report, the kingdom represents 45% of the sector in the region, with a value of more than $1.8 billion. It also boasts one of the largest game revenues in the area, according to game content studio Allcorrect.

In 2017, the kingdom established the Saudi Esports Federation to regulate and develop the country’s gaming industry.

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Bloomberg reported in April that Saudi Arabia, through its Public Investment Fund, invested $38 billion in the sector as it looks to become a global gaming hub.

Although the Saudi government understands the “high-level concept” of Web3, its potential, and how it can align with esports — where teams can own stakes in games they play — Siu said it remains unclear what its integrations to gaming would be due to the absence of clear rules on cryptocurrency and other virtual assets:

“Cryptocurrency is something that is still to be explored. It’s being investigated. I think [Saudi Arabia is] quite forward about how to deal with it. But they haven’t come up with anything yet.” 

“In places like Hong Kong, Japan and the UAE, there’s much more clarity as to what you can do with crypto and Web3. You can map out a strategy,” Siu added.

While it remains to be seen what Saudi Arabia’s Web3 gaming applications would look like, Siu noted that the kingdom is looking at other markets and learning.

“That’s why they’re talking to us. Because they want to know what the best practices are and how they can learn,” the executive explained. “There are very few places in the world that we’ve seen such a hunger and desire to sort of be at the cutting edge.”

“You can feel sort of the desire to have progress and to lead in Saudi Arabia. I think that’s kind of unique,” Siu added.

How gaming can spur Web3 adoption

While pushback from the traditional gaming community and developers persists, Siu claims a successful conversion of users into Web3, whether it’s in gaming or not, should come with financial literacy.

“You can’t really be a true Web3 user if you don’t have at least a certain level of financial literacy that goes above and beyond having a bank account,” Siu said.

The Animoca co-founder claimed that most Web2 users are not capital investors because they’re mostly labor people compared to Web3 people who understand investing.

“What we found is that the path to Web3 mass adoption isn’t giving [Web2 users] just a wallet. That’s actually the easiest part. The harder part is how to make them aware that what they now have is an asset that has potential value, and it could do things and has different network effects that need to be maintained as real value.”

Meanwhile, Mythical Games CEO John Linden told Cointelegraph that he already sees Web3 adoption in the gaming sector, albeit at a slower pace.

“I think we’re seeing some [adoption] already. We’re seeing people that they’re introducing the [Web3] concept. They do understand the concept of buying and selling assets,” Linden said.

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The gaming industry veteran pointed out that Web3 should enhance user experience and not just give them the means to generate income:

“[Web3 gaming developers] have to focus on new game models. When you start doing that, it introduces creator economy, digital supply chain, ownership of guilds and the ability to come up with your own theory within the game itself.”

“Those are principles I think gamers will attach to,” Linden added.

The Mythical Games CEO projects that the Web3 gaming segment could onboard 50 to 100 million players in the next two years, with their own titles targeting 10 million by the end of 2023.

The Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) has granted financial services permission (FSP) to virtual assets firm M2 to operate a multilateral trading facility from the United Arab Emirates capital.

In an Aug. 16 announcement, the Abu Dhabi-headquartered M2 said the regulatory approval would allow institutional and retail clients in the UAE to “buy, sell and custody virtual assets,” such as Bitcoin (BTC) and Ethereum (ETH).

The M2 platform, which is scheduled to launch later in 2023, has been developed over the past year with a long-term vision to establish “the highest levels of trust, security and integrity in the emerging virtual asset class,” the announcement said.

Once live, the M2 platform will also allow UAE users to buy cryptocurrencies using fiat money, as well as access to derivatives and yield services.

“The process of obtaining the license is the first step on our journey, and we will remain in close dialogue with ADGM to ensure transparency around the custody of client assets,” said Stefan Kimmil, chief executive of M2.

Cointelegraph reached out to M2 for further comments but didn’t receive an immediate response.

“Over the past five years, the ADGM regulatory framework has established clear rules for those operating in the virtual assets sector, and M2 will uphold the highest standards to reflect their vision as the UAE continues to affirm its reputation as a global leader in this space,” he added.

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ADGM had not yet responded to Cointelegraph’s request for comment at the time of publication.

ADGM introduced a comprehensive virtual asset regulatory framework in 2018. It has since attracted a number of major companies dealing with cryptocurrencies to set up businesses in its regulated financial economic zone.

“At ADGM, our mission has always been centered around unlocking new growth opportunities and fostering investments in the virtual asset sector, ADGM Authority CEO Salem Al Darei said. “We remain committed to enhancing Abu Dhabi’s digital asset landscape and actively supporting the diversification of our thriving economy.”

In November 2022, the ADGM awarded cryptocurrency exchange Binance an FSP after being granted in-principle approval from the financial watchdog in April.

Subsequently, cryptocurrency exchange Rain received similar regulatory permission in July this year to operate virtual assets brokerage and custody services to UAE users.

The Sultanate of Oman is inching closer to launching its own virtual asset regulations, with its financial markets regulator seeking public comments on its proposed regulatory framework governing digital assets, such as cryptocurrencies.

The Capital Market Authority of Oman is currently in the process of drafting a comprehensive regime for the virtual asset sector, which includes various business requirements and market abuse prevention, it said in the consultation paper published on July 27.

“The CMA is seeking to provide an alternative financing and investment platform for issuers and investors while mitigating the risks associated with the [virtual asset] class.”

The consultation paper includes 26 questions, with which industry stakeholders could provide their opinion. It includes proposals on regulatory and licensing requirements for virtual asset service providers (VASPs), corporate governance, risk management and virtual asset issuance.

It revealed that the proposed framework encompasses utility tokens, security tokens, fiat-backed and asset-backed stablecoins, and other digital currencies that fall under the Financial Action Task Force’s definition of virtual assets. However, the issuance of privacy coins might get banned, pending public feedback.

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The CMA might also require VASPs to establish a local presence in Oman through a legally established entity and physical office and impose minimum capital requirements on them. If finalized, virtual asset firms might also be required to hold only a low percentage of assets in hot wallets, conduct audits of safeguarded assets and show proof of reserves.

The public must submit their feedback to the consultation paper by Aug. 17, with key opinions potentially getting posted on the CMA website.

Following the consultation phase of the development of the virtual asset regime, the CMA will draft and finalize the regulatory framework.

Although the CMA publicly announced launching a regulatory framework on Feb. 14, discussions on regulating the virtual asset industry in Oman began much earlier. In November 2020, the country’s National Committee for Combating Money Laundering and Terrorist Financing decided to launch a task force comprising CMA and Central Bank of Oman officials to study whether to ban or permit virtual asset activities. Consultants were then enlisted in December 2022 to assist in setting up the new regime.

The crypto arm of Nomura has obtained an operating license from Dubai’s Virtual Asset Regulatory Authority (VARA) amid the Japanese financial holding’s attempts to leave its mark in the digital asset space.

Laser Digital Middle East FZE, Nomura’s Dubai-based digital asset subsidiary, announced on Aug. 1 that the new virtual asset service provider (VASP) license would allow it to offer broker-dealer and virtual asset management and investment services in the emirate.

Additionally, the permit allows the firm to conduct trading and asset management operations in the coming months, including over-the-counter (OTC) services and a “range of digital asset investment products and solutions,” the announcement said.

“VARA’s thorough and consultative process provides institutional investors with the assurance they require to engage in this asset class, said Jez Mohideen, chief executive of Laser Digital. “With the license now in place, we are looking forward to Laser’s growth over the coming years.”

Laser Digital and VARA haven’t responded to Cointelegraph’s request for further comments at press time.

Founded in September 2022 by Nomura, Laser Digital was the brainchild of Steven Ashley, the former head of Nomura’s wholesale division, along with Mohideen, who served as the holding’s former chief digital officer and co-head of global markets for Europe, Middle East and Africa. It’s headquartered in Switzerland and has offices in Dubai and London.

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Dubai’s growing crypto ecosystem has attracted global attention, having established its own virtual assets rules and regulatory body in March 2022. In February, the emirate’s virtual asset regulator issued its “Full Market Product Regulations,” which include four compulsory rulebooks and activity-specific rulebooks that lay down the rules for VASPS.

Laser Digital’s new license comes on the heels of Binance reaching another milestone in cementing its foothold in the United Arab Emirates. On July 31, Binance’s Dubai subsidiary, Binance FZE, obtained an operational minimum viable product (MVP) from VARA to operate cryptocurrency exchange and virtual asset broker-dealer services locally.

Aside from Binance, digital asset custodians Komainu MEA and Hex Trust MENA FZE are the only holders of operational MVP permits. Crypto exchange BitOasis, which also secured the same conditional license, had its permit suspended by VARA for not meeting mandated conditions.

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The partnership will attempt to contribute to driving blockchain innovation in the continent’s key sectors, including finance, supply chain, agriculture, business and cross-border trade, the May 10 announcement said.

The planned blockchain and Web3 hub will serve as a central platform for African technology companies and government entities, fostering knowledge exchange and stakeholder collaboration.

Under the deal, Venom will provide tools and resources to support Kenya and other African countries in their digital transformation, including blockchain-based solutions for supply chain management, land registry, voting systems and asset tokenization.

Moses Kuria, Kenya’s Cabinet Secretary for Investments, Trade and Industry, said that the deal shows the country’s stance toward next-generation technology. He added:

“We believe that the establishment of this blockchain hub will catalyze further innovations in various industries, benefitting our people both nationally and globally.”

Kenya and wider Africa continue to become a hotbed for innovation, including the implementation of blockchain technology. The continent witnessed a 429% increase in blockchain deals, as companies raised $474 million last year from $90 million in 2021, data from CV VC shows. The data added that those numbers surpassed the global funding average, which only grew by 4%.

“Africa is already rich in natural resources and human capital,” Venom Foundation CTO Christopher Louis Tsu said. “By bringing next-generation blockchain technology to the continent, it will empower the people and help not only Kenya but many other African nations to capitalize on their assets and participate in new global markets competitively.”

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In January, Venom Foundation, with investment manager Iceberg Capital, announced a $1 billion fund for Web3 and blockchain firms. The investment fund will look to attract technology firms to use Venom’s scalable, proof-of-stake-based blockchain solution.

Elsewhere, lawmakers in Kenya have introduced Finance Bill 2023, which seeks to tax crypto and nonfungible token (NFT) transfers. The proposal, which will undergo five rounds of readings, would require registered crypto exchanges and NFT marketplaces to deduct 3% of the transfers’ value to be paid to the government.

The Kenyan government has inked a deal with Abu Dhabi-based blockchain platform Venom Foundation to launch a blockchain and Web3 hub in Africa. 

Blockchain security firm CertiK is launching a compensation plan with Ethereum layer-2 scaling platform zkSync Era to cover the $2 million lost during a public sale of decentralized exchange Merlin’s MAGE tokens.

In a statement to Cointelegraph on April 26, CertiK reiterated it is investigating the exit scam and has also enlisted the remaining Merlin team to initiate the compensation plan. It said:

“Initial investigations indicate that the rogue developers are based in Europe, and CertiK will collaborate with law enforcement authorities to track them down if direct negotiation is unsuccessful.”

The blockchain security company is urging the rogue developer to return 80% of the stolen funds, conceding 20% as a white hat bounty.

The firm also pointed out that private key privileges are “committed to assisting impacted users” despite them being outside the scope of a smart contract audit.

Merlin lost about $850,000 worth of USD Coin (USDC) and some more relatively illiquid tokens on April 26 during its three-day MAGE tokens public sale without any hard cap. Blockchain data suggests that an exploiter with control over the liquidity pool was able to easily siphon the funds.

CertiK, which audited Merlin’s code, responded with its initial findings pointing to a “potential private key management issue.”

Crypto Twitter questioned the CertiK audit, implying that there might be a rug pull.

Verichains founder Thanh Nguyen alluded to a “backdoor” present in Merlin’s code, saying it is a “clear security risk as there is no use case that requires its approval.”

“While audits can identify potential risks and vulnerabilities, they cannot prevent malicious activities on the part of rogue developers such as rug pulls,” CertiK in a statement to Cointelegraph. “We encourage users to look for projects with a ‘KYC Badge’ as an added layer of security, signifying that the project has voluntarily gone through a KYC vetting process.”

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The firm explained that doing so can help reduce and mitigate the risk of insider threats such as rug pulls.

CertiK said it would continue providing updates on its compensation plan and ongoing investigation.