DUBAI: One of the hardest things after starting a company is to gain clients. But before Yehia Badawy and his three business partners could get down to it, they had a bigger hurdle to clear: Convincing financial regulators to endorse a new type of business in a non-existent industry.
Their idea was Rain, the first licensed cryptocurrency exchange in the Middle East. Launched in 2017, the venture fills a gap in the region’s digital assets market by facilitating the trade and exchange of digital currencies for conventional money.
Cryptocurrencies are a late-stage digital tender. Neither backed by physical assets nor guaranteed by central banks, they are nearly impossible to counterfeit.
More than 2,000 decentralized virtual currencies exist today, largely outside the sphere of influence of traditional financial organizations.
“Many people believe the internet should have its own currency,” said Badawy, 33, an Egyptian national. “Why should the euro or the US dollar or any other fiat currency be the default way to buy and sell goods and services online? That said, these transactions need to be safe, secure and properly regulated.”
The most famous cryptocurrency is bitcoin. Created in 2008, it caught the public’s attention in late 2017 when investors drove the value of one unit to nearly $20,000, before sending it back down to around $3,000. Subsequently, bitcoin stabilized at around $10,000.
Other cryptocurrencies have gone along similar trajectories. The fluctuations raised awareness of this fledgling business sector, while underscoring the importance of taking adequate safeguards.
“The industry has (now) reached the next level of maturity,” said Badawy. “There’s definitely a change in tone following a better understanding of cryptocurrency trading and how it works.”
This was not the case when he founded Rain with 29-year-old Abdullah Almoaiqel of Saudi Arabia and US nationals Joseph Dallago, 28, and A. J. Nelson, 27.
With a shared enthusiasm for digital currencies, the four met online via social networks Twitter and Meetup.
At the time, the Middle East was the only region without a licensed cryptocurrency exchange, and local interest in this domain was scant.
“Despite our concerted efforts, regulators either didn’t understand cryptocurrencies or weren’t willing to engage with us,” Badawy said.
Regulatory approval was important to widen the buyer base for cryptocurrencies in what was then an untapped market.
“We could’ve started in an offshore jurisdiction with a white-label solution,” said Badawy. “But we knew that for crypto to really become a key piece of daily life, it needed to be
governed in a way that satisfies innovation but also existing regulation. That was the main driver.”
When the Central Bank of Bahrain agreed to a cryptocurrency trial in 2017, Rain joined its sandbox program for new financial technology solutions.
Two years later, the venture became the Middle East’s first company to be licensed by an onshore regulator, joining an exclusive international group.
Last July, Rain closed a $2.5 million round of seed funding. Thousands of customers from over 50 countries now use its platform to buy, sell or store crypto assets and fiat currencies in an ecosystem with bank-grade security.
Badawy drew parallels between Rain and early internet service providers (ISPs) such as America Online.
“We look at ourselves as the ISPs of the crypto industry. This is where we are providing the initial liquidity to the region, as the ISPs did for the internet,” he said.
“In the future, there will be other companies — and we hope this happens — that come and build on top of this foundation layer.”
Entrepreneurs hoping to establish such new-wave financial institutions need more than deep pockets, according to Badawy.
While these are essential, all startups also require discipline, perseverance and hard work. As Rain has shown, a good idea and persistence can help a new industry take root.
“Anyone starting a business today should come to terms with the fact that unless they take steps that are beyond the average, they shouldn’t expect above-average results,” said Badawy.
“That said, the startup ecosystem in the region has matured so much over the last few
years that anyone with a good idea and the ambition to go after it won’t be struggling.”
- This report is being published by Arab News as a partner of the Middle East Exchange, which was launched by the Mohammed bin Rashid Al Maktoum Global Initiatives to reflect the vision of the UAE prime minister and ruler of Dubai to explore the possibility of changing the status of the Arab region.