Investing in MENA’s crypto future: Opportunities and challenges

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With a tech-savvy population, progressive regulatory frameworks, and ambitious government-led initiatives, significant strides are being made in the Middle East to nurture blockchain and crypto innovation. This year, I had the pleasure of attending the Satoshi Roundtable and Token 2049 summit in Dubai, two flagship gatherings on the global web3 events circuit. In addition to showcasing the latest milestones and breakthroughs in the web3 landscape, the events served as a celebration of the region’s rapid rise as a thriving web3 hub, and the energy in the air was palpable.

In recent years, MENA has built an excellent reputation for hosting high-quality events, attracting the best and brightest in web3. Since the launch of Lemniscap seven years ago, we have been actively identifying and supporting pre-trend narratives and emerging web3 solutions from both an infrastructure and consumer layer perspective.

The MENA region has presented exceptional investment opportunities across emerging verticals, and as blockchain technology continues to evolve, the Middle East’s appetite for web3 growth will undoubtedly create a breeding ground for the most innovative and groundbreaking projects to flourish.

Phygital: The intersection of blockchain and physical assets

In my opinion, one of the most interesting investment plays in the Middle East is the ‘Phygital’ space, which represents the merging of blockchain technology with physical assets. This merger has the potential to revolutionize industries such as real estate, art and luxury goods; three sectors that are already booming across MENA. Blockchain’s immutable ledger and smart contract functionality provide a powerful framework for creating transparent and secure systems for managing and trading physical assets. For example, tokenization of real estate on blockchain platforms allows for fractional ownership, making it easier for investors to buy and sell shares in high-value properties.

In a region where real estate investment is a major driver of wealth, particularly in countries like the UAE and Saudi Arabia, this opens up a world of opportunity for small investors who may not have previously had access to such high-value assets. We’ve seen how the UAE’s real estate sector has benefited from the implementation of blockchain technology, where properties are bought and sold using Bitcoin (BTC), providing international investors with a more seamless and transparent way to invest in the MENA real estate markets. Furthermore, by tokenizing art and collectibles, owners can obtain proof of authenticity, trace provenance, and even swap parts for high-value pieces; this not only democratizes access to valuable assets, but also reduces fraud, a key concern in these markets.

While there is a significant upside in the Phygital space, the infrastructure for seamless integration between digital and physical assets is still evolving. Establishing secure and verifiable connections between blockchain-based digital tokens and their corresponding physical assets is challenging and requires reliable tracking systems such as IoT devices or RFID technology. Uncertainty around legal frameworks and regulatory standards for tokenized physical assets may also constrain growth in the short term, but once these issues are addressed, the Phygital growth trajectory will expand.

Web3 game

Governments in the MENA region are actively encouraging innovation in the gaming sector by recognizing the ‘first mover’ opportunity to adapt to the increasingly popular web3 gaming platforms that provide players with true ownership of in-game assets using NFTs and play-to-win models.

Dubai, in particular, has solidified its reputation as a leading hub for web3 game development, supported by the recent launch of the Dubai Gaming Programme 2033, with a mandate to create 30,000 new jobs in the new sector. Gaming is one of the verticals with high potential for crypto adoption among consumers, but it is also one of the most difficult to get right. Complex blockchain integrations, such as slow transaction times, high gas fees, and difficult onboarding processes for non-crypto users, still hinder the overall web3 gaming experience. These barriers make it difficult for mainstream players to engage with web3 games and limit adoption altogether.

For example, high Ethereum transaction fees often deter in-game purchases or NFT transactions, while complex wallet setups deter casual users. However, these issues can be addressed with advancements such as Layer-2 scaling solutions and gas-free transaction models. Simplified onboarding through user-friendly wallets and seamless integration with blockchain infrastructure can significantly improve user experiences. Once these hurdles are overcome, web3 games can attract millions of players and unlock huge opportunities for growth and player-owned economies. Looking ahead, we are excited to pursue exemplary investment opportunities that expand the landscape of on-chain gaming.

DePINs

Decentralized physical infrastructure networks represent another promising frontier for VCs exploring the web3 space in the Middle East. This region is renowned for its vast energy resources and offers unique opportunities for DePIN deployments, using blockchain technology to enable decentralized networks that support physical infrastructure.

With many Middle Eastern countries, such as Saudi Arabia and the UAE, investing heavily in renewable energy to diversify away from oil, VCs have made a timely move to back projects that could redefine how energy is managed and distributed in the region. Last year, a branch of Abu Dhabi’s Advanced Research Council for Technology introduced a new blockchain-powered carbon tracking and trading platform that allows companies to offset their carbon footprint more effectively and transparently, so there’s clear support at the highest level for blockchain-centric sustainability measures to take hold.

While DePIN shows tremendous promise, the success of DePIN projects in MENA will depend on the region’s ability to build and maintain robust physical networks capable of supporting decentralized applications, which will require significant investments in physical assets and technology. The cost of infrastructure development will be high and projects may take years to fully mature, but the roadmap for success is clear.

From a VC perspective, the Middle East offers a highly attractive conveyor belt of opportunities for targeted investments in the blockchain space. Replication of initiatives such as the UAE’s Digital Government Strategy 2025 across the MENA region will go a long way in encouraging digital and blockchain integrations across core government departments, which will in turn have a ripple effect across the rest of the tech and investor ecosystem.

Roderic van der Graaf

Roderik van der Graaf is the founder of Lemniscap. Roderik has been providing strategic consulting to early-stage blockchain companies since 2014. He founded Lemniscap in Q4 2017 as an institutional-grade investment firm tailored to the emerging space. He has extensive experience across the financial sector spectrum – over 20 years of experience including tenure at some of the world’s most renowned financial institutions.