As dollar shortages in the open market persist, users seek dollars digitally, while the Pakistan Virtual Assets Regulatory Authority (PVARA) continues to deliberate on drafting detailed regulations. Inevitably, people are not waiting for regulations; they are already moving towards crypto rails facilitated by illegal operators entering the market.

There is, however, one group that awaits regulation: those wishing to operate legally. And this wait is causing them to patiently recalibrate, raising questions regarding the future of financial inclusion in Pakistan. An insider source at one such startup, Zar, highlighted that their focus has shifted towards their African markets as they await regulations in Pakistan before deciding “to invest much more money and energy into Pakistan.”

Aatiqa Lateef, a crypto expert, shared that this caution is entirely rational and that serious firms will scale where there is regulatory predictability, banking integration, and a clear supervisory roadmap. Highlighting the cautious optimism with the creation of PVARA, she added that “uncertainty tends to reward grey-market behaviour instead”, while noting that operational clarity is still evolving.

According to Ms Lateef, “The main gaps are around what NOCs [no objection certificates] actually permit today, banking access, and how stablecoins will be treated relative to other virtual assets.”

Zar’s recalibration comes despite validated market interest in one of the largest crypto markets — if the PVARA chairman’s references to 40 million crypto users are correct — as previous reports indicated a $600m loss from crypto transactions in the first 10 months of 2025.

This number has now risen, according to Malik Bostan, Chairman of the Exchange Companies’ Association of Pakistan (ECAP), who highlighted that customers bought roughly $1.2 billion from exchanges to deposit in their foreign currency accounts over these 11 months. However, only $400m was deposited in the banks, as he alluded that $800m may have gone towards crypto rails, particularly stablecoins.

With its adoption accelerating outside the regulatory perimeter, the wait for regulation risks incentivising illegal operators

Ms Lateef sees this as an important signal: “FX liquidity appears to be leaking from formal channels into informal digital dollar rails. For an import-dependent economy, that kind of displacement increases pressure on the formal FX market.”

This comes after increased clarity on the licensing process, as Binance and HTX have recently been granted an NOC, a precursor to a complete “activity-specific” license, according to a LinkedIn post by lawyer Mariam Saleem. According to her post, after obtaining a preliminary NOC, Virtual Assets Service Providers (VASPs) can incorporate their company with the Securities and Exchange Commission of Pakistan, followed by the submission of a complete license application to PVARA.

Ms Saleem said, “Many VASPs are moving, but with restraint, because operators are still calibrating prescribed fees, timelines, documentation depth, and ongoing supervisory expectations.” She added that there is interest and direction, but “there is still uncertainty around execution detail and sequencing”.

These developments in 2025 have also been accompanied by interest from the banking sector, as Pakistan Banks Association Secretary Mir Nejib Rahman said, there is interest across the industry regarding stablecoins and the use of crypto rails for remittances, and a number of exploratory conversations are taking place.

“However”, he said, “everything remains at an internal assessment and technical-evaluation stage”. Mr Rahman had previously told Dawn, “Banks will not move towards any form of activity until the SBP [State Bank of Pakistan] issues the relevant regulations and supervisory framework.” This can only happen once PVARA publishes its detailed guidelines.

While a source inside Zar said these regulations are supposed to come out in the next few weeks, this raises an important question about the transparency of this process, which, some argue, should be free of conflict given the recent promotion of a practitioner-led regulation model by the PVARA chairman.

Mr Rahman, on the other hand, offered that while the self-regulation model sounds appealing, in crypto, it creates a clear conflict of interest. “Many large crypto firms openly aim to bypass banks, so they can’t be the ones shaping rules in a system where banking stability, FX control, and anti-money laundering oversights are critical.

“Industry input is useful, but the actual guardrails must come from SBP and PVARA. Otherwise, the regulatory framework could end up favouring speed and scale over financial stability, which Pakistan cannot afford,” he ended.

Ms Lateef says that she is “supportive of practitioner input, but not practitioner-led regulation.” She further adds that Industry expertise is essential for designing workable rules, but the final standard has to come from the regulator.

Speaking on the ambitions of web3 companies in removing the middleman — in this case, disintermediating banks — Ms Lateef says that this narrative is ideological, not operational.

In mature markets, she explains, crypto firms inevitably integrate with banks because fiat on/off ramps require regulated institutions, compliance, settlement, custody, and reporting rely on banking infrastructure. Institutional liquidity comes from the banking sector, and consumer protections require a supervised environment.

While coexistence is the default in advanced jurisdictions, according to Ms Lateef, “What’s different in Pakistan is the structure of the financial system. Banks remain the primary gatekeepers for FX, payments, and settlement; remittances are a macro-critical lifeline, so regulators are rightfully cautious; and a volatile rupee and FX constraints make unregulated dollarised flows a systemic concern.”

According to experts, the next phase, which should be centred on co-design rather than self-regulation, must clearly address consumer protection, segregation of client assets, custody standards, disclosures, market integrity rules, grievance redress, and operational resilience. Credible oversight depends on making these requirements explicit and enforceable.

Published in Dawn, The Business and Finance Weekly, December 29th, 2025