Shariah-compliant crypto market makes headway amid growing acceptance
The increasing awareness of halal cryptocurrency is ushering in a wider acceptance of Shariah-compliant decentralized solutions, driving greater mainstream adoption.
Companies such as Switzerland-based cryptocurrency developer Islamic Coin (ISLM), Malaysian fund manager Halogen Capital, and Bosnia and Herzegovina-headquartered crypto exchange platform Biokript have been at the forefront of this movement, fueled by the steady growth of Islamic finance assets.
“The global Islamic finance industry is projected to experience significant growth in the coming years with sukuk issuance projected to grow substantially. This surge will naturally drive demand for halal digital assets,” Mohammed Al Kaff AlHashmi, co-founder of HAQQ and Islamic Coin tells Salaam Gateway.
Gateway to Web3
As the native digital currency of the HAQQ blockchain, a platform dedicated to fostering a Shariah-compliant financial ecosystem, ISLM has created a community of Muslim investors comprising more than 1.5 million members. HAQQ has also gained significant traction with 2.8 million accounts created.
ISLM enables Muslim investors to participate in Web3 and by extension decentralized finance, knowing their investments are free from Riba (interest) and other prohibited activities. The cryptocurrency can also be used to purchase non-fungible tokens (NFTs) – blockchain-based tokens - on Bazaar.Art, HAQQ's NFT marketplace.
Blockchain is a decentralised, immutable ledger that facilitates secured transactions across a peer-to-peer network. Blockchain and cryptocurrency have given rise to decentralised finance (DeFi), an emerging financial model that leverages distributed ledger technologies to offer services, such as lending, trading, and investing.
“The HAQQ blockchain and ISLM offer a transparent and traceable technology solution designed to support Shariah-compliant finance and the halal ecosystem. Even traditional halal and Shariah finance entities lack this level of transparency and traceability,” says AlHashmi.
“Many useful use cases and products are being built on top of our technology: Shariah-compliant lending, trade finance, halal certification, crypto exchange, tokenization of real-world assets, and many more.”
Since launching in 2021, ISLM has secured listings on centralized exchanges like Kucoin, making it available to a wider audience. It has also integrated with decentralized exchanges like Sushiswap and Uniswap, facilitating participation within the decentralized finance ecosystem.
A variety of projects are set to expand investment horizons for Muslim investors and traders, with other tokens being released through community projects on the HAQQ chain. These include solutions like microfinance, Zakat, donations, and an upcoming gold-backed stablecoin.
“Blockchain technology offers exciting possibilities for developing innovative Shariah-compliant financial products. We expect to see new use cases emerge, such as tokenized Sukuk tokens representing ownership of real-world halal assets or decentralized finance products based on profit-sharing models,” says AlHashmi.
Halal crypto trading
Biokript, a cryptocurrency exchange platform which claims to be Shariah-compliant, is also working on making digital assets accessible to Muslim investors.
“Many Muslims are interested in participating in the crypto market but face challenges due to the lack of Shariah-compliant platforms. Biokript fills this gap by providing a secure and compliant environment for halal digital asset trading,” Adnan Alisic, CEO of Biokript tells Salaam Gateway.
Incorporated in the US in 2023 and headquartered in Bosnia and Herzegovina, the hybrid trading platform combines the best features of centralized and decentralized exchanges to address existing inefficiencies.
Traditional centralized exchanges lack trust due to their custodial nature where users entrust their funds to a single entity, potentially risking loss or mismanagement of funds. Conversely, decentralized exchanges lack a central authority to vet projects, leading to potential risks of scams.
“Biokript's hybrid model aims to mitigate these issues by integrating the trust and security features of centralized exchanges with the transparency and autonomy of decentralized exchanges. This approach seeks to enhance user trust and security while maintaining transparency and accessibility in the trading process,” says Alisic.
Following its incubation with global accelerator Faster Capital in late 2023, Biokript plans to soon launch on different blockchain platforms to expand its reach, including the Solana network.
Receiving the 'Shariah' nod
Given that concerns still linger regarding the alignment of cryptocurrency with Islamic finance principles, ISLM has validated its Shariah compliance by securing a Fatwa, which has classified ISLM as a digital asset within the blockchain and crypto landscape. It formed a Shariah board, too, to ensure that its ecosystem adheres to Shariah guidelines.
The board is also part of the company’s Shariah Oracle, an on-chain registry of halal certificates. This registry provides smart contract developers and Web2 businesses a way to prove their ethical relevance for Muslim users by listing their products and services on the Haqq Wallet.
“Due to the permissionless nature of blockchain, anyone can run a project on HAQQ, whether it's Shariah-compliant or not. But, to receive a Shariah compliance mark, it should come through Shariah Oracle procedures, including community and Shariah Board review stages. Once a project passes these checks, it becomes whitelisted as a Shariah-compliant project,” explains AlHashmi.
Meanwhile, all cryptocurrencies listed on Biokript are carefully vetted to ensure Shariah compliance, and the platform strictly avoids listing tokens associated with activities prohibited by Islamic law, according to Alisic.
“There is no margin or leverage trading, and the platform strictly avoids activities prohibited by Islam, such as interest-based transactions or gambling.”
The exchange platform has not undergone formal certification for Shariah compliance itself, but Alisic emphasizes that as a certified Islamic scholar, he ensures adherence to halal principles in the cryptocurrency space.
Bumpy road
For all the progress across the Shariah-compliant crypto landscape, it’s not all smooth sailing ahead as the debate surrounding crypto compatibility with Islamic principles is ongoing.
“The crypto space, in general, grapples with evolving regulations. For Shariah-compliant crypto and decentralized finance, the landscape is even less defined. We constantly engage with regulators and industry leaders to promote clear and well-informed regulations that enable innovation while upholding Islamic principles,” says AlHashmi.
With many concepts in the crypto space still relatively new to users, and Islamic decentralized finance even less familiar, educating the global Muslim community about cryptocurrency and its compatibility with Islamic finance is crucial. The novelty of this space also makes it difficult to find skilled developers who understand both decentralized finance and Islamic finance to help build out a Shariah-complaint blockchain ecosystem.
What lies ahead?
Overall crypto uptake has been accelerating in several Muslim-majority countries, indicating a certain level of consumer readiness. Cryptocurrency ownership, as a percentage of the total population, reached 30.4% in the UAE, 11.37% in Saudi Arabia, and 2.95% in Malaysia, according to Singapore-headquartered digital currency payment firm Triple-A.
Kuala Lumpur-based Halogen Capital hopes to take a slice of this growing market with its newly launched Shariah-compliant bitcoin fund, regulated by the Securities Commission Malaysia and endorsed by Islamic finance consultancy firm Amanie Advisors. The minimum initial investment stands at 10,000 Malaysian ringgits.
Looking ahead, Biokript’s Alisic expects more Muslims to enter the Shariah-compliant crypto space as awareness of the benefits of blockchain technology increases.
“The Islamic finance sector represents a massive market with significant growth potential. If even a small portion of this market embraces cryptocurrency, it could have a substantial positive impact on the industry. Continued education and dialogue within the Islamic community are essential for the broader acceptance and integration of halal digital assets into mainstream finance.”
