Is Meme Coin with Utilities Shariah Compliant?
In our previous article, we discussed the risks of purchasing meme coins, particularly how they raise concerns regarding Shariah compliance. Meme coins are highly speculative investments, often created in response to internet jokes or trends. We advised investors to avoid them unless they demonstrate a clear use case, real utility, or a solid underlying purpose beyond mere hype. But can meme coins ever have a legitimate use case? And if so, what is the Shariah stance on such meme coins?
Can Meme Coins Become Shariah-Compliant Utility Powerhouses in the Crypto Ecosystem?
A meme coin with utilities should provide a clear purpose, not just gain value through trading. This means the coin should be useful, like being used for payments, accessing apps, or participating in decision-making on a platform. Its value should come from its real-world use, not just from speculation. In line with Shariah principles, only assets with real benefits can be traded, so a meme coin must offer something practical to be considered acceptable.
Shariah Consideration
Investing in meme coins is highly risky. These coins often need more legitimacy, with unclear project details, questionable organizations, no regulatory oversight, and no real blockchain products. Their prices are largely driven by trends, meaning they rely on staying popular to maintain value. Meme coins are also frequently linked to pump-and-dump schemes, raising concerns that investors might fall victim to fraud or even Ponzi schemes.
From a Shariah perspective, a meme coin with a clear and beneficial use case could be considered more acceptable than one based purely on speculation. In Islamic finance, assets must provide genuine utility or benefits that are considered halal (permissible) for trading. If a meme coin serves a practical purpose, such as facilitating transactions, providing access to services, or enabling governance participation, it aligns better with Shariah principles.
Here are some examples:
- Shiba Inu (SHIB): Initially created as a meme, SHIB has developed into a broader ecosystem that includes a decentralized exchange (ShibaSwap) and governance tokens, allowing users to participate in decision-making processes within its community.
- Floki Inu (FLOKI): This coin not only serves as a meme but also aims to develop a range of applications, including a trading bot and educational platforms. Its community is actively engaged in various projects that enhance its utility.
- Bonk (BONK): Originally launched as a meme coin, Bonk has gained traction within the decentralized finance (DeFi) space, offering features that allow users to earn rewards through staking and liquidity provision.
Meme coins may be considered Shariah-compliant if they have a clear and genuine use case. However, if the information about the use case is unclear, they will be viewed as "grey" from a Shariah perspective. This is because one of the fundamental elements for a token to be considered a tradable commodity in Islamic finance is that it must have a clear use case on its own.
Reasonable people are typically only drawn to something when they see benefits from it. This is consistent with the meaning of Mal (wealth), which is useful. Anything that is useful and serves a halal purpose is regarded as Shariah-compliant in the context of Islamic finance. Nevertheless, something is not considered Shariah-compliant if it is useless or does not provide a halal advantage.
Despite the potential for large profits, the risk of heavy losses is significant. The fiqhi principle, "Preventing harm takes precedence over acquiring benefits," reflects this caution. There have been cases where investors made millions from meme coins but struggled to sell them due to low market demand.
Conclusion
In summary, Sharlife views meme coins as problematic, raising concerns from both a Shariah and legitimacy perspective, as well as substantial risk. The high risks associated with these coins lead to a strong recommendation to avoid investing in them.