Is exchange token Shariah compliant?
Recently, we have received a lot of questions regarding the status of exchange tokens. Some questioned why the status of the exchange token is Shariah compliant, even though the exchange has non-shariah compliant features like derivatives market and insurance. This is an explanation as to why we marked it as Shariah-compliant.
What is an Exchange Token?
An exchange token is a digital asset issued by cryptocurrency exchanges to facilitate various functions within their ecosystems. These tokens are typically used to reduce trading fees, provide access to exclusive features, participate in governance decisions, serve as collateral for trading, and enhance liquidity on the platform. Examples of popular exchange tokens include Binance's BNB, Cronos's Cro, and Kucoin's KCS.
Sharlife's view on Exchange Tokens
According to previous Sharlife Shariah Committee meetings, our committees have concluded that exchange tokens are generally considered compliant with Islamic principles. The fundamental nature of these tokens does not inherently raise Shariah concerns. However, their compliance is contingent upon how individuals use them. This view is based on analogical reasoning (qiyas) with fiat money issued by central banks. Like fiat currency, exchange tokens are not problematic but can be misused for unlawful activities.
Why does Exchange Token screening differ from other Cryptocurrencies in Shariah?
The primary reason for this difference lies in the scarcity of fully Shariah-compliant cryptocurrency exchanges. At present, it's challenging to find platforms that exclusively provide access to Shariah-compliant tokens and services. This scarcity creates a dilemma for Muslim investors who wish to participate in the digital asset market while adhering to their religious principles.
If we were to judge exchange tokens and platforms as entirely haram (forbidden) due to some non-Shariah compliant services or features, or because they include non-Shariah compliant tokens, it would significantly limit the Muslim community's ability to engage in digital asset trading. This restrictive approach could potentially exclude Muslims from participating in an increasingly important sector of the global economy.
Moreover, many exchanges offer valuable and beneficial features for their Shariah-compliant products, which can only be accessed using their specific exchange tokens. These benefits might include reduced trading fees, access to exclusive investment opportunities, or enhanced security features. By categorically dismissing all exchange tokens as non-Shariah compliant, the Muslim community would be unable to take advantage of these potentially beneficial services.
The compliance of exchange tokens with Shariah principles is fundamentally tied to their usage. While the tokens themselves are not inherently problematic, users must ensure their activities align with Shariah principles. By engaging with compliant services and avoiding non-compliant tokens, users can navigate the digital asset space while adhering to their religious obligations.
This approach by Sharlife aligns with the Islamic legal maxim;
"الحاجة تنزل منزلة الضرورة عامة كانت أو خاصة"
"Need, whether general or specific is treated like necessity"
This maxim supports the idea that general needs (such as the investor's need to engage in digital asset trading) and specific needs (individual investors' need to participate without engaging in non-compliant activities) should be treated with the same leniency as necessities (darurah). This approach ensures that the Muslim community is not unduly burdened and can benefit from technological advancements within permissible boundaries.
Conclusion
Exchange tokens, when used responsibly and in alignment with Shariah principles, can be considered compliant with Shariah principles. The key lies in the user's conduct and the specific use cases of each token. As the cryptocurrency landscape continues to evolve, Muslim investors must stay informed about the nature and usage of these digital assets.