Monem Salam:
Welcome to Halal Money Matters, sponsored by Saturna Capital. I'm Monem Salam. Today, we're taking a closer look at Stablecoin, an area that's getting a lot more intention than it was before, but also raising some important questions from our perspective, you know, are the underlying reserves really there? What kind of assets are backing these coins? And to help us unpack all of these issues, I'm joined by Mufti Faraz Adam. He's a leading UK based Islamic finance scholar. And I want to say UK based because Mashallah, he does work all over the world. And head of global Sharia advisory firm Amanah Advisors. He spent years advising Islamic financial institutions around the world and analyzing emerging products like Stablecoins through a Sharia lens. Mufti Faraz, thank you for joining the call. And really, I'm honored that you're here.

Mufti Faraz Adam:
Welcome. Salam. Know the privilege and honor his mind. It's been a long time coming and it's finally happening.

Monem Salam:
It's finally happening. It's been it's been a while. I'm glad. I'm glad we were able to make this work out. You know what we're going to be talking about today is a little bit about, you know, Stablecoin. We're going to have a cryptocurrency and those types of things. And we're going to take it from two angles. One is, is that I think are sometimes our listeners don't even know what it is. So maybe we'll start there. Generally speaking. And they kind of dive a little bit deeper into, you know, what the different types of cryptocurrencies are and then specifically focus on a Stablecoin aspect of it. I think that's kind of where we'll start. But you know, let's from a simplistic perspective, you know, somebody comes up to you maybe even like a 10th grader and says, hey, you know, I really want to know more about what is cryptocurrency. How would you how would you address that, that question that somebody has.

Mufti Faraz Adam:
Yeah, I mean, I would initially start with just saying the term cryptocurrency can be very misleading, right. Because we're talking about internet assets. We're talking about digital assets. That's what we're really talking about. And not everything that functions in this space is a currency. So you could have a digital token which is actually being used to access some services. And so what I'd like to do is just to simplify the whole conversation. If it's a 15 year old kid that comes to me, I would say, just like you're playing your PlayStation or your Xbox and all of these things, and you have these virtual coins where you can buy on a game. This is a coin for the internet. That's probably the easiest way to make anyone understand what we're talking about as far as a payment is concerned. But of course, online not everything is about payment. You can have cloud storage. Now that cloud storage, you might want to access this, but somebody can create an application online and you have to use a token to access that particular cloud storage. So you're retrieving some service with the use of that token. So these are just two simple examples if we are to understand what we're actually talking about.

Monem Salam:
Okay. And then I know one of the most common types of cryptocurrency is bitcoin. So kind of let's kind of break down a little bit. Also from a simplistic perspective of really what that is.

Mufti Faraz Adam:
Yes. A Bitcoin was launched in 2009, 2010. The idea was to be a peer to peer, a digital peer to peer cashless system. The idea was anyone, anywhere without a central party and without an intermediary you could send value and payment. That was the idea. They should be just like how I can send a WhatsApp message to anyone in the world. I can hire anywhere in the world today. I should be able to send a payment anywhere in the world also. But there was there were always problems with this. Now if you were, if you were to go with technical here, there were problems in a simple way. Anything digital like the viewers know, if I have a file, I were document that can be copied and paste it right. You're control C and you control P or your command C and your command P, right. That's the problem with things which are digital. So that was what's known as a double spend problem. So the idea behind Bitcoin was how do we create something using the technology that we have and prevent this double spend problem that exists and yet have it as a system which is secure, safe, transparent, auditable, it's borderless is all central party. So it's not under any one party's control, just a scarcity.

Monem Salam:
So just sorry, just to be clear, like for example, when I when I want to buy something from you, I can give you cash and there's no intermediaries between you and I. And so if I want to do this on the internet, if I do adverts via Bitcoin, it's the same thing as cash where there's no intermediary. Whereas if I if you're in England, I'm in the US, if I want to send you a money aside from those two, the intermediate you're talking about is a bank where I have to wire the money over to you. There's costs, there's delays and those types of things. Whereas Bitcoin might be instantaneous.

Mufti Faraz Adam:
So that's one of the benefits of Bitcoin. But even the cash if it's a hand to hand transfer this, this cash is dependent or is a reflection of the economy that you live in. It's being printed continuously. One of the problems with currency, again, another goal or objective or even one of the kind of like issues that Bitcoin was solving for was how do we create scarcity? Or how is city maintaining money? Because we know whenever something, whenever something supply just goes all out and there's no control, the value of it drops significantly. And so if you have this printing machine, which continuously at the stroke of a button, you have money being printed and the money supply being increased, the what's known as what we see as inflation. And that's the effect of that. Then everybody's pound dollar cent decreases in value over time. And that's why continuously fighting inflation over the decades. And so we needed a system or there was an experiment. How do we actually create something which functions a bit like gold which is deflationary nature. It's very hard to print gold. You can't print gold, right. The supply is also at 1.5% to 2% per year. So it's maintaining its value for the long term. Right. So these are some of the points behind Bitcoin. But actually if you bring the conversation back to the main kind of like the central thesis, it's just a borderless, censorship resistant means of payment where nobody controls where you spend it, how you spend it, to whom you send it. And there's it's just there, secure for you. That's what Bitcoin really brought to the table.

Monem Salam:
Great. And I mean we have done a session on Bitcoin. So I don't want to get too much into that. Because really the conversation that I want to have here is the concept of what's called a Stablecoin. And so just very simply, as we get into more and more politics, let's kind of explain exactly what Stablecoin is.

Mufti Faraz Adam:
And so we just mentioned how what Bitcoin was Bitcoin was this internet type of money that was created. But the problem with bitcoin was and the problem is the volatility. Yes. It's all these ideas are wonderful. How we talked about how you can send it. It's almost instantaneous. You can send it to anybody who has a, you know, Wi-Fi connection. They don't need a bank account. So we have millions across the world who are unbanked. They financially excluded. Bitcoin and digital assets powers financial inclusion because now they don't need to go through crazy KYC. As we know in many countries, you don't even have a passport or the the poverty line where they say relative to the poverty line is so low they don't have access or even ability to travel to a bank. So how do we get such people empowered financially? Digital assets resolves that and gives them access to financial services, which they would need wherever they are. So the problem with Bitcoin was the volatility. That was one of the major issues. And with many digital assets, volatility was always an issue. How could he use a volatile asset as a means of payment. Today it's worth X, tomorrow it's worth. Why were you were planning to buy tomorrow you can no longer by because the value of the payment has decreased. That was a problem. Hence came the Stablecoin. The idea behind Stablecoin was let's take the good of digital assets and let's take the good of fiat potentially, right, and merge the two together. So what we have then is a Stablecoin, because a Stablecoin is simply Wade's name says it's a coin, a digital coin, a digital asset where the value is relatively stable to other digital assets.

Monem Salam:
So the idea is basically what the main problem was that the actual idea of the fluctuation, you get rid of that. But the payment system, how it actually works through the on the internet, anywhere in the world, all of those things stay exactly the same. So now we get into the mechanisms of behind it. So I think, you know, there are different types of Stablecoins that are out there. So maybe we can talk a little bit about some of them. One of them is going to be fiat backed. And so I guess by the name, what it means is that it's back to buy a certain currency of a certain country.

Mufti Faraz Adam:
Yeah. So there are multiple types of Stablecoins. And the world has seen different experiments when it comes to stabilizing crypto value. That's what we're aiming to do here. The one of the most common and well known, or the largest Stablecoin in the world is USDt or tether. Right? The idea behind one type of Stablecoin where it's pegged to fiat currency, typically the US dollar. What that means is, is a promise from the issuer, the one, the entity which issues the Stablecoin that and they work with authorized participants and authorized parties only. So you have to be a financial institution who's registered and authorized in the primary market, so to speak. What they would do is if you deposit with them 100,000 USD actual fiat currency, or you deposit that with them, they will issue to you 100,000 USD. So 100,000 crypto Stablecoins, that's what they'll do in exchange of this. Now you can go and sell this on in the market. You can trade these Usdt. The idea is if anyone came back to them in the primary market, presented these tokens, they would make that exchange with you again, so that the redeem ability feature, that peg is what maintains the value. Because there's this assumption and trust in the market that if ever we wanted to convert this back into fiat, it'll be on a 1 to 1 basis. And that's what maintains the value of such Stablecoins. Knowing this and obviously tether in any, any entity who does the Who issue Stablecoins will be audited. They have to have some kind of like records audits taking place. They try their best to be transparent and give that confidence to the market for any particular Stablecoin.

Monem Salam:
There was a time, sorry, there was a time, I think, when there was some question of whether or not that that that the reserves were there. Right. And there was a negative reaction to, let's say that the stable price of that. Can you just explain a little bit what happened? Because I think it'll help explain to people what the Peg actually means.

Mufti Faraz Adam:
Yeah. I mean, there were there were some concerns. And without going into the details of whatever the findings were and the issue that had had come to light since then, what we're aware of is there has been an improvement in the entire market. So the entire market now has realized that making sure things are transparent and what's being said is being delivered. Me. You know, it's critical for the success of any particular digital asset. So the transparency, transparency and being audited, being accountable, being governed by third parties, having custodians there and having a governance framework around any particular issuance is now what is key, as we've seen with terror Luna, other particular digital as Stablecoins initial assets and the market is moving more and more towards governance regulation being audited, being transparent, which is really a plus point for the market and for the wider economy

Monem Salam:
So far, and this is maybe my lack of knowledge, but I've seen only Stablecoins on US dollar. Are there others as well that are on other currencies.

Mufti Faraz Adam:
Yeah. So the European Union, they've they're trying some things. We know that there's some Stablecoins in in the Middle East. I've just looked out a few projects in the Middle East, which are not backed by the USD or not picked to USD, rather pegged to local currencies,

Monem Salam:
Which is then picked to the USD.

Mufti Faraz Adam:
Yeah, I was about to say that, but yeah, but they're becoming more native in their kind of like approach. This discussions in Southeast Asia as well on launching more local or locally back currencies Stablecoin. So we're seeing this, emergence of different types of Stablecoins. And we're also seeing the regulation at the same time coming to the fore. So it's a very interesting time and I would say perhaps the most. So if we go back to our initial point, you have the fiat backed Stablecoin, right. That was one type, the most interesting type of Stablecoin for me. And perhaps what excites me the most is the commodity back Stablecoin, if we can, where you have a Stablecoin which is not pegged to USD to a fiat currency.
Rather the Stablecoin reflects ownership of gold. So you have a couple of Stablecoins like tether go, you have Pax, G and others by holding the Stablecoin. It's a receipt of gold that you're owning. It's a difficult of gold effectively. So whoever owns this, they can trace and track online at the very goal that they own. So by me using this, only spending, this saving in this, I'm actually saving in gold. I'm spending gold. And that is phenomenal. Because if we talk about Sharia compliance and we talk about Sharia money, right, whatever that means, right? But that would be perhaps the closest, in my personal opinion, that we can be to having money, which is the most Sharia aligned in the 21st century.

Monem Salam:
So we started with now we're getting into this idea of Sharia. And I know by your own right you are a mufti, you know, studied this area. When you look at this area of Stablecoin, what's the first question that you ask yourself when you're looking at whether something is allowed or not allowed on the Stablecoin side,

Mufti Faraz Adam:
but from a from a Sharia perspective and a perspective, the first thing you have to do is understand what you're dealing with and the question of what must be analyzed from multiple angles. Because I can tell you, a Stablecoin is technically. But if I'm telling you what it is, technically, I'm just looking at the thing itself. I can tell you then a stable, if I look at the peers of Stablecoins built at the different types of Stablecoins, we get a different in the standing. If we look at the Stablecoin within the system it operates in, we get a different understanding. If we look at a Stablecoin from the perspective of what is trying to solve and the problems that were there with its counterpart, then we get another understanding. So as a as a student of Sharia studies in Islam, our role is not just to simply analyze something in silo. We have to understand the thing holistically to really get our, you know, thumb on the pulse and understand what is it that we're actually dealing with. What is this thing? Because if we don't do that, the problem then becomes, let me give you a very simple analogy where you're told that you must drink liquid two liters a day. So you say, fine, you go, you go to the Walmart or any store, and you pick up two liters of soft drinks, a fizzy drink full of sugar. Now you come and drink that. You fulfill the doctor's instruction of having two liters a day. If you're only thinking about that particular instruction or requirement. But if you ask anybody, take a step back and look at the context further. Would anybody say, that's a healthy thing to do? It's not. Yeah, they'll say it's halal. Nobody will say it's wrong. They'll say it's halal. You fulfill the instruction of the doctor. Then you look at the counterparts of this and you'd say, okay, there's this soft drinks, there's diet versions as well, relatively better. You also have water. So you don't say, okay, there's some things which are better than the other. It just creates this kind of like scale that you're looking at. Then if we take a step back, you begin to say, what's the reason for the doctor to tell me to have two liters a day when it's to keep you hydrated? That's another metric, another way to measure which drink you should be drinking. So you see, by just analyzing and taking a step back and zoning out and zooming out, you begin to realize there's different things. And that's when you actually get this kind of gradient of saying, this is far better than this thing. And in the entire Sharia compliance world and Islamic finance world, this is part one of the most important things, because many times we look at things and analyze things in silo. Yeah. When you begin to look at the parts within the whole puzzle. Right. And the system is the sum of its parts, we have to understand that part within that system. Yeah. That's when we really begin to analyze, understand and recognize the efficiency and the negative externalities of a certain thing. Then you can say, well, this we're doing this because we don't have these parts, but when we have these parts, we have to get rid of this. Not good. The coke would work or the whichever drink. If it's not Coke, right, you're drinking is something else. Any sort of drink would work if you don't have any other liquid with you. But the moment another liquid comes on the shelf, you should get rid of that.

Monem Salam:
Yeah. So this I think part of it is that a lot of people are just looking for simple answers, because they know they don't understand the system as a whole itself. I get so many questions about, you know, the question is, is cryptocurrency halal? And I'm telling people, look, there's 7500 different coins that are out there. Which one are you specifically talking about? And so they just want to general answer. But I think you're absolutely right that it has to be something that's looked at on an individual basis, you know, systematically rather than just yes or no. And everybody's, you know…

Mufti Faraz Adam:
I mean, that's the disservice that we do. Like if any scholar simply just gives an answer based, it's a disservice. And likewise, it's not as simple as saying yes or no, because, look, there's a whole system. So as a student, when if you ask me the question, what's the first thing I look at? I have to understand all these moving parts. There's so many moving parts and it's not something the thing about the crypto and the digital asset space is entire industry. It's moving at a ten speed, literally. So if people are still debating whether Bitcoin is halal or not, that was last decades debate. This decade, we're talking about something completely different. We were talking about DeFi and NFTs like five years ago. Now we're talking about Stablecoins, right? Which is like a whole another dimension. So if anybody dropped off the conversation ten years ago by declaring it haram, they have no insight at all on the advancement of the discussion, which is really sad in a way as well, because all that knowledge generation has gone.

Monem Salam:
You can't. So now let's like kind of look at that system, the approach that you talked about. And let's look at look at it from that Stablecoin perspective. We talked earlier about the fact that when you when, when a company like Tether or Circle issues a digital coin, there has to be like a dollar for dollar backing of that. And so now whether I mentioned two of them, USDt is one of them, Usdc is the other one. What are some maybe if you want to call them structurally problematic things that happen? Because what I've noticed is that on the back end, these companies like tether and that's and this is the greatest business model in the world, which is you take your money, you can't pay anything back, but you keep it, invest it, and just basically make all the money in the world. And so what is the, you know, is that something that that is a user of civil coin? Should I be worried about the fact that they're using my money for something that's not allowed?

Mufti Faraz Adam:
So this in relation to these types of Stablecoins where the issuer effectively sells your token, that's what's happening. You're buying a token and you're giving a dollar. They own all the upside and everything that happens. It's not even a loan or deposit because they're not deposit taking institutions. It would be like they were right. But if they've sold it to you and this is a promise that if you ever come back to us with redeem, it's not a loan. Rather, they're promising to repurchase your Stablecoin from you again in future for a dollars value at about one basis. So yes, they are investing in T-bills and money market instruments and all these types of things in the back end which are not surely compliant investments as we all aware that particular for the issuer, that's problematic from a Sharia perspective, 100% for the user, for the farmer in Pakistan who wants to simply hedge against his local currency and save in USD because that's the only thing widely accessible and well known. Or the lady in Indonesia who is receiving remittance from a relative in Dubai, for instance, in USDt, they get $100 a month and that becomes their life saving on a monthly basis. That's helping them just to stay afloat. Yeah. For such individuals using your street, it's somewhat similar to just using a dollar. But I would say from a perspective, right. They disconnected all together from what happens behind the scenes. They're just using this as an instrument. They for them as far as their concern. Then as long as they're not earning interest in it, they're not investing elsewhere or doing anything. It's an instrument. It's a tool for them. It's okay if for the issuer, though. If any entity wanted to issue a Stablecoin for them, it would be necessary then to ensure how it's being issued, where the fiat currency is being invested, how it's all structured. There are functions in a Sharia compliant way. If that's not done, there will be a problem at the primary market level, at the issuance level. But again, downstream it literally becomes is disconnected. It's not a loan or anything. It's an asset in and of itself, just like the dollar is an asset in and of itself, regardless of how it's been printed or what's happening there, it's disconnected. So the ruling will be different at this level and at the primary level and a higher up be kind of upstream, you could say.

Monem Salam:
Yeah. So just to kind of recap, it would be more yeah, I mean, as a person who's a user of the Stablecoin, I can use it. No problem. It would if I'm going to claim Sharia compliance of it on the actual issuance level, then you have to have make sure you're investing in the right instruments and and making sure all those things are you know we talked a little bit about. So good.

Mufti Faraz Adam:
Sorry. Just one more thing I'd love to add here, if we're to our earlier statement that you have to look at things holistically. Yeah. And we have to compare and you have to look at the system. Then I would make the argument that using a Stablecoin, which is backed by gold and taking ownership of gold, would be better in every sense than using those which are 1 to 1 with, with a dollar. And there's a structural problem where there's interest in the back end, although the user will not be held liable, and neither will they be sinful because they come fully remote and disconnected from the activity. But if now there's alternatives available for any user, me personally, I'd feel much more comfortable using a gold back Stablecoin than any fiat back Stablecoin.

Monem Salam:
Yeah, and this might be something we cut out later on, but I do want to have a question about that, so I'm going to ask it right now. So now you talked a little bit about gold, but the issue that I see with gold from a let's say, from a practical perspective is that, you know, it doesn't cost money to store Stablecoin that's US dollar based, but it will cost money for the operator to be able to store the gold for the conversion of that. And, you know, I mean, that's a law of numbers. Obviously, you know, the more the larger you get, the maybe your cost comes down, but there is still a cost to it. So really is probably I would say never. That becomes dollar for or goal for coin because of the cost. It'll be you know it becomes it'll come closer to it but it'll never get there. So how do we kind of handle that, that aspect of it.

Mufti Faraz Adam:
So it all comes down to a transaction itself when in the primary market if you are buying gold, because if it's this coin, that's token that you have, it's not a 1 to 1 always. It's not like one gram to one Stablecoin. You can, you're buying something with it. They can value the goal or whatever value they want. And maybe the price of their selling for incorporates these additional costs, which is a reality. And that's how it would be covered. But then you have you might be paying for one gram, you might be paying a slightly higher margin than what a person is paying for when you when you're buying something off the street or in its hand to hand.

Monem Salam:
Yeah, yeah. Okay. That means a lot. Thank you for that. Now going back to this area then, you know, it's more a matter of. So we talked about this from a from a Stablecoin perspective. The user okay. On the other side of it you have the actual issuer that that they're putting into US treasuries or those type of things to maintain that stability that's there and keeping all of those return for this. So which then begs the question, you know, you know, how can you make this Stablecoin halal from end to end? Basically, right now, what is a mechanism that we can use to do that?

Mufti Faraz Adam:
Yeah. And this is perhaps the greatest need of the hour, right. If you have a Stablecoin which is end to end Sharia compliant, which would mean that the issuer issues a Stablecoin whereby the underlying I mean, there are experiments out there and there's other versions of Stablecoins whereby the actual Stablecoin, the user retains an interest in an underlying pool of Sharia compliant assets. So the Stablecoin now becomes almost like your sukuk certificate, almost like your ETF unit, that this is an interest. And then that becomes the currency and the Stablecoin itself. Whenever you're trading and using is its underlying is actually Sharia compliant assets. So it could be a wakala pool of investments that you've invested into. And that can be multiple things. It could be gold in there. There can be something else in there. There can be a mixed kind of diverse thing. And then the Stablecoin can be one on one end, can be used as a medium of payment and transferring value, where at the same time can also be receiving dividends. If the if this pool is issuing or has some kind of like returns generating a yield. So it'll be a yield paying Stablecoin which will be phenomenal.

Monem Salam:
Yeah. Which is right. I mean, as we talk about like industry developments and how fast things are moving, I think probably that's the next level of the Stablecoin, which is, you know, now how do we give money back to the actual holder of the coin? Because as of right now it's illegal.

Mufti Faraz Adam:
Yeah, exactly. Exactly. That's the problem. I mean, there's definitely conversations in other parts of the world that I've been involved with and been on the table where these type of things are being discussed and thought about. So there's definitely a of an attempt to be the first mover, so to speak, in, in this space and to create such assets.

Monem Salam:
I know that brings up a point, which you mentioned just now kind of thought about was when you're looking at these, the use of Stablecoin itself and you're, you're an expert in this, you've kind of dealt with a lot of companies on the Sharia side. So you know this. Where do you see the most adoption of this. Is it mostly in the West or is it in the, in the, in the in Muslim countries? Where are you seeing the biggest use of Stablecoin?

Mufti Faraz Adam:
Stablecoins in the West is a luxury. It’s not something that's really needed. Whereas in many you could say Muslim majority countries where poverty is high, inflation is high. We're talking about Asia, Southeast Asia, some African countries there. The use of Stablecoins is not a luxury. It's a necessity. That's the only way that farmer who works for 30 days, 12 hours a day on his farm, his sweat and labor can retain its value because if he uses his local currency and he stores and saves his, you know, efforts in his local currency, it'll be it'll go all down the drain and it corroded erode with inflation. So for them, that's where I'm seeing the use of Stablecoin in countries like Pakistan, in countries like Indonesia, in African countries, we're seeing the use of Stablecoins. Sky heights year on year, month on month it’s increasing because this is a real means for them to save and for them when they're comparing it to their local currency. This one's going up and that's going down. So it's like, wow. For them it's just a not only the hedge, it's a real means of savings for them. And that unlocks so many possibilities and potential for them in their local market.

Monem Salam:
So now you're absolutely right. And I think in other terms, you can call it the people that are unbanked. Like they don't have any mechanism of doing that. But let's kind of get a little bit more practical, if you don't mind. So I'm a farmer, right. And I'm living, I don't know, somewhere in Africa. And I decided, wow, okay. This is a good stable way for me to do transactions, which is on Stablecoin. So I go and I open up a wallet basically to be able to do it, but I need to be able to make that initial deposit for the US dollar. But if I'm unbanked, how am I going to get that US dollar and how am I going to put it into my wallet?

Mufti Faraz Adam:
Yeah. So now this depends on who you are, like who you're dealing with. So let me give you an example. There's an entity like Fasset, the entity that I'm the Sharia advisor to. They work. There's not only you don't need to have a as you know in some countries you don't even need a bank. You have like mobile money and other forms of money that can link up to an app and that can then allow you to convert. So there's multiple ways of converting into digital, kind of like a digital money to then be able to start saving in USDt or Pax G or XAUT.

Monem Salam:
Okay. That's great. And then I know we talked a little bit about this earlier, but I want to kind of just visit that again when we talk about like having a yield on Stablecoin or having some type of a passive income, right. If you're in your view, like what is what is it that that could make that Stablecoin Halal, the underlying asset? What is it that we could do with it to be able to make sure that the yield that you're getting would be halal.

Mufti Faraz Adam:
Yeah. So the current problem is with Stablecoin yields, many of them are used as collateral. And so they collateralized and then they the what are you doing then is you're borrowing money and that's the collateral. And then that's being invested again or lent out. And you're being charged a fee for that for, for the borrowing that you're taking. And that becomes interest and riba of course, right. So many DeFi or yield mechanisms that exist right now on chain for Stablecoins involve lending with interest and Stablecoins by themselves, by the nature of Stablecoins, they're not yield producing. They have to be invested. So if I hold a gold token, for instance, or if I hold a USDt on its own, it's not generating any yield. It has to be invested into something. And so what happens is in many projects online, they require you to deposit your Stablecoin as a collateral, give you access to liquidity, which is then invested elsewhere. And that's where the yield is coming from. It's not really even invested. It's lent on. You could say lending protocols and that's that. That gives you an APR right. And that's the problem from a Sharia lens and a Sharia.

Monem Salam:
Just to be getting a little bit more, more in the weeds here. So I have my Stablecoin that I got from let's say tether. So and then so I've given them $1. They give me one coin. So what you're saying is if I take that and I give it to you on the basis of, of, of investing it for me and giving you a yield, you're saying that contract is actually more of a loan that I've given you doing that? Am I understand that correctly?

Mufti Faraz Adam:
So what happens is this current protocols of the unchained, where they require you to lock your Stablecoin with them. So you lock your Stablecoin, effectively give you as collateral. They will mint tokens for you, right? Which is they lending you money now with or lending you these tokens. These tokens then are like liquidity tokens on an exchange. And then you get a yield from there. That's what happened. And then they charge you because they've done all of this stuff for you. They'll charge your fee. Now that depending on the structure, very, very likely those types of like, if there's a fee being charged, if it's a loan would result in a eventually on chain. If you if I'm taking a Stablecoin from you and I'm investing a Stablecoin in actual investment, whereby maybe we're investing in an online business which is accepting Stablecoins as a payment, and then they offer that and they convert that, but then they  convert it back to Stablecoin and give you your principal plus profit. There was real profit generated that would be Sharia compliant. The only difference is, like me investing in the UK, investing in American market, I'd have a nominee or a fund manager who I can pay into, like GBP maybe, and he'll convert it into USD, right? That conversion takes place, but then once I receive it back in my bank account, it'll be GBP. So it's a similar kind of concept. It all just depends on if we were to make it really simple for the audience. It just depends on what's happening with your Stablecoin. Is it being invested into something or is simply being held without any investment, without any activity? If it's held and there is no activity whatsoever, yet you are being made to pay something or you're earning something, that's when it typically becomes riba. Yeah, but if the Stablecoin is moving and this is the beauty of our Sharia, like if you were to really simplify investments for people, it's just this difference. Riba stagnates, investment move. Yeah. And if you understand that that kind of like picture and that framing, you begin to realize Sharia makes the permissible, the one that moves, it goes into different assets. It's productive, it's generating, it's moving hand to hand. The riba system is locking in and it's a 1 to 1. It's held there. It's just with one person is giving you something. That's where it's a problem.

Monem Salam:
That's a really great explanation. And now also you are an author of book on this on the subject as well. So I wanted to ask you, like maybe you can talk a little bit about the book and what it is briefly, but then also looking at it from a Sharia compliant perspective, like when you're looking at this area, what are some non-negotiables for you that you say, absolutely. This is the basics that we have to have before we move on to something else.

Mufti Faraz Adam::
The fundamental question from a Sharia perspective is the utility. It's not about form. It doesn't matter what the form is like. We right now we're speaking online. We're using a screen. Computers have ones and zeros behind. If I give a ruling based on ones and zeros and argue over that all day and night, we'll end up nowhere. Literally, it will be stuck in the very place we started. And we'll say, this is not even something of value, it's just ones and zeros. But if we take a step back and look at the utility and the benefit of what's happening now, PDF files, data, apps, all of these things, really is just numbers at the end of it, right? More importantly, the question is what does this unlock? What does this allow? What's the benefit of this? What's the utility? That is the fundamental Sharia question. Why is that the fundamental trivia question. It's because of one equation, which is the equation of bay and trade, which is for me to gain value, I have to give value. That is the entire philosophy of Islamic finance or Sharia, that it's value exchange If I'm not giving you something of value, I can't take anything from you. You can't earn something from me if I don't, that's why. Why is interest a problem? Yeah. As long as it's poor, I've given you something of value. I've taken something of value. Well, I pour the excess that you're taking. What is it against? Against nothing. I've not given you anything of value. So how can I demand something from you in lieu of that, I can't. So the Sharia operates on this philosophy and idea. The giving and taking a value, the exchange of value. That's fair. That means both parties are equal footing. No one party is being given an advantage and upper hand over the other. And that's why you call a fair system. There's no predators in this market. From a Sharia perspective, everybody is equal. No matter how much you've been blessed with, wealth doesn't give you more power than me. You can't, as a corporate, have the terms of the contract all in your favor. It's that you have to be balanced. So from a Sharia lens, that's why I say the most important thing is understanding the utility of something. If we find utility, that means you're not selling junk to. You're not selling means to me. You're selling nonsense to me. You're selling things which are actually have a value. I can use that elsewhere in the world productively and gain something. I'm not being ripped off. Because if you sold something which has no value, you've made money. But what about me? I've lost. And that's why Sharia is a win-win game. It's not a zero sum game where there's a winner and a loser. Never. There's no contract in Sharia in finance, which results in a win, lose or a zero sum type of game, it's either a win-win or lose-lose. There's no win-lose that that does not exist. And that's why everything in Sharia comes around these ideas.

Monem Salam:
That's great and thank you for that. And now and you didn't mention your book. So why don't you talk a little bit about that also as you can.

Mufti Faraz Adam:
Yeah. I mean this book is now out of date. I wrote in 20 2021, I think on an introduction to fintech.
Right.

Monem Salam:
And then just speaks to how fast this industry is moving. I'm assuming.

Mufti Faraz Adam:
Literally I look people ask me about that book. I say, you know what, I wouldn't recommend to read it now because it'll give you some basic knowledge. But the industry has moved so far ahead. Maybe two years ago, I was about to write on DeFi, I started writing, I wrote two chapters, and I took a step back and said, you know, if I write this, by the time I finished this, you know, it would be like a historic book. It'll be out of date, it'll be ancient. But this is a nature and discussions like this. Perhaps the best medium to talk about these critical issues in that real, in real time.

Monem Salam:
So that brings up a good question. So I mean, I know in Islamic finance also the idea is that and people talk about this thing like, you know, that you shouldn't assume something is haram. You should assume that it's halal. And you have to prove that it's. And is that where that innovation actually comes from, from your perspective, which is, you know, just, you know, it's going to start running away from you. How do you keep up with it for what number one. But the other part is, do we allow this just to run and come back later and say, wait a minute, this was not allowed or those type of things?

Mufti Faraz Adam:
Yeah. This is a wonderful and a brilliant question. So back in 2019, 2020, I proposed a model called a Sharia sandbox. So just like every government or many jurisdictions, you have a regulator sandbox, whether allow you to test certain ideas of products in a controlled environment with the oversight of regulators and everything. So making sure consumers are protected as well. We should be thinking about in this day and age, with the speed of innovation, with technology advancing, with AI now, which thinking about a Sharia sandbox, what does that mean? It just means that the basis and default is everything is permissible unless it's clearly prohibited by. At the same time, the very question it raises. There can be something we don't know right now. It can be harmful. So you have a team, you have Sharia scholars, you have practitioners, fund managers, you have lawyers, you have accountants and regulators all and economists, everybody around the table as a as a working group, you analyze this for two years, five years. Keep analyzing this. But right now it's permissible. We allow it because from a Sharia lens that we're starting with a very clear basis. If after that five year oversight, five year experiment, it becomes clear the harms are tremendous and disastrous, then the regulator can ban it. The Sharia scholars can pass a fatwa saying it's not sure we're compliant and economically can discuss the downfall of using such a technology. But if is the case, like in digital assets, what would happen if you create by the end of year five, you'd have a framework, because now you've seen the things, you've seen how it works, you've seen the positives and negatives. So by the end of year five, the knowledge generation and creation would be exponential. It'd be phenomenal. Yes. And it's all these different expertise because the show is called An economist. An economist needs a lawyer, a lawyer and accountant. We need to start working together in these things. The scholar does not have all the answers. He needs other people to get his holistic view. And so you have this framework that's built. You get this kind of like bird's eye view over the entire reality of this thing. In a system, you leave with a framework which can then be act as a launchpad in many countries and excel that particular country. This was this is why I proposed. I've written about online that if we start having at least Muslim majority countries, like countries like Malaysia, where, you know, the country is so advanced in Sharia governance, where you're Malaysia, it's from top down here is really like embedded in everything they do. These countries can be really the at the forefront of this type of innovation. And I know that because I've been to the to that amazing country multiple times and spoke about Stablecoins and digital assets. So this is what I propose in your particular query. We need to start thinking along these lines. So we're not just blindly going into something and saying yes, all permissible. It's a structured way. But what the main thing is we shouldn't be inhibiting innovation. This is my current problem. If we issue a fatwa immediately after one month, always are permissible because it's ones and zeros. Yeah, we've literally prevented the Muslim Ummah from innovating and leading this industry. And sadly many times we score on goals. I would talk the World Cup is happening right now, you know, the feeling of an on goal. And that's what we do. Many times we stop innovation ourselves because of our shortsightedness. And so we need to change the approach from the get go to allow innovation. We should allow entrepreneurs to be trying try things, you know, have crazy ideas. That's the only way we can really add value to the world and be like the past, kind of like your …. And you're kind of like, you know, these quarries, me and these wonderful people who came and gave to the world because that's what was needed right now.

Monem Salam:
Yeah. I mean, I guess like people tinker and do whatever they need to, to try to solve the problem. And I know, I think for what's happening now, as you kind of rightfully said, is that, you know, too early some, some scholar comes out and says that's not allowed. And then what ends up happening? What I find is that, you know, it's usually not the scholars who says that it's allowed the new spreads fastest on. It's the one who says that it's not allowed. And so, you know, all the all the online or LinkedIn, whatever it is, it's always talking about the one scholar who said it's not allowed when everybody else has either said it's fine or they've kept mum because they don't understand the situation and they'll come up with it once they see the use out of it as well.

Mufti Faraz Adam:
Yeah. And this is a problem that we face. So I mean, if it needs to be more kind of like you could say collective effort at the scholarly level as well, but it's just one of those some sometimes just you have differences of opinion always. It's the nature of things. So the scholar is saying it's permissible. It doesn't mean he's 100% right. The scholar saying it's impermissible doesn't mean it's 100% right. The main thing as a reader is look at the weight of the argument. Understanding whichever scholar you feel is has more knowledge of this, more insights of this, and is God fearing in your eyes. You can adopt their view and carry on building, but as a as a community, we have to build. We have the our, our central kind of like from a Sharia lens if we look back in our history. The Ummah, the Muslim Ummah Islam teaches to be builders and producers. From day one. The Muslims are producers and builders. We were never ones to simply receive. That's why the upper hand is better than the lower hand, right? And that has an entire like philosophy behind the why that you have to be doing economically something to be the upper hand. You don't just get there, you know, automatically. So that's really our narrative. We have to give to the world because we do have a lot to offer. We really do. Our tradition is so has so many beautiful things for the world. But we have to build. You have to be builders in this day and age. You have to be entrepreneurs. You have to do something to really leave an impact and to enable things. It's not just about doing religious things. Even creating software which solves a real problem for the world is rewarding. Absolutely. But we don't think like that.

Monem Salam:
And I'll kind of wrap up with this question. I mean, you're very, very embedded in this area, and from what I've seen, very on the cutting edge of, of this area as well, without giving any secrets away or whatever it is. Where do you think this is the industry for? Let's, let's call it halal Stablecoins. Where do you think it's headed, or is it so different than we have no idea what's going to be looking like 2 or 3 years from now or five years from now,

Mufti Faraz Adam:
Well I mean, this is no secret. So one of the entities which I'm working with very closely called Fasset, they've just launched a visa card, right, which is Stablecoin backed. And I think that's really the next wave in this entire where any person can open an account with Fasset which has which, you're saving in gold. But when you go to your shopping and you tap in that card and you're paying for any of your groceries, you're spending gold. So you have visa reach and you have gold backed currency, it's amazing. That now changes the entire conversation. It's another level and layer in our understanding of what this technology can do for us. And if we present that to any scholar, I have no hesitation. As long as the Sharia criteria are met, they would say, it's fine.

Monem Salam:
That's great. I'm looking for I'm looking forward to that. And fortunately, that company is not very common in the US. But I think that hopefully it will be very soon, especially with visa and the reach and World Cup and everything along those lines for us. Thank you so much for, for kind of helping us kind of break down sometimes very complicated issue into very, very simple terms, not only complicated on the on the actual technology side of it, but also on the Sharia side of it as well. So I really do appreciate your time and bless you and continue to give you more so that we can all benefit from it.

Mufti Faraz Adam:
So, I mean, no, honestly, the pleasure is mine and I look forward to speaking with yourself again and learning from you also.

Monem Salam:
Thank you.
 

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