The sixth-largest cryptocurrency by market capitalization, Stellar, is the first Distributed ledger technology (DLT) protocol to obtain Sharia compliance certification. The Shariyah Review Bureau (SRB) stated:
“ Based on provided information, SRB conducted its review on the Network’s guides, concepts and related material and did not find any provisions that are non-congruent to the principles of Shari’a. ”
This means that after critical examination, the SRB has decided that the applications of Stellar’s technologies are a remarkably positive contribution for the Islamic Financial Institutions.
Understanding the rules of Islamic Finance
Sharia is an Islamic religious law that governs the aspects of the day-to-day in Islam. The word Sharia means “the way”. Sharia prohibits the practice of certain financial activities such as investing in alcohol, pork, pornography or gambling. Therefore, investment vehicles that are related to these practices do not comply with Islamic principles.
This regulation has become a vital factor in order to enter emerging markets such as the United Arab Emirates. Indeed, according to Trading Economics, this economy has an average GDP growth of 4.51% from 2000 to 2017 meaning that its significant rapid development has attracted institutions from all over the world.
How beneficial is this for Stellar?
This regulation will allow this open-source platform to establish partnerships with Islamic Financial Institutions. In other words, the Stellar Development Foundation pronounced:
“In partnership with SRB, this certification will help grow the Stellar ecosystem in regions where financial services require compliance with Islamic financing principles. For example, Islamic financial institutions in the Gulf Collaboration Council (i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE) and parts of Southeast Asia (e.g. Indonesia and Malaysia) will now be able to integrate Stellar technology in their Sharia-compliant product and service offerings.”
This compliance might be an imperative factor for obtaining more exposure and reliability from a Stellar’s viewpoint. Comparing Stellar to Bitcoin, the latter has created controversies regarding whether it can be regulated by a Sharia compliance officer given that Bitcoin is recognized as a currency in some countries. However, the counterargument has been that its price volatility makes it equivalent to usury, which is illegal under Sharia’s law.
According to previous pronouncements made by Coinbase, one of the largest cryptocurrency exchanges, Stellar is one of the assets that might be listed in the near future. Hence, the most important factors to emerge are that this crypto protocol seems to be obtaining exposure, reliability and liquidity by this recent regulations and declarations.
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