A financial firm has received approval from Islamic scholars to offer stablecoins in the Middle East, according to Reuters.
Cash and Gold
The firm is called X8 AG, and the product is an Ethereum-base cryptocurrency called X8C, backed by a basket of fiat currencies and gold. Specifically, the Swiss franc, euro, pound sterling, Japanese yen, and the US, Australian, New Zealand, and Canadian dollars. According to the company’s website, the commodities are held at bank accounts and managed by “propriety software.” The site mentions UBS AG and says that the money is insured and audited daily.
100 million coins have been created; more cannot be mined. The company is also releasing a utility token, called the X8X Utility Token, that is used to exchange the X8C currency for fiat.
X8X has a market capitalisation of $2.3 million according to coinmarketcap.com. Its value has fluctuated greatly since its inception in August:
Approval was given by the Sharia Review Bureau, which is based in Bahrain and licensed by that country’s central bank. It gives faith-based financial advice to corporations and wealthy families.
Co-founder Francesca Greco said that X8 AG intends to list its wares on exchanges in Abu Dhabi, Dubai, and Bahrain. “The Gulf region is a really good place for financial technology companies, because they all want to become hubs for fintech,” she explained.
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Co-founder and CEO Gregor Koželj said: “It is very meaningful to receive the Sharia compliance certificate that provides reassurances that we are open to investors seeking to make investments in Shariah compliant assets.”
Cryptocurrency and Islamic finance are not a natural fit, because the faith prohibits the generation of profit via from interest on a loan (usury), and the blockchain industry has been heavily shaped by speculation.
On the other hand, the demands of Islam make running a Sharia-compliant financial practice extremely expensive, and blockchain technology is seen as a way to overcome this.
In April 2018, a Muslim law expert (Mufti Muhammad Abu Bakar) ruled that cryptocurrency is halal when used as a payment system, but not when used for investment, because Sharia law demands that investments be based on real commodities. He also found that blockchain in some ways is preferable to the old system because it proves ownership undeniably.
Stablecoins, like the one discussed in this article, could be a way of overcoming the speculative nature of cryptocurrency, making it compatible with Islam.
The ruling is paving the way for acceptance in the Muslim world. In September, the Malaysian government began working with blockchain technology, and the biggest bank in Saudi Arabia began using RippleNet.