Islamic Finance Principles Assessment
Riba — Does DeFi Pulse Index involve interest?
DeFi Pulse Index itself does not lend, borrow, or pay interest; its only "revenue" is a 0.95% streaming fee charged for holding the basket. However, because the basket contains governance tokens of lending and interest-rate protocols such as AAVE, COMP, and MKR, a portion of DPI's value performance is tied indirectly to interest-based financial activity. Muslim investors should treat DPI's riba exposure as indirect but real, arising from constituent selection rather than DPI's own mechanics.
Assessment: Moderate Riba
Score: 53.1/100
Our methodology examines 10 criteria to evaluate how well DeFi Pulse Index avoids interest-based mechanisms.
DPI generates income for its stewards solely through a 0.95% annual streaming fee on assets held, with 0% mint/redeem fees. This fee, historically split 70/30 between Index Coop and DeFi Pulse (now Scalara), became 100% Index Coop revenue after a 2024 buyout of Scalara's share for 45,000 USDC. This is a management fee, not interest income, and the treasury itself is not described as holding interest-bearing instruments. The fee structure is transparent and disclosed, resembling a conventional index-fund expense ratio rather than a riba-based revenue stream.
The core business model is a passive index-tracking mechanism: DPI holds real ERC-20 DeFi tokens directly and non-synthetically, redeemable 1:1 for the basket, with no internal lending or borrowing function. The concern lies entirely in composition, not mechanism: several constituents, including AAVE, COMP, and MKR, are governance tokens of protocols whose underlying business is interest-based lending and borrowing. Holding DPI therefore means indirect proportional exposure to protocols generating revenue from interest spreads, even though DPI's own contract logic performs no lending or borrowing activity whatsoever.
Gharar — How much uncertainty does DeFi Pulse Index involve?
Gharar in DPI is relatively contained: the founders are named, the mechanism is transparent, and the token is redeemable for a disclosed basket, but the absence of any located audit for DPI or Set Protocol V2 introduces a documentation-level uncertainty. Overall, informational transparency is strong, though technical assurance is incomplete.
Assessment: Moderate Gharar (Material Uncertainty)
Score: 61.4/100
Our methodology examines 15 criteria including team transparency, audit quality, and governance.
DPI's provenance is well-documented: Scott Lewis (DeFi Pulse co-founder) and Felix Feng (Set Protocol CEO, founder of Index Coop in October 2020) are named, traceable individuals with public track records. DeFi Pulse later rebranded to Scalara, with successive CEOs publicly listed on LinkedIn. Governance transitioned to the Index Coop DAO, which formally bought out Scalara's revenue share in 2024. Contracts and index methodology are publicly documented, and no fraud, hack, or rug-pull indicators tied specifically to DPI appear in available records, distinguishing it from anonymous or opaque token launches.
No audit report specific to DPI or Set Protocol V2 could be located in available sources; audit firms found in searches (Halborn, Trail of Bits, Neodyme) relate to unrelated projects, not DPI. This absence of a confirmed, dedicated audit is a genuine gharar concern that should be named plainly rather than assumed away by DPI's general reputation. On the positive side, the fee structure, rebalancing rules, 25% concentration cap, and redemption mechanics are clearly disclosed, giving investors reasonable clarity on how the product functions even without independent security verification.
Maysir — Does DeFi Pulse Index involve gambling or speculation?
DPI is not designed as a wagering or lottery-style instrument; it functions as a diversified index product offering exposure to the DeFi sector without requiring investors to pick individual tokens. Genuine utility as a diversification tool distinguishes it from pure speculation, though secondary-market trading can still be volatile. On balance, DPI's own design leans toward productive investment rather than gambling.
Assessment: Moderate Maysir (High Risk)
Score: 64.8/100
Our methodology examines 11 criteria to determine whether DeFi Pulse Index is a gambling instrument or a genuine economic tool.
DPI's real-world utility lies in offering cost-efficient, diversified exposure to the DeFi sector through a single token, sparing investors the operational burden of acquiring, tracking, and rebalancing multiple underlying governance tokens individually. It is directly and non-synthetically backed, redeemable 1:1 for its basket, and rebalanced monthly under a transparent, capped methodology. This structural role, as a passive tracking instrument comparable to a sector index fund, reflects genuine productive use rather than a bet on random or manufactured price outcomes.
Against this utility, DPI trades on open markets where its price can be driven by short-term speculative sentiment surrounding DeFi generally, and third-party liquidity-mining programs (such as ~10% yield from staking DPI/ETH LP tokens on Index Coop) add layers of speculative behavior external to the token itself. Such secondary-market or ecosystem-level speculation is a feature of how some participants choose to use DPI, not of its own design, and should not be treated as determinative of the underlying index product's permissibility, which remains grounded in real asset backing and disclosed methodology.
The Full 27-Point Screening
1. Legitimacy (4 criteria)
| Criterion | Score | Analysis |
|---|
| Team Transparency | 82/100 | Founders Scott Lewis and Felix Feng are named, credentialed, and traceable via LinkedIn and industry profiles, with public leadership continuity (e.g., Scalara CEO) over multiple years. |
| Fraud & Scam Risk | 75/100 | No fraud, hack, or rug-pull indicators tied specifically to DPI appear in the sources, though this is inferred from absence of negative reporting rather than an explicit clean bill of health. |
| Use Case Legitimacy | 85/100 | DPI provides clear, genuine utility as a single-transaction, cost-efficient diversified exposure product to major DeFi tokens, directly redeemable for its basket. |
| Ethical Practices | 40/100 | DPI's own design includes governance tokens of interest-based lending protocols (e.g., AAVE, COMP) as core, non-incidental underlying holdings, which is a structural feature rather than third-party misuse. |
Summary: DPI's founders and stewarding organisation are publicly named and traceable, and no fraud or rug-pull indicators specific to the project were found in these sources.
2. Project Operations (9 criteria)
| Criterion | Score | Analysis |
|---|
| Core Protocol Business | 40/100 | The base protocol is an index vehicle whose constituent basket by design includes lending/interest-based DeFi protocols, placing part of its core business in a prohibited-adjacent sector. |
| Transaction Fees | 75/100 | Fees are a transparent streaming management fee (0.95%) with 0% mint/redeem, now fully retained by Index Coop, resembling a fair management charge rather than riba-like extraction. |
| Treasury Assets | 35/100 | DPI's "treasury" is its underlying basket, which explicitly includes tokens of interest-bearing lending protocols such as AAVE and COMP. |
| Revenue Model | 65/100 | Protocol revenue comes from a streaming management fee rather than direct interest income, though the value of the index is influenced by interest-based constituent protocols. |
| Transparency | 85/100 | Contract addresses, methodology, fee structure, and documentation are publicly disclosed via Index Coop and Set Protocol resources. |
| Governance | 60/100 | Governance operates through the Index Coop DAO and INDEX token, but DPI holders themselves have no governance role, and initial team allocations retain some centralised influence. |
| Launch Fairness | 55/100 | The INDEX token allocation included a 30% team/founder share (Set Labs and DeFi Pulse) alongside a 70% community share, indicating a partially, not fully, fair launch. |
| Token Distribution | 65/100 | INDEX token distribution documents a broad 70% community / 30% team split with multi-year vesting, offering reasonable but not maximal decentralisation. |
| Speculation/Utility Ratio | 78/100 | DPI is utility-dominant, functioning as a diversified DeFi exposure product rather than a speculation-first asset, based on its described use case and mechanics. |
Summary: DPI is a transparently documented, DAO-governed index token whose fee model is fair, but whose underlying basket by design includes interest-based lending protocol tokens.
3. Financial Health (4 criteria)
| Criterion | Score | Analysis |
|---|
| Protocol Revenue | 45/100 | While the DPI protocol's own revenue is fee-based, the value of the index is materially tied to constituent tokens whose economics are rooted in interest-based lending revenue. |
| Financial Status | 70/100 | DPI has traded continuously since 2020 with transparent pricing and market data across major aggregators. |
| Interest Assessment | 45/100 | The DPI index mechanism itself does not lend or borrow, but it structurally holds tokens of protocols that do, creating indirect but real interest exposure at the base holding level. |
| Audit Quality | 20/100 (low evidence) | No audit report specific to DPI or its underlying Set Protocol V2 infrastructure appears in these sources; audit firm pages/reports found relate to unrelated projects, so no audit could be confirmed. |
Summary: DPI generates fee-based revenue and has a long trading history, but no audit specific to the coin or its infrastructure could be found, and its value is partly tied to interest-driven constituent protocols.
4. Token Economics (5 criteria)
| Criterion | Score | Analysis |
|---|
| Token Purpose | 80/100 | DPI functions as a genuine utility/index token providing basket exposure rather than serving a purely speculative meme purpose. |
| Governance Rights | N/A | DPI itself carries no governance rights by design, as governance is handled separately through the INDEX token and Index Coop DAO, which is a neutral structural feature of an index product. |
| Rewards Distribution | 60/100 | DPI has no fixed or guaranteed reward; its value moves with the variable performance of its underlying basket, though this was inferred rather than explicitly framed as a "reward mechanic." |
| Speculation Controls | 40/100 | Beyond a 25% per-token concentration cap for index construction, no dedicated anti-speculation control for the DPI token itself is described in the sources. |
| Asset Backing | 60/100 | DPI is directly and non-synthetically backed 1:1 by its underlying basket of DeFi tokens, though part of that backing consists of interest-based lending protocol tokens. |
Summary: DPI is a genuine utility/index token backed by real underlying assets rather than a meme, though its basket composition embeds exposure to interest-based DeFi protocols.
5. Staking Mechanism
DeFi Pulse Index has no native staking mechanism, so these five criteria are not applicable and are excluded from the score entirely rather than counted as zeros.
Overall Assessment: DPI is a legitimate, well-documented DeFi index product run by a traceable team, but its core design structurally embeds interest-based lending protocol tokens, and the absence of any confirmed audit further limits confidence in its Shariah-compliance profile.
Written by ThanvirFounder, Ex Director S&P Global Energy
Reviewed by Imam Omar SiddiqiShariah Scholar