Islamic Finance Principles Assessment
Riba — Does Liquid Loans USDL involve interest?
Liquid Loans does not charge or pay ongoing interest; borrowers pay a one-time borrowing fee and a redemption fee rather than accruing interest over time. This fee-based structure is structurally distinct from riba-based lending. For Muslim investors, the core mechanism appears free of interest, though the broader collateral (ETH/PLS) and reward flows deserve independent scrutiny.
Assessment: Moderate Riba
Score: 65.5/100
Our methodology examines 10 criteria to evaluate how well Liquid Loans USDL avoids interest-based mechanisms.
Liquid Loans' entire revenue model is built on one-time borrowing fees and redemption fees generated when users open or close Vaults, not on interest accrued over a loan's duration. There is no evidence of a corporate treasury holding interest-bearing instruments; instead, fees are distributed directly to LOAN stakers and Stability Pool depositors. This fee-for-service structure, charged once rather than compounding over time, is a materially different arrangement from conventional interest-based lending and is the protocol's central riba-relevant design feature.
Rewards to LOAN stakers and Stability Pool depositors are variable, fluctuating with actual borrowing and redemption activity rather than being fixed or guaranteed in advance. Staking pays out in USDL (borrowing fees) and PLS/ETH (redemption fees and liquidation gains), sourced directly from real protocol usage rather than token emissions or inflation. Because returns are performance-based and tied to genuine economic activity rather than promised at a fixed rate, this structure resembles profit-sharing more than interest, which is a meaningfully positive distinction from a Shariah perspective.
Gharar — How much uncertainty does Liquid Loans USDL involve?
Uncertainty in Liquid Loans is moderated by a named team, public documentation, and a third-party audit, but heightened by thin liquidity and reliance on the smaller PulseChain ecosystem. Overall transparency is reasonable for a DeFi protocol of this size, though disclosure of precise tokenomics and audit dating is incomplete. The net gharar level is manageable but not negligible.
Assessment: Moderate Gharar (Material Uncertainty)
Score: 68.9/100
Our methodology examines 15 criteria including team transparency, audit quality, and governance.
The founding team is publicly identified and traceable: Cristian Ulloa (Co-Founder/CEO), a former Big Four (BDO) partner with an active public profile, and Dave Gordan (Co-Founder/COO), alongside named heads of security, technology, growth and design. This is a meaningful transparency positive compared to anonymous teams. The protocol is a fork of the established Liquity codebase, with documentation and audit materials publicly available. A Reddit thread alleging scam behavior around a pre-launch "sacrifice" mechanism exists, but the visible discussion largely disputes that framing, citing active staking and substantial locked collateral.
Halborn, a recognized international blockchain security firm, is confirmed to have audited the protocol, with a report publicly available, which meaningfully reduces smart-contract gharar. However, the exact audit date is unclear and one cited date appears inconsistent with the protocol's later multi-chain deployments, so precise audit timing cannot be confirmed from available sources. Core mechanics, fee structures, and collateral ratios are documented in the project's own materials, though independent third-party verification of risk disclosures beyond self-published documentation is limited.
Maysir — Does Liquid Loans USDL involve gambling or speculation?
Liquid Loans is not designed as a gambling or speculative instrument; it is a collateralized lending protocol producing a stablecoin and fee-based yield. Its rewards are tied to real borrowing and redemption activity rather than chance or zero-sum wagering. The main speculative exposure lies not in the protocol's design but in secondary-market trading of its tokens.
Assessment: Moderate Maysir (High Risk)
Score: 64.1/100
Our methodology examines 11 criteria to determine whether Liquid Loans USDL is a gambling instrument or a genuine economic tool.
Liquid Loans provides a genuine utility: it allows holders of ETH or PLS to unlock liquidity by minting an over-collateralized, USD-pegged stablecoin without selling their underlying assets, at a one-time fee rather than ongoing interest. USDL can be redeemed at face value against Vault collateral at any time, giving it clear economic grounding tied to real collateral rather than speculative promise. LOAN staking and the Stability Pool similarly channel real fee revenue to participants who support the system's solvency, reflecting productive, risk-bearing participation rather than a wager on price movement alone.
Against this genuine utility must be weighed the reality that USDL trades in modest volume, concentrated on PulseChain DEXs, and LOAN's market value can fluctuate with speculative sentiment independent of protocol fundamentals. Secondary-market trading of LOAN or USDL by third parties for short-term speculation is possible, as with virtually any tradable token, but such behavior reflects market participants' choices rather than the protocol's own design or purpose. On balance, the protocol's core function remains collateralized borrowing and fee-sharing, not gambling.
The Full 27-Point Screening
1. Legitimacy (4 criteria)
| Criterion | Score | Analysis |
|---|
| Team Transparency | 80/100 | Team members are named with LinkedIn profiles, and the CEO's professional background is independently describable and verifiable. |
| Fraud & Scam Risk | 55/100 | A community "scam" allegation exists but is substantially disputed within the same source, and no confirmed regulatory action names Liquid Loans specifically. |
| Use Case Legitimacy | 80/100 | The protocol provides a clear real-world lending/stablecoin function rather than being purely speculative. |
| Ethical Practices | 75/100 | The protocol's own design is a collateralized lending/stablecoin system with no described ties to a prohibited industry. |
Summary: The team behind Liquid Loans is publicly named and professionally credentialed, and while a community scam allegation exists it is largely disputed, with no confirmed regulatory action tied to the project in these sources.
2. Project Operations (9 criteria)
| Criterion | Score | Analysis |
|---|
| Core Protocol Business | 75/100 | The base protocol performs decentralized lending and stablecoin issuance, a permissible financial-services function in itself. |
| Transaction Fees | 55/100 | Fees are one-time borrowing/redemption charges distributed to stakers rather than compounding interest, but whether this is a permissible service fee versus a riba-like charge is not settled in the sources. |
| Treasury Assets | 55/100 | Sources describe collateral vaults and small reserve allocations for bounties/LP rewards but do not detail broader treasury asset composition. |
| Revenue Model | 70/100 | Revenue is generated from one-time fees rather than ongoing interest income on loans. |
| Transparency | 80/100 | Public documentation, a whitepaper, and a published audit report indicate strong disclosure. |
| Governance | 75/100 | The protocol is explicitly described as immutable, governance-free, and without retained admin control after deployment. |
| Launch Fairness | 60/100 | Team/advisor LOAN is locked at least a year while remaining LOAN is issued publicly to Stability Providers, but exact allocation percentages are not disclosed. |
| Token Distribution | 55/100 | Reserved allocations exist for team, advisors, bug bounty, and LP rewards alongside public issuance, but proportions are not specified in these sources. |
| Speculation/Utility Ratio | 55/100 | Marketing emphasizes high yield comparisons to gold and savings accounts alongside genuine fee-capture utility for LOAN, giving a mixed utility/speculation signal. |
Summary: The protocol is an immutable, governance-free, non-custodial lending/stablecoin system forked from Liquity, distributing fee revenue to stakers rather than a corporate treasury, though exact token allocation percentages are undisclosed.
3. Financial Health (4 criteria)
| Criterion | Score | Analysis |
|---|
| Protocol Revenue | 70/100 | Protocol revenue is fee-based rather than derived from compounding loan interest. |
| Financial Status | 60/100 | The USDL peg mechanism is well described, but reported trading volume is thin, indicating a small, still-developing market. |
| Interest Assessment | 50/100 | The base protocol itself natively issues loans at "0% interest" but charges a one-time issuance fee, a structure whose Shariah classification as a service fee versus a riba-like charge is not resolved by these sources. |
| Audit Quality | 75/100 | Halborn, a named security firm, performed a professional audit with a publicly available report. |
Summary: Revenue is fee-based rather than interest-based, an audit by Halborn is confirmed, but the market for USDL remains small and thinly traded, and the audit date could not be pinned down precisely.
4. Token Economics (5 criteria)
| Criterion | Score | Analysis |
|---|
| Token Purpose | 75/100 | LOAN functions as a fee-capturing incentive/utility token and USDL as a collateral-backed stablecoin, not meme tokens. |
| Governance Rights | N/A | The protocol is explicitly designed to be governance-free with no holder voting rights, which is a neutral design choice rather than a compliance concern. |
| Rewards Distribution | 75/100 | Staking and Stability Pool rewards vary directly with borrowing/redemption fee volume rather than being fixed. |
| Speculation Controls | 40/100 | No explicit anti-speculation mechanisms are described, and yield-comparison marketing leans toward speculative appeal. |
| Asset Backing | 80/100 | USDL is backed by a surplus of locked ETH/PLS collateral, redeemable at face value at any time. |
Summary: USDL is a collateral-backed stablecoin and LOAN is a fee-capturing incentive token with variable, activity-based rewards and no described governance rights or anti-speculation controls.
5. Staking Mechanism (5 criteria)
| Criterion | Score | Analysis |
|---|
| Mechanism Type | 75/100 | LOAN staking is non-custodial, direct-deposit to a contract, and described as having no lock-up period. |
| Islamic Contract Classification | 50/100 | Staking rewards resemble a revenue-share arrangement, but they derive partly from a borrowing fee whose own Shariah classification is unresolved, leaving the underlying contract type unclear. |
| Rewards Structure | 75/100 | Rewards are paid from actual protocol fee revenue (borrowing and redemption fees) rather than a fixed or guaranteed rate. |
| Documentation | 75/100 | Staking mechanics, reward sources, and pool-share calculations are clearly documented in the project's own docs. |
| Shariah Alignment | 45/100 | Whether the one-time borrowing fee constitutes a riba-like charge on a loan remains an unresolved core question in these sources, preventing a fully clean rating. |
Summary: Liquid Loans has a native, non-custodial, flexible LOAN staking mechanism plus a Stability Pool, both paying variable rewards sourced from real protocol fee revenue.
Overall Assessment: Liquid Loans presents a transparent, audited, fee-revenue-driven lending protocol with a credentialed team, but the core Shariah question of whether its one-time loan-issuance fee constitutes a riba-like charge remains unresolved in the available sources.
Written by ThanvirFounder, Ex Director S&P Global Energy
Reviewed by Imam Omar SiddiqiShariah Scholar