Islamic Finance Principles Assessment
Riba — Does MerlinSwap involve interest?
MerlinSwap's core mechanics are fee-based rather than interest-based: swap fees fund a buyback program for MP and other ecosystem assets. No lending, borrowing, or fixed-yield interest instrument is native to the protocol itself. For Muslim investors, the revenue model itself does not raise riba concerns, though the wider ecosystem's use of MP as collateral elsewhere warrants a separate look.
Assessment: Moderate Riba
Score: 66.3/100
Our methodology examines 10 criteria to evaluate how well MerlinSwap avoids interest-based mechanisms.
MerlinSwap's treasury is funded by protocol trading fees, with fifty percent of income directed toward buybacks of MP and other "blue-chip" ecosystem tokens, and 33% of total token supply allocated to a treasury tied to these fees. This is a fee-and-buyback structure, not an interest-bearing deposit or lending arrangement. Nothing in the available documentation suggests the treasury parks funds in interest-yielding instruments; its function is protocol-owned liquidity and value support through market buybacks, which is structurally distinct from riba-based income generation.
As a DEX, MerlinSwap's core business is facilitating token swaps, limit orders, and liquidity mining — it does not natively offer lending or borrowing with interest. A separate, third-party "money market protocol" within the wider Merlin ecosystem reportedly accepts MP as collateral, but this is a distinct dApp outside MerlinSwap's own scope. Investors should distinguish MerlinSwap's own swap-fee business, which appears riba-free, from any ecosystem lending product that may carry interest-based terms and would need independent Shariah review.
Gharar — How much uncertainty does MerlinSwap involve?
MerlinSwap carries moderate uncertainty: named founders and credible infrastructure partners reduce ambiguity, but the absence of a confirmed audit and only partial governance decentralization increase it. Confusion with an unrelated, rug-pulled "Merlin DEX" on zkSync adds noise that careful investors must sort through. On balance, informed investors can navigate this, but casual investors face real disclosure gaps.
Assessment: Moderate Gharar (Material Uncertainty)
Score: 51.3/100
Our methodology examines 15 criteria including team transparency, audit quality, and governance.
Transparency here is reasonably strong on the human side: MerlinSwap's co-founder Nash Lee is publicly named and quoted, Merlin Chain's founder "Jeff" is identified with institutional backers, and iZUMi Finance is a known multi-year DeFi team with tokens listed on major exchanges. Documentation and testnet contract addresses are published. However, no explicit open-source code repository was located in available sources, and governance remains team-managed with only a future, partial DAO allocation planned — leaving genuine decision-making authority less transparent than public branding suggests.
No security audit naming a specific firm and date could be established for MerlinSwap/MP itself in the sources reviewed. References to a CertiK audit and a subsequent rug pull concern a differently-run, similarly-named "Merlin DEX" on zkSync, not this project, and cited Halborn audits relate to unrelated protocols. This is a genuine gharar concern: an unaudited protocol carries elevated uncertainty about code security and risk disclosure, regardless of the team's public credibility, and should be treated as an outstanding red flag pending independent verification.
Maysir — Does MerlinSwap involve gambling or speculation?
MerlinSwap is a functioning DEX with real trading volume and liquidity provision, not a speculative meme token by design. Its fee-and-buyback mechanics are tied to genuine usage rather than pure chance-based payout. That said, secondary-market trading of MP, like most tokens, can attract speculative behaviour that is not itself part of the protocol's design.
Assessment: Moderate Maysir (High Risk)
Score: 61.8/100
Our methodology examines 11 criteria to determine whether MerlinSwap is a gambling instrument or a genuine economic tool.
MerlinSwap provides concentrated-liquidity swaps, limit orders, and liquidity mining as "DEX-as-a-Service" infrastructure on a Bitcoin Layer-2 network — a genuine utility function serving traders and liquidity providers who need to exchange assets efficiently. Reported TVL exceeding $100M in March 2024 (at the time the largest DEX on Merlin Chain) demonstrates real productive adoption rather than a purely speculative vehicle. This underlying economic function of facilitating exchange, and earning fees from real usage, distinguishes MerlinSwap's core design from gambling-style products built solely on chance or zero-sum payout structures.
Against this genuine utility, later data show 24-hour trading volume collapsing to roughly $36,000-$44,000 with a top pair down over 62% in a single period, signalling that much of MP's market activity may now be driven by short-term speculation rather than sustained protocol usage. The 100% TGE unlock for public-sale tokens further invites rapid flipping. Such secondary-market speculation reflects trader behaviour rather than the protocol's own design, and per the principle that misuse by third parties does not itself render an instrument impermissible, this volatility does not override MerlinSwap's underlying utility-based function.
The Full 27-Point Screening
1. Legitimacy (4 criteria)
| Criterion | Score | Analysis |
|---|
| Team Transparency | 55/100 | The MerlinSwap co-founder and Merlin Chain founder are named and some backers disclosed, but full team credentials and detailed biographies are not documented in these sources. |
| Fraud & Scam Risk | 60/100 | No fraud or scam is documented against MerlinSwap (MP) itself, but a similarly-named "Merlin DEX" rug pull surfaces in the same search results, creating brand-confusion risk that the sources do not fully resolve. |
| Use Case Legitimacy | 75/100 | Sources document a functioning DEX with real TVL, swap volume and a working product on Merlin Chain, indicating genuine utility rather than pure hype. |
| Ethical Practices | 75/100 | The protocol's own design is a swap/exchange facility, not built for a prohibited sector; that MP can be used as collateral in a separate third-party lending dApp is third-party usage and does not by itself change the base design. |
Summary: MerlinSwap has a partially named team tied to the established iZUMi Finance and Merlin Chain ecosystems, with no fraud documented against MerlinSwap itself, though search results also surface an unrelated, similarly-named rug-pulled project that must not be conflated with it.
2. Project Operations (9 criteria)
| Criterion | Score | Analysis |
|---|
| Core Protocol Business | 80/100 | The core protocol is a decentralized exchange (swap/liquidity provision), a sector not inherently prohibited. |
| Transaction Fees | 60/100 | Fees fund buybacks rather than being distributed as interest, but exact fee rates and full mechanics are not detailed in the sources. |
| Treasury Assets | 50/100 | Treasury holds MP and unspecified "blue-chip assets"; sources do not confirm or deny whether any interest-bearing instruments are held. |
| Revenue Model | 70/100 | Revenue is described as coming from trading/swap fees used for buybacks, not from interest-based lending. |
| Transparency | 55/100 | Public documentation, tokenomics pages and testnet contract addresses exist, but no explicit confirmation of full open-source code repositories was found. |
| Governance | 40/100 | Governance is only partly decentralized; a DAO model is planned for part of future token allocation but current control appears team-managed. |
| Launch Fairness | 65/100 | Distribution data show a modest team allocation with cliff/vesting, but a fully unlocked public sale at TGE is a genuine caution point. |
| Token Distribution | 70/100 | Token allocation spreads broadly across community airdrop, trading rewards, treasury, and a comparatively small team share, per the published distribution table. |
| Speculation/Utility Ratio | 50/100 | The protocol has real utility (swaps, LP mining, trade-to-earn), but reported trading volumes have declined sharply, suggesting speculative interest may currently outweigh active usage. |
Summary: MerlinSwap is a functioning Bitcoin-L2 DEX with fee-funded buybacks, a partly-planned DAO governance model, and a token distribution that favors community/trading rewards over the team, albeit with a fully-unlocked public sale tranche.
3. Financial Health (4 criteria)
| Criterion | Score | Analysis |
|---|
| Protocol Revenue | 75/100 | Revenue is fee-based rather than interest-based, though granular fee breakdowns are not given. |
| Financial Status | 40/100 | TVL once exceeded $100M but later reported daily volumes fell to the tens of thousands of dollars, indicating a marked decline in market activity and stability. |
| Interest Assessment | 75/100 | The base MerlinSwap protocol is a DEX and does not itself offer lending/borrowing; any lending use of MP occurs in a separate third-party money-market dApp. |
| Audit Quality | 15/100 | No audit report naming a firm and date could be found for MerlinSwap/MP in these sources; audit references present relate to differently-named, unrelated projects. |
Summary: Revenue is fee-based rather than interest-based, but reported trading volumes have fallen dramatically from earlier TVL highs, and no audit for MerlinSwap itself could be located in the sources.
4. Token Economics (5 criteria)
| Criterion | Score | Analysis |
|---|
| Token Purpose | 65/100 | MP has described utility (collateral use, fee-tied buybacks, trade-to-earn), suggesting a genuine functional token rather than a pure meme, though detail is limited. |
| Governance Rights | 30/100 | No explicit current voting/governance rights for MP holders are documented; a DAO model is only referenced as a future plan for part of the allocation. |
| Rewards Distribution | 70/100 | Trading rewards are explicitly tied to actual trading activity (trade-to-earn) rather than fixed guaranteed payouts. |
| Speculation Controls | 55/100 | Vesting/lockup schedules apply to most allocations, though the public sale's full unlock at TGE weakens overall anti-speculation design. |
| Asset Backing | 50/100 | Value is nominally supported by treasury holdings and a fee-funded buyback mechanism rather than by hard-asset backing, per limited disclosure. |
Summary: MP carries some described utility (collateral use, buyback mechanics, activity-based rewards) but lacks clearly documented governance rights and hard asset backing.
5. Staking Mechanism
MerlinSwap 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: MerlinSwap appears to be a genuine, functioning DEX project with reasonable token-distribution fairness and fee-based (non-interest) economics, but the absence of a documented audit, declining trading activity, and limited governance/staking disclosure leave several Shariah-relevant questions unresolved from the sources alone.
Written by ThanvirFounder, Ex Director S&P Global Energy
Reviewed by Imam Omar SiddiqiShariah Scholar