Islamic Finance Principles Assessment
Riba — Does Swell involve interest?
Swell's core business is a staking/restaking fee (roughly 5-10% of ETH rewards), not a lending spread, so its base revenue model does not resemble interest income. However, third-party applications built atop Swellchain, such as Relend and a BTC-backed borrowing product, do involve conventional interest-bearing loans. For Muslim investors, the protocol's own function is not riba-based, but its ecosystem is not entirely free of interest-style products either.
Assessment: Moderate Riba
Score: 65/100
Our methodology examines 10 criteria to evaluate how well Swell avoids interest-based mechanisms.
Swell Labs earns income by taking a 5-10% cut of ETH staking and restaking rewards, split between node operators and the Swell DAO treasury. A "Fee Flow" mechanism auctions accumulated swETH/rswETH revenue every 14 days via Dutch auction for SWELL, which is then burned. This is a service-fee model tied to validator and restaking performance, not a deposit-and-lend spread. Treasury holdings beyond accrued fee balances in swETH/rswETH are not detailed in available sources, so no interest-bearing treasury instruments can be confirmed or ruled out with certainty.
Rewards to swETH and rswETH holders come from Ethereum consensus-layer validation rewards and, for rswETH, additional EigenLayer-secured AVS activity (MACH, VITAL, SQUAD services). These are variable, performance-linked returns tied to real network participation and slashing risk, not a predetermined interest rate paid regardless of underlying activity. This structure aligns with profit/loss-sharing logic rather than riba-based lending, since returns fluctuate with validator performance, restaking demand, and protocol fee capture rather than being fixed in advance.
Gharar — How much uncertainty does Swell involve?
Swell carries moderate uncertainty: the protocol's mechanics and documentation are public, but audit verification and full risk disclosure around multi-layer restaking are incomplete in available records. Named leadership and open-source code reduce ambiguity, while the absence of a confirmed audit and unclear slashing disclosures increase it. On balance, gharar here is manageable but not negligible.
Assessment: Moderate Gharar (Material Uncertainty)
Score: 52.7/100
Our methodology examines 15 criteria including team transparency, audit quality, and governance.
Swell Labs is publicly attributed to founder Daniel Dizon along with named early contributors, and the project maintains public GitHub repositories and developer documentation. This level of named leadership and open-source transparency is a meaningful gharar-reducing factor compared to anonymous teams. However, independent verification of team credentials and a fully clean operational history is limited in available sources, and DAO governance is referenced without detailed voting mechanics being disclosed, leaving some ambiguity around actual decision-making control.
No source in the available research names a specific audit firm or audit date tied verifiably to Swell Network's own smart contracts; audit documents retrieved concern unrelated projects entirely. This is a genuine gharar concern that should be stated plainly: an unaudited (or unverifiably audited) protocol handling significant ETH deposits carries elevated smart-contract and slashing risk that investors cannot fully assess. Documentation on restaking mechanics exists, but detailed slashing conditions and multi-layer AVS risk are not spelled out clearly.
Maysir — Does Swell involve gambling or speculation?
Swell's core activity, staking ETH to earn validator and restaking rewards, is a productive economic function rather than a wager on price movement. Speculation exists around SWELL's secondary-market trading, as with most tokens, but this is distinct from the protocol's own design. The underlying utility outweighs gambling-like characteristics in the base protocol itself.
Assessment: Moderate Maysir (High Risk)
Score: 60/100
Our methodology examines 11 criteria to determine whether Swell is a gambling instrument or a genuine economic tool.
Swell provides genuine infrastructure utility: it allows ETH holders to earn consensus and restaking rewards while retaining liquidity through transferable swETH and rswETH, and its Swellchain L2 extends this into a functioning restaking-secured settlement layer with real deposits (roughly $125m cited) and DeFi integrations. This is productive capital deployment into network security and infrastructure, generating rewards from actual validator work and service provision, not from a zero-sum bet against other participants. Such use clearly distinguishes the protocol from gambling.
Against this genuine utility, SWELL the token trades on open markets where speculative behavior, driven by airdrop unlocks, vesting cliffs, and Fee Flow burn dynamics, can dominate short-term price action. Large team and investor allocations subject to multi-year vesting also create conditions where secondary-market speculation may outweigh fundamentals in the near term. This speculative trading layer is a feature of markets generally rather than of Swell's design specifically, but investors should recognize that token price behavior may diverge meaningfully from the protocol's underlying productive activity.
The Full 27-Point Screening
1. Legitimacy (4 criteria)
| Criterion | Score | Analysis |
|---|
| Team Transparency | 65/100 | The founder (Daniel Dizon) and some early contributors are named and traceable via public profiles, though depth of credential verification is limited. |
| Fraud & Scam Risk | 65/100 | No hack, rug-pull, or regulatory action against Swell Network appears in these sources, but this is an absence-of-evidence signal rather than a confirmed clean record. |
| Use Case Legitimacy | 85/100 | Sources describe a functioning liquid staking/restaking protocol and Layer 2 chain with documented technical architecture and real deposits. |
| Ethical Practices | 70/100 | The protocol's own design is ETH staking/restaking infrastructure, not built for a haram purpose; interest-based dApps built atop the chain by third parties are noted factually and do not determine the base protocol's own ruling. |
Summary: Swell has a named, traceable founder and no documented fraud or regulatory action in these sources, though independent verification of the wider team remains limited.
2. Project Operations (9 criteria)
| Criterion | Score | Analysis |
|---|
| Core Protocol Business | 80/100 | The base protocol is liquid staking/restaking infrastructure for Ethereum, a sector with no inherent prohibition. |
| Transaction Fees | 70/100 | Fees are a disclosed service charge (5–10%) split between operators and treasury, with a burn-based auction mechanism rather than interest extraction. |
| Treasury Assets | 60/100 | Sources show accumulated fees are held in swETH/rswETH prior to auction, but full treasury composition (e.g., any fiat/interest-bearing holdings) is not disclosed. |
| Revenue Model | 70/100 | Revenue is a documented staking-fee cut on validator/restaking rewards, not an interest-based lending spread. |
| Transparency | 65/100 | Public developer docs and GitHub repositories exist, though full contract-level disclosure and independent audit confirmation are not established. |
| Governance | 40/100 | A DAO is referenced, but roughly half the token supply sits with team and investors under vesting, signalling real centralization despite decentralization framing. |
| Launch Fairness | 35/100 | Launch combined community airdrops with substantial insider allocations (Team, Fundraising, Foundation) under long vesting, which is not a fully fair launch. |
| Token Distribution | 40/100 | Documented allocation tables show roughly half of supply concentrated among investors, team, and foundation versus community/airdrop shares. |
| Speculation/Utility Ratio | 45/100 | The protocol has genuine utility, but points/airdrop farming culture described in sources suggests a meaningful speculative dimension alongside real usage. |
Summary: The base protocol is a liquid staking/restaking service and associated Layer 2 chain with a disclosed fee-and-burn model, but governance is DAO-branded while token supply is heavily weighted toward insiders under vesting.
3. Financial Health (4 criteria)
| Criterion | Score | Analysis |
|---|
| Protocol Revenue | 75/100 | Protocol revenue is documented as coming from staking/restaking service fees, not interest-based lending. |
| Financial Status | 65/100 | DefiLlama-reported TVL, fees, and revenue figures, plus Swell's own deposit claims, give a reasonably transparent financial picture, albeit modest in scale. |
| Interest Assessment | 55/100 | The base protocol itself offers staking/restaking, not lending, but closely integrated third-party money markets (Relend, Mezo) built on Swellchain do carry interest-bearing borrowing, which is a relevant but non-determinative factual note. |
| Audit Quality | 15/100 (low evidence) | No source names a specific audit firm or date verifiably covering Swell Network's own smart contracts; an audit for this project could not be established from these sources. |
Summary: Revenue is fee-based on staking activity and modestly sized relative to the broader market, but no verifiable third-party security audit of Swell Network's own contracts appears in these sources.
4. Token Economics (5 criteria)
| Criterion | Score | Analysis |
|---|
| Token Purpose | 60/100 | SWELL functions within a real fee-auction/burn mechanism tied to protocol revenue rather than serving as a pure meme token. |
| Governance Rights | 35/100 | A DAO is mentioned, but explicit holder voting rights and governance mechanics are not detailed in the sources. |
| Rewards Distribution | 65/100 | Token "rewards" operate through variable, revenue-linked burns via Fee Flow auctions rather than a fixed or interest-like payout. |
| Speculation Controls | 55/100 | Vesting cliffs and structured whale-wallet unlock options are explicitly documented as controls on early token liquidity. |
| Asset Backing | 60/100 | Value is tied to genuine protocol fee revenue and staking utility, though no explicit "backing" statement beyond this is given. |
Summary: SWELL ties into a real fee-auction-and-burn mechanism rather than functioning as a pure meme token, though large insider allocations and unclear governance rights temper this.
5. Staking Mechanism (5 criteria)
| Criterion | Score | Analysis |
|---|
| Mechanism Type | 80/100 | The staking/restaking mechanism is non-custodial and liquid, with transferable tokens and no forced lock-up, as documented across multiple sources. |
| Islamic Contract Classification | 45/100 | Sources do not classify the arrangement in Islamic contract terms; it functionally resembles a fee-for-service arrangement, but added restaking risk layers leave the classification unresolved. |
| Rewards Structure | 70/100 | Rewards come from variable validator and restaking/AVS activity rather than a fixed guaranteed rate. |
| Documentation | 65/100 | Mechanism documentation is publicly available via developer docs and third-party explainers, though granular risk/slashing disclosure is limited. |
| Shariah Alignment | 45/100 | The compounding risk from multiple restaking/AVS layers raises unresolved gharar-related questions that these sources do not address from a Shariah perspective. |
Summary: Swell offers a genuine non-custodial ETH liquid staking and restaking mechanism with variable, activity-based rewards, but its Islamic contract classification and multi-layer restaking risk remain undiscussed and unresolved in the sources.
Overall Assessment: Swell appears to be a legitimate, utility-driven staking/restaking infrastructure project rather than a meme coin, with credible functionality but notable gaps in audit verification, insider token concentration, and unresolved Shariah classification of its restaking layer.
Written by ThanvirFounder, Ex Director S&P Global Energy
Reviewed by Imam Omar SiddiqiShariah Scholar