Islamic Finance Principles Assessment
Riba — Does Zama involve interest?
Zama's base protocol does not lend or borrow, and its fees are burned rather than retained as interest-bearing revenue, so no classic riba structure is evident. Staking rewards come from a governance-adjustable inflation schedule rather than a fixed interest rate on deposited capital. On balance, the protocol's design avoids explicit riba, though the inflation-funded (rather than fee-funded) reward source deserves ongoing scrutiny by Muslim investors.
Assessment: Moderate Riba
Score: 67.5/100
Our methodology examines 10 criteria to evaluate how well Zama avoids interest-based mechanisms.
Zama's revenue comes from usage fees (encryption, decryption, proof verification, bridging) priced in USD and paid in ZAMA, which are burned rather than accumulated as treasury income — a burn-and-mint model, not fee-based rent-seeking. The 20% treasury allocation vests over roughly 22 months, and available sources give no indication it is deployed into interest-bearing instruments. Confidential lending markets sometimes cited alongside Zama's tooling (analogous to Aave/Morpho) are third-party dApps built atop the FHE layer, not part of the base protocol itself, keeping the core protocol's own income stream free of direct riba exposure.
Staking rewards are variable, not fixed: they are drawn from a protocol-wide inflation schedule (initially ~5% annually, adjustable by DAO governance) and distributed pro rata to the square root of each participant's stake, split between FHE nodes and KMS nodes, with operator commissions capped at 20%. This performance- and participation-linked structure is distinct from a predetermined interest rate on lent capital. However, because rewards derive from token inflation rather than from protocol fee revenue, the "yield" partly reflects dilution of non-stakers rather than newly generated value — a nuance worth flagging even though it does not itself constitute riba.
Gharar — How much uncertainty does Zama involve?
Zama scores well on team and technical transparency but leaves real gaps in audit coverage and post-launch financial disclosure, and an unrelated legal freeze involving a Zama-linked contract adds a layer of uncertainty. The combination of strong disclosure on the technology side and weak disclosure on core-protocol assurance produces a mixed gharar picture. On balance, uncertainty here is moderate but not negligible, and should factor into any investment decision.
Assessment: Moderate Gharar (Material Uncertainty)
Score: 62.9/100
Our methodology examines 15 criteria including team transparency, audit quality, and governance.
Zama is exceptionally transparent on the team front: co-founder Dr Rand Hindi, CTO Dr Pascal Paillier (inventor of the Paillier cryptosystem), Chief Academic Officer Prof Nigel Smart, and Chief Scientist Dr Marc Joye are all named and highly credentialed, backing a company founded in 2020 with $150M+ raised and 90+ staff. Code is open-source (TFHE-rs, Concrete, Concrete ML), and a MiCA-compliant white paper discloses token utility. This contrasts with the distribution structure: 80% of the 11B supply sits with VCs, team, treasury, angels, and growth allocations, versus roughly 12-18% for the public sale, leaving retail with less informational and structural parity.
OpenZeppelin audited Zama's Confidential Fungible Token library in May 2025, finding zero critical, high, or medium issues and four resolved low-severity findings — a genuinely positive, verifiable data point. However, a separately cited Halborn audit pertains to an unrelated third-party project ("Substance Exchange") and says nothing about Zama's own core protocol or staking contracts. No audit of the base FHE protocol, staking mechanism, or DAO governance logic is confirmed in available sources — this is an unaudited-core-protocol gap and should be named plainly as a gharar concern. Separately, a May 2026 court-ordered freeze of $12.6M in a Zama-linked cUSDC contract (tied to an unrelated Overnight Finance lawsuit) adds unresolved uncertainty, even though it does not implicate Zama's own protocol design.
Maysir — Does Zama involve gambling or speculation?
Despite its meme-coin classification here, Zama's underlying protocol is a genuine FHE confidentiality layer with real fee, staking, and governance utility — it is not designed as a gambling instrument. That said, secondary-market trading dynamics around its
Assessment: Moderate Maysir (High Risk)
Score: 62.2/100
Our methodology examines 11 criteria to determine whether Zama is a gambling instrument or a genuine economic tool.
The Full 27-Point Screening
1. Legitimacy (4 criteria)
| Criterion | Score | Analysis |
|---|
| Team Transparency | 90/100 | Founders and senior leadership (CEO, CTO, Chief Academic Officer, Chief Scientist) are named, credentialed cryptography researchers with a verifiable track record. |
| Fraud & Scam Risk | 55/100 | A court-ordered freeze of a Zama-linked contract stemmed from an unrelated third-party (Overnight Finance) dispute, and some unconfirmed rug-pull accusations against Zama itself surfaced online without resolution in these sources. |
| Use Case Legitimacy | 88/100 | The protocol provides a genuine, deployed cryptographic utility (FHE-based confidential computation) with real production usage, not hype alone. |
| Ethical Practices | 82/100 | The protocol's own design is a neutral privacy/encryption infrastructure layer; any third-party misuse (e.g., confidential lending apps) does not determine its own ruling. |
Summary: Zama is led by a publicly named, highly credentialed cryptography team with a substantial funding history, though a recent third-party-linked stablecoin freeze introduced some unresolved trust questions.
2. Project Operations (9 criteria)
| Criterion | Score | Analysis |
|---|
| Core Protocol Business | 85/100 | The base protocol operates in cryptography/privacy infrastructure, a sector with no inherent Shariah prohibition. |
| Transaction Fees | 82/100 | Protocol fees are paid in ZAMA and burned rather than extracted as rent-like revenue for a controlling party. |
| Treasury Assets | 50/100 (low evidence) | Sources describe treasury token allocation and vesting but say nothing about whether treasury holdings include interest-bearing instruments. |
| Revenue Model | 78/100 | Revenue comes from usage fees for encryption/decryption/verification services, not from interest-based lending activity. |
| Transparency | 85/100 | Core cryptographic libraries are open-source and detailed public documentation, litepapers, and a MiCA white paper are available. |
| Governance | 55/100 | A Protocol DAO exists for governance decisions, but token concentration among team, VCs, and treasury suggests meaningful centralisation of influence. |
| Launch Fairness | 40/100 | While the public sale used a sealed-bid auction, the large majority of supply went to team, VCs, angels, and treasury under vesting, limiting overall launch fairness. |
| Token Distribution | 38/100 | Roughly 80% of total supply is allocated to insiders and treasury/growth versus a much smaller public/community share. |
| Speculation/Utility Ratio | 65/100 | The token has defined utility (fees, staking, governance) though its high-profile auction launch and price surge indicate significant speculative trading alongside utility. |
Summary: The protocol is a genuine open-source FHE confidentiality layer with a burn-and-mint fee model, DAO governance, and a token launch weighted heavily toward insiders despite an innovative public auction mechanism.
3. Financial Health (4 criteria)
| Criterion | Score | Analysis |
|---|
| Protocol Revenue | 78/100 | Protocol-level revenue is fee-based and burned, with no lending/interest component identified at the base layer. |
| Financial Status | 55/100 | Large funding rounds and unicorn valuation are documented, but detailed post-launch financial stability of the protocol itself is not established in these sources. |
| Interest Assessment | 85/100 | The base protocol is an encryption/computation layer with no native lending or borrowing; confidential lending appears only as a third-party application built using Zama's technology. |
| Audit Quality | 60/100 | A named firm (OpenZeppelin) audited a specific Zama token library with no critical/high/medium findings, but comprehensive audit coverage of the full base protocol and staking contracts is not confirmed in these sources. |
Summary: Protocol revenue is fee-based and non-interest, the base layer itself offers no native lending, and while one specific component has been audited by a named firm, full-protocol audit coverage is not established.
4. Token Economics (5 criteria)
| Criterion | Score | Analysis |
|---|
| Token Purpose | 85/100 | The token's official white paper explicitly defines it as a utility token for protocol fees, staking, and governance. |
| Governance Rights | 50/100 | DAO-based governance is described for operators, but broader individual token-holder governance rights are not clearly detailed. |
| Rewards Distribution | 72/100 | Reward amounts are variable, tied to a governance-adjustable inflation rate and stake/activity via a square-root formula, not a fixed guaranteed rate. |
| Speculation Controls | 35/100 | Vesting cliffs apply to insider allocations, but public sale, liquidity, and campaign tokens were fully unlocked at TGE, limiting broader anti-speculation design. |
| Asset Backing | 60/100 | Token value is linked to protocol usage and fee-burn dynamics rather than an explicit reserve-asset backing, inferred rather than directly stated. |
Summary: ZAMA is a documented utility token for fees, staking, and governance with variable inflation-based rewards, though anti-speculation controls are inconsistent across allocation categories.
5. Staking Mechanism (5 criteria)
| Criterion | Score | Analysis |
|---|
| Mechanism Type | 72/100 | Staking is delegated (non-custodial delegation to operators), offers a liquid representation of the delegated stake, and has a clearly documented 7-day unbonding period. |
| Islamic Contract Classification | 40/100 | Sources give no Islamic contract classification; the mix of operator commission and inflation-funded rewards does not map cleanly onto a single recognised contract structure. |
| Rewards Structure | 45/100 | Staking rewards are funded through new token inflation/minting rather than being a direct share of real fee revenue, raising a structural concern about the reward source. |
| Documentation | 75/100 | Official documentation clearly describes staking mechanics, commission caps, and unbonding terms. |
| Shariah Alignment | 45/100 | The reliance on inflationary minting to fund staking rewards, rather than a clear profit-and-loss-sharing arrangement, leaves an unresolved core Shariah question about the reward mechanism. |
Summary: Zama has a documented delegated staking system with liquid delegation tokens and clear unbonding terms, but its reward source (inflationary minting) leaves its Islamic contract classification unresolved.
Overall Assessment: Zama presents as a legitimate, technically substantive cryptography project with reasonable transparency and non-interest fee mechanics, but concentrated token distribution and an inflation-funded staking reward structure leave some Shariah-relevant questions open rather than clearly resolved.
Scoring note: Meme coin: maysir-capped (C13=65); score already below the cap.
Written by ThanvirFounder, Ex Director S&P Global Energy
Reviewed by Imam Omar SiddiqiShariah Scholar