Is AAVE Crypto Coin Halal?

In this article we do a complete shariah screening to find out if AAVE Crypto Coin is halal or haram. The short answer is AAVE is not halal, in fact it is so haram that all 4 of the sources used all came to the same conclusion without any ambiguity at all. Muslims should not trade, invest ot stake AAVE at all. If you are a fan of AAVE please read on and find out why it should be avoided. 

What is AAVE Crypto Coin?

Aave is an open source and non-custodial protocol for making deposits and creating loans with payment one month later on a variable or consistent interest rate. It also facilitates ultra-short term, uncollateralized loans that last less than a day that are supposed to be integrated into other products and services.

ETHLend began in 2017 and raised $16.2 million in an initial coin offering (ICO) to inspire a crowdfunding campaign similar to a trustless organization. In 2020 it rebranded as Aave when it transitioned to a liquidity pool model. Aave developed the Aave Protocol in 2020 as an open-source and non-custodial protocol that allows users to profit via interest on deposits and borrow assets.

Further details can be found on Aave website.

Who Invests In AAVE?

Three Arrows Capital

AAVE’s Technology

Aave shifted from a decentralized peer-to-peer debt structure (direct loan relationship between lenders and borrowers, such as in ETHLend) to a pool-based arrangement. Lenders provide liquidity via cryptocurrencies deposited by a pool contract. Simultaneously, the same contract offers investors the ability to borrow the pooled sums by placing their collateral.

Loans are not individually matched; instead, they depend on the pooled resources, in addition to the amounts borrowed and their collateral. This allows instant loans, which vary based on the condition of the pool.

Legitimacy Screening of AAVE Crypto

Legitimacy screening ensures that the digital asset is a genuine project and not a scam. AAVE has a legitimate product, built using blockchain technology and has public roadmap showing its development plans. This in addition to the successful ICO in 2017, gives us the confidence to confirm that AAVE has an underlying fundamental value, that can be considered as “Mal” under Islamic rulings. Therefore, as a project it has legitimacy in terms of Shariah.

Is AAVE project aligned with Islamic values?

No, AAVE does not align with Islamic values and fails project screening. As explained in the technology secion above Aave’s Protocols are based on ecosystem for lending and borrowing purposes that contain riba. DeFi applications that contain interest based finance do not compy with the Shariah rulings.

Financial Screening of AAVE:

Financial screening ensures that the crypto asset meets the financial criteria for Shariah compliance, if it is an equity based token. AAVE is not backed by any equity, so there is no financial screening required on this coin/ token. Here we would typically look at things like debt to income ratio to ensure borrowing is limited to a tolerable level.

AAVE Token Screening for Shariah Compliance

Token screening is an assessment of the mechanics of the token itself, to see if it is compliant with Islamic rulings. AAVE platform contributes to the lending activity which includes interest and is forbidden in Islam. This token should be considered haram.

Is Staking AAVE Coin Halal?       

Staking as a concept is not against Sharia guidelines. It’s simply a set of pre-defined rules used by a crypto project to determine who gets the rights to add to the blockchain. It is important to note that every project has its own specific staking mechanism, so we need to assess the staking details to ensure they are Shariah compliant. And of course the underlying crypto asset itself mush to be halal to start off with.

In this case the underlying crypto asset is not Halal and so Staking AAVE is not Halal.          

What Does The Muslim Crypto Community Think of AAVE?           

Sharlife considers AAVE as a haram cryptocurrency based on the five areas assessed for Shariah complaince screening.

Crypto Halal Office for Monitoring and Sharia auditing on cryptocurrency markets considers AAVE as a Haram digital asset based on its Shariah complaince screening.

Islamic Finance Guru (IFG) believes AAVE is a haram cryptocurrency based on its method of Shariah complaince screening

Marhaba DiFi‘s Shariah governance board also beleives AAVE is a haram crypto and steers Muslims away from it. 

If you know of other academic or scholarly views on this, please add in comments and we will update accordingly. Alternatively, you may want to join our community of Muslims crypto investors and traders, to share, learn and profit from halal digital assets.          

Is AAVE Crypto Coin Halal?         

AAVE Shariah screening is fairly clear. The ecosystem of AAVE focusing on P2P lending platforms using smart contract, then changed to pooled funds. The entire ecosystem and protocols by AAVE are for non Sharia compliant activities with lending and borrowing that contain usury as part of the contract. The lender will gain interest from providing funds to the borrower and the borrowers are willing to pay interest to gain returns, as long as they supply collateral assets to the pooled fund.

Everyone that has assessed AAVE has come to the same conclusion that, the ecosystem in AAVE is Riba’ based and therefore this is Haram, without question.

We hope you found this useful. Please view our Halal Crypto List to find suitable digital asset investments, without compromising your Islamic faith.