Is Luna Halal to Invest In?

Terra Luna Quick Facts:

Founders: Daniel Shin and Do Kwon

Date Founded: April 2019

Current Developers: Terraform labs 

Max Supply: None

Practical Islamic Finance Rating: Uncomfortable.

Intended Purpose

According to Terra’s founders, Terra Luna is a network that allows for the creation of stable coins in a decentralized fashion that “is both price-stable and growth-driven.” 

They achieve this by using an elastic money supply, balancing the price of the stable coins by introducing supply when the price rises or burning it as the price goes down.

The stable coins cannot be minted without burning the equivalent value in LUNA. This causes LUNA to increase in value (at least in theory) as more stable coins are minted and the supply of LUNA drops.

Terra strives to become a global e-commerce platform that can accommodate smart contracts and various Defi applications. 

Current Utility

As of today, there are a few Defi applications that already exist on the network but there is no widespread adoption similar to that of Ethereum.

Practical Islamic Finance concludes:

Terra Luna’s intended purpose as a decentralized stable coin platform with smart contract capabilities is not inherently haram.

Is Terra Luna Linked to Interest-Bearing Debt?

The increased utility of Terra Luna allows for the possibility of applications that partake in interest-bearing activities but these are built on top of the network rather than an inherent part of it. 

Another point of concern might be the governing algorithms that keep the stable coins at their current prices. 

The act of keeping a currency at a stable price by controlling the supply is not inherently linked to riba unless they use a system of borrowing and loan financing to either stimulate or reduce the money supply. 

Since Terra uses the burning and minting of coins to control the money supply, it does not have to rely on riba in order to operate.

Practical Islamic Finance concludes:

Despite the presence of interest-bearing activities that occur on Terra Luna’s blockchain, these are not inherent to the functionality of the blockchain itself. 

What is Terra Luna’s ESG Rating?


Terra Luna uses a proof-of-stake system that only uses the required computations in order to operate. Proof-of-stake tends to have a much smaller impact on the environment per transaction compared to proof-of-work. 


There is nothing inherently evil or damaging about crypto stable coins which are what Luna attempts to provide a platform for.

However, to incentivize obtaining their tokens, Terra has relied on unsustainable returns generated by the Anchor protocol. This has led to the project gaining traction and appreciating in price more than what the practical use cases or prospects of the token truly justify.


Generally speaking, decentralization makes it difficult, and sometimes impossible, for a corrupting force to affect all points of influence simultaneously.

It is noteworthy that Luna seems rather centralized with a central figure Do Kwon making the most critical decisions.

This centralization makes Luna more susceptible to attacks and corruption.

Practical Islamic Finance concludes:

Terra luna has a centralized structure and has attempted to gain prominence through unsustainable returns which have hurt its holders.

Comfort Rating

While there is nothing inherently haram in the purpose of creating stablecoins that are pegged to traditional currencies, we are uncomfortable with the way Luna’s creators have attempted to increase the traction of their token through unsustainable returns offered through a separate product, Anchor protocol.

Uncomfortable to invest in from a Halal perspective.

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