cryptowealth

Olympus DAO: Halal or Haram?

A DAO is a term related to the crypto world which refers to an organization with transparent rules, controlled by its members who are typically the holders of the DAO’s governance token.
What is Olympus DAO?
Olympus DAO issues a coin called OHM.
OHM aims to be a stablecoin backed by treasury assets.
In other words, rather than being pegged to the U.S. dollar like so many other stablecoins are, the value of the OHM token is meant to float based on the value of its underlying treasury of assets.
Olympus wants to achieve stability in OHM’s price through issuing more OHM when the price of OHM is greater than the value of the underlying treasury, diluting the supply and bringing the price down, and burning OHM when its price is less than the value of the underlying reducing OHM’s supply in order to push the price up.
Backing a currency with treasury assets is not a new concept. In fact, this was the system that traditional currencies used.
Most traditional currencies used to be backed by the Gold that the central banks held.
In theory you could take your dollars for example back to the central bank and exchange it for Gold.
The United States left the Gold standard in 1971 when Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value.
Olympus DAO is trying to create a currency in the crypto world that is backed by treasury assets similar to how traditional currencies used to be when they were backed by Gold.
The long-term goal of the Olympus DAO is for their currency OHM to become stable enough to be used in daily transactions and to quote prices while not relying on a peg to a traditional currency and maintaining a high degree of decentralized decision making.
It’s worth mentioning that even though OHM tokens aim to be a stablecoin, they are far from being one just yet. They have been very volatile since their first issuance in April of 2021 and much more volatility is expected before OHM reaches any degree of stability.
As far as halal and haram go, nothing about Olympus DAO’s goal of creating a stablecoin for the crypto world backed by treasury assets is inherently haram.
In fact, some argue that a currency in order to be halal should be backed by treasury assets, I happen not to hold this view.
How to use OHM tokens?
Holders of OHM can use their tokens to vote on issues pertaining to the protocol. The more tokens a holder has, the more votes they can cast.
Other than voting, OHM holders can either sell their tokens or stake them.
First let’s talk about staking OHM
If you go to the Olympus DAO website, you can see there is almost $2 billion dollars worth of market value that is staked, paying an annual return of close to %5,000 annually.
I suspect this comically high APY is a compelling reason why many have been asking about whether Olympus is halal.
So, let’s understand where this return is coming from.
The return that stakers get come from the process of bonding.
Remember how I said Olympus DAO is backing its OHM tokens with treasury assets consisting of a basket of cryptocurrencies.
Well, the way Olympus DAO gets these cryptocurrencies is through bonding.
Bonding happens when crypto assets are sold to the Olympus treasury in exchange for receiving OHM at a discounted price after a certain period of time.
So, let’s say OHM tokens are currently trading at $100 per token.
You want to buy OHM tokens with the Ethereum you have.
The Olympus DAO treasury will sell you OHM tokens for $96 (instead of the $100 they are worth on the market) on the condition you wait 5 days for their delivery.
Assuming the OHM tokens maintain their price during this time, you will make a profit on the OHM tokens you bought (to the tune of $4 per token) and the Olympus DAO treasury will add your Ethereum to its reserves which it will use to issue more OHM tokens against.
This bonding process seems to me a pretty clear form of prohibited riba since you are exchanging currencies of different types with delay.
The Prophet PBUH said: “Gold for Gold, Silver for Silver, Wheat for Wheat, Barley for Barley, Dates for Dates, and Salt for Salt – like for like, equal for equal, and hand-to-hand; if the types differ, then you may sell as you wish, provided the exchange is hand-to-hand.”
So the hadith starts by listing the common commodities that were used as currencies during the time of the prophet pbuh and says that if you’re exchanging them they must be for equal amounts and then says that if you’re exchanging currencies of different types then the exchange can be for different amounts but it has to be hand to hand meaning the exchange has to happen without delay from either party.
In the case of Bonding with OHM tokens, you are providing one cryptocurrency, for example ethereum, and you’re waiting a number of days before receiving the OHM tokens that you purchased for a discount which is what the prophet peace be upon him prohibited in the hadith I mentioned and there are other hadiths with the same meaning.
So the bonding part of the OHM protocol seems like riba to me.
Now we’ll move on to staking which is how you can earn the astronomical APY % I reference earlier:
As per the documentation on Olympus DAOs website:
“Stakers stake their OHM on the Olympus website to earn rebase rewards. The rebase rewards come from the proceed from bond sales”
Since the rewards for staking are coming from the bond sales which we’ve deemed in violation of the conditions of currency exchanges in Islam, I think these profits are haram to collect.
Now does it follow from what I said that simply holding OHM token or using it in a transaction as a currency is necessarily haram? I don’t think I can really say that since that would mean using traditional fiat currency is haram since fiat currency is primarily created through issuing interest-bearing debt and I don’t think using a U.S. Dollar to buy a Turkish Lira or an ice cream cone for example is something you need to necessarily worry about.
Also, as a holder, you are able to vote and potentially make proposals. So one may have the intention of affecting positive change in the protocol by being a holder and that is certainly not something that is haram.
Again, this is my assessment as of now. Let me know if I’ve missed something in the comments.
As always, I’m trying to do my best with my current understanding to ascertain the truth but I may sometimes get things wrong so be sure to stand guard at the doorway of your mind and only let in that which passes your critical interrogation.
If you’d like to follow my insha’ Allah halal crypto and stock portfolios you can do so by becoming a member here.