Shariah-Compliant Stablecoin PUSD Moves Into MidEast Institutional Arena

Overview

A new dollar-linked stablecoin, designed to comply with Islamic finance principles, has launched on the ADI Chain, a blockchain network in the Middle East. This development introduces PUSD, a digital currency backed by regional currencies, to a platform supported by major financial institutions in Abu Dhabi.

PUSD and Its Design

PUSD, issued by Palm Azgar Finance, is structured to meet Shariah compliance by holding reserves in Saudi riyals and UAE dirhams, both of which are pegged to the US dollar. This approach is essential for its compliance with Islamic finance rules, which prohibit interest and mandate asset backing for financial instruments. The stablecoin currently has approximately $2.3 billion in circulation and operates on several significant blockchains, including Ethereum, BNB Chain, Solana, and Tron, with the ADI Chain being its latest addition.

The ADI Chain was developed as a settlement layer for a dirham-backed token through a partnership involving International Holding Company and First Abu Dhabi Bank, and it has received licensing from the Central Bank of the UAE. With PUSD integrated into this network, institutions can now settle transactions using either a dollar-linked stablecoin or a dirham-denominated token on the same platform. The ADI Foundation emphasizes that the network is designed to facilitate payment corridors throughout the Gulf region, the broader Middle East, and parts of Africa.

The Significance of the Islamic Finance Market

Islamic finance assets are estimated to exceed $3 trillion globally, as reported by the ADI Foundation. Traditionally, this substantial market has been dominated by conventional banks and funds that operate under Shariah guidelines. However, blockchain-based financial solutions have faced challenges in achieving widespread adoption within this sector.

Shariah law imposes specific financial restrictions, including the prohibition of interest, limitations on speculation, and the requirement that financial instruments must be backed by tangible assets. As a result, most cryptocurrency products do not qualify under these guidelines. For a stablecoin like PUSD to be considered Shariah-compliant, it must maintain verifiable reserves and refrain from generating interest-based returns. While certification from qualified Islamic scholars is typically necessary, it remains unclear if PUSD has received such certification.

PUSD’s integration into the ADI Chain represents a strategic move aimed at attracting corporate treasuries, exchanges, and payment processors seeking compliant digital settlement solutions. The UAE has emerged as a proactive regulatory environment for stablecoins, with the Central Bank and the Abu Dhabi Global Market implementing various frameworks that encompass both dirham-pegged and dollar-denominated tokens.

From author

The introduction of PUSD to the ADI Chain highlights the growing intersection of blockchain technology and Islamic finance. This development not only reflects the potential for digital currencies to operate within established financial frameworks but also emphasizes the increasing demand for compliant financial products in the Middle East. As the region’s regulatory landscape evolves, it will be interesting to observe how this affects the broader adoption of blockchain technologies in Islamic finance.

Impact on the crypto market

• The launch of PUSD expands the range of compliant financial products available to institutions operating under Islamic finance principles.
• The integration of PUSD into the ADI Chain may enhance liquidity and facilitate smoother transactions within the Middle East and neighboring regions.
• The presence of established stablecoin issuers such as Tether and Circle in the UAE financial landscape increases competition for PUSD.
• The regulatory support from the UAE Central Bank and ADGM could pave the way for further innovations in the cryptocurrency space.
• The growth of Islamic finance assets may attract more blockchain-based solutions, fostering a more inclusive financial ecosystem.