Is It Permissible to Use Defi Technology to Generate Profits?

Answered by Mawlana Ilyas Patel

Question

A friend is encouraging us to explore a website that leverages DeFi technology to generate profits.

I have concerns that engaging in such activities might inadvertently involve us in earnings that could be considered haram.

Some of our mutual friends have attempted to persuade him that it might not be permissible (haram), but he insists on seeking guidance from someone well-versed in Islamic financial laws as he claims to have done previously.

Therefore, my question is: Does participating in this venture align with Islamic principles and qualify as a halal means of earning money?

Answer

In the Name of Allah, the Most Merciful and Compassionate

This is a lending-based contract model. Depositors contribute funds, which are then accessible to borrowers who require loans. Borrowers must pay interest on the borrowed amount, resulting in depositors receiving profits. This structure is considered an interest-based contract, which Islam prohibits, as one benefits from lending money to others.

There is a juristic principle: it is not permissible to derive any benefit from a loan. It has been reported in a halted-chain report (mawquf), “Every loan that draws a benefit is in every respect interest.” [Ibn Hajr, Al-Talkhis al-Habir]

I would like you to go through the valuable answers and links below. You will receive guidance and direction in sha Allah.

Check the related links:
What Is Decentralized Finance (DeFi) and How Does It Work? (investopedia.com)
Yunus Loop DeFi

Why not begin your search for knowledge by signing up for a course on SeekersAcademy (seekers.flywheelstaging.com), like from the Islamic Studies Curriculum (seekers.flywheelstaging.com) or Youth Islamic Studies Curriculum (seekers.flywheelstaging.com), building your way up doing each course?

I pray this helps answer your question.

[Mawlana] Ilyas Patel
Checked and Approved by Shaykh Faraz Rabbani

Mawlana Ilyas Patel has received traditional education in various countries. He started his schooling in the UK and completed his hifz of the Quran in India. After that, he joined an Islamic seminary in the UK, where he studied secular and Aalimiyya sciences. Later, he traveled to Karachi, Pakistan, and other Middle Eastern countries to further his education. Mawlana has served as an Imam in the Republic of Ireland for several years and taught the Quran and other Islamic sciences to both children and adults. He also worked as a teacher and librarian at a local Islamic seminary in the UK for 12 years. Presently, he lives in the UK with his wife and is interested in books and gardening.

حديث: أن النبي ﷺ نهى عن قرض جرّ منفعة.
وفي رواية: «كُلُّ قَرْضٍ جَرَّ مَنْفَعَةً فَهُو رِبًا».
قال عمر بن بدر في «المغني» لم يصح فيه شيء.
وأما إمام الحرمين فقال: إنه صح، وتبعه الغزالي في الوسيط  وقد رواه الحارث بن أبي أسامة في «مسنده» من حديث علي باللفظ الأول. وفي إسناده سوار بن مصعب وهو متروك.
ورواه البيهقي في «المعرفة» (٤) عن فضالة بن عبيد موقوفًا، بلفظ: كل قَرْضٍ جَرَّ مَنْفَعَةً فَهُوَ وَجْهٌ مِنْ وُجُوهِ الرِّبَا.
ورواه في «السنن الكبرى» عن ابن مسعود، وأبي كعب، وعبد الله بن سلام، وابن عباس،، موقوفًا عليهم.

الكتاب: التمييز في تلخيص تخريج أحاديث شرح الوجيز المشهور بـ التلخيص الحبير
المؤلف: أبو الفضل أحمد بن علي بن محمد بن أحمد بن حجر العسقلاني (ت ٨٥٢هـ)
المحقق: الدكتور محمد الثاني بن عمر بن موسى
الناشر: دار أضواء السلف