The author of the column is Alexander Savinkin, our investment expert and co-founder of Howtotoken. It’s #icobusted where we’ll scan the market for the newest and most remarkable upcoming ICOs and analyze them in-depth, and our focus will be on the viability of the business concepts behind these projects. This won’t concern pre-ICO/ICO price gaps, no gasps and groans about the team, and no code checking. Here, we will try to break everything down to see if there are any market prospects for the product if, and only if, that product can be delivered.
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Today, we’re looking at an Islamic crypto exchange that is compliant with Shariah law. Yeah, this is yet another crypto exchange and pretty much just a niche solution. Regardless, this niche is experiencing a serious amount of demand from the public on the conventional markets, which can have an effect in the crypto world as well. There are a lot of emerging islamic exchanges in line with Shariah law on the traditional markets, and it is possible that there is, in fact, a place for the islamic crypto exchange in the world. And the first platform in line is ADAB.
Similarities and differences with the traditional crypto exchanges
It is true that most crypto exchanges have a high degree of similarity, but there are some cases with additional special traits like ADAB. While including most of the financial instruments of Western world, Islamic financial services do comply with Sharia law, meaning that some activities-based investment options are not listed on the market while interest rates are also reconsidered in a way to prevent usury. In terms of ADAB restrictions, it looks like this:
- Operations based on riba (interest rates of any form are forbidden).
- Operations involved with gambling.
- Activities associated with haram goods (liquor, pork, and so on).
- Operations with gharar (uncertainty) involved, such as prediction markets.
With the addition of these for boundary decisions:
- The main activities of the company should not conflict with principles of Shariah.
- The public perception of the company should be mostly beneficial for Muslim Ummah.
Some of the branches of Islam consider cryptocurrency itself to be haram (forbidden), while others accept it gladly. In this environment, ADAB stands as the middleman between the progressive part of the Islamic community and the cryptoworld. The product itself is not an entirely new idea. There are a lot of shariah-compliant exchanges that can be found all over the world, but this is the first one for the cryptoworld.
Fundraising and budget allocation
Fifty percent of the financial resources are allocated to the operational and development expenses of the project, with 20% allocated to marketing expenses (which seems to be the common ratio for the crypto exchange projects). Their hardcap is $18,700,000, while the softcap is only at $2,500,000. Development expenses should be covered by 20% of budget. With that amount we can estimate the minimal budget for development costs at around $500 000 USD, which is rather harsh. But it is reasonable enough with possible outsourcing for sums starting at 10 BTC.
With the global equity traditional stock market reaching 100 trillion USD, a shariah-compliant counterpart of this market could be estimated at around 1% of the whole. Figures could differ, but with that proportion in mind and a total cap of the crypto market at around $200,000,000,000, ADAB could, in theory, have a market at a size of $2,000,000,000.
Having applied the same proportion, we can compare the 1% from the rough estimation of 50 million crypto users globally (for ADAB, this can make 500,000 potential crypto users who consider Shariah-compliance essential) and the 8 million Binance customers.Thus, by knowing market cap of Bincance (about $1,450,000,000) we can deduce a potential market cap of ADAB to be at a level of $90 million in the possible future.
We should also consider the substantial growth in the crypto trading sector while global trends are showing stalemates, so this proportion may change again. Also, with the recent changes regarding the views of cryptocurrency among muslim society, this figure might scale by a substantial amount.
It’s also worth mentioning that there is no one approach to halal activities (since different groups within Islam have different opinions as to what is admissible), so with ADAB being the first crypto exchange, it might create a standard for those that can make the market more organized, while excluding all of the conflicts that might arise because of this.
While lacking substantial innovation (in a technological and business sense) ADAB seems to be a solid niche project that has seemingly found an area to be a pioneer in. With its market position secured, ADAB can further develop itself by increasing its auditory coverage or creating additional services for their already loyal users. So in the end, this is a specialized project with the potential for further development with very favorable starting conditions.
Pros and cons
(+) Potential niche leadership.
(+) Reasonable expectations for stable development.
(+) Potential market value and importance as a guide to other projects of this caliber.
(-) Yet another crypto exchange.
(-) Nothing new in terms of innovation.
(-) The base for sharia-compliant tokens is unknown territory, so a lot of uncertainty remains.
If everything remains tight and focused, investors should take this possible niche leader into consideration.
- The comparison of shariah screening methodology for stocks between malaysia security commission criteria and dow jones method: a critical assessment by Nur hamizah binti najib, Iffah raihan bt hamid, Seri nadhirah bt nasarudin and Buerhan saiti
- The Stock-Exchange from an Islamic Perspective by Seif I. Tag el-din
- Sharia Stock Screening: A Fund Manager’s Conundrum by COGNIZANT
- Islamic finance – the lowdown on sharia-compliant money by Hilary Osborne
- Sharia Law And Bitcoins Fatwa by Danish Javed