Web3 Needs Ethical Finance, Ethical Finance Needs Web3
Cryptocurrencies are a story of offering what others could not. Crypto offered transparency. Crypto offered decentralized ownership and digital-native finance. Crypto offered everything that conventional finance could not — or would not — offer.
Whether crypto delivered on its promises is an open-ended question. What’s certain is that it’s time to embark on a new journey, long-ignored by traditional institutions: ethical finance.
Even as BlackRock CEO Larry Fink has become increasingly concerned about the lack of ethical financial practices and the problems with its utilization within traditional finance, some propose reconciling the ESG concept and shifting to the concept of “Inclusive Сapitalism” and “Impact Investing.”
The concept of ethical finance — which is firmly rooted in the values of sustainability, social responsibility, and transparency — is gaining momentum across the global community. In an environment where these ideals are becoming harder to find in traditional finance, the potential of blockchain technology must address pressing imbalances and inequalities by eliminating intermediaries, enhancing transparency, and empowering individuals and underserved communities.
Realizing Ethical Finance Through Regenerative Finance
Various initiatives have tried to demonstrate the promise of ethical finance through blockchain technology. However, I see two dominant narratives forming.
The first is Regenerative Finance (ReFi), which focuses on building sustainability-related projects. Unlike traditional cryptocurrencies, which still derive a bulk of their trading volumes from speculation, ReFi projects are intended to be used for real-world applications and tangible utility creation aimed at meeting the ESG and UNSDG goals.
ReFi redefines the user’s relationship with wealth and the current financial system. At its core, ReFi emphasizes equitable accessibility and distribution, as it is a multi-layered concept that promotes regeneration and preservation rather than exploitation. The ReFi space is rapidly growing, with more than 100 companies currently in operation. I heuristically divide all projects into the following categories:
DAOs (Gitcoin, KlimaDAO)
Metaverse (Wildchain, Woodies)
Impact-2-Earn (Dotmoovs, Sweatcoin)
NFTs (Carbonable, Sapling)
Extending Blockchain’s Utility to Underserved Communities
Another dimension of ethical finance — that blockchain has so far been painfully slow to adopt — is catering to the needs of underserved and underbanked communities. While the industry saw the development of some projects like a currency for Native American tribes, the current level of attention to these opportunities is low. Yet, ethical finance initiatives may be able to kill two birds with one stone, both attracting investors seeking ESG compliance and organically onboarding people who are far from being digital natives.
Take as an example the transition of Islamic finance practices onto the blockchain. This integration seamlessly aligns with the core principles of Islamic Social Finance – a movement dedicated to societal well-being through equitable wealth redistribution and ethical financial transactions.
Crypto-based Islamic finance products are Shariah-compliant. This means they adhere to the religious principles of Islam, including the prohibition of ‘riba’ or charging of interest and gambling. Reconciliation of centuries-old principles with cutting-edge technologies may be strange, but only at first glance. It’s essential to recognize that these Shariah principles are, in essence, timeless and adaptable.
Current Hurdles to Ethical and Shariah-Compliant Crypto
Most of the projects in this space focus solely on business transactions, neglecting the broader Muslim lifestyle, while others emphasize aspects without a Shariah Advisory board to guide them. For instance, projects can introduce a blockchain ‘sukuk’ (bond) model or a ‘waqf’ (endowment) platform but not try to pursue a full-fledged ecosystem.
In my opinion, that fails to capture the needs of more than two billion Muslims across the globe. We need to go beyond these base-product initiatives and construct an all-encompassing financial ecosystem in alignment with Islamic principles. The overarching goal is to establish a comprehensive, digital, and convenient way of life within the tenets of Islam.
In achieving this, a project must consider not only the creation of fundamental components inherent in any blockchain ecosystem, such as an L1 blockchain, cryptocurrency, wallet, and launchpad. It should also include on-chain and off-chain structures designed for Sharia compliance. The project must offer a diverse array of decentralized applications (dApps) developed by third-party contributors to address the everyday requirements of the Muslim community.
The Path Forward
As the blockchain industry matures, we can expect to see more projects and assets focused on ethical finance. This is a positive trend, as it will help to make the industry more sustainable and aligned with the values of a growing number of investors. With the promise of ethical blockchain finance, we stand at the threshold of a more equitable and transparent financial landscape where principles of fairness, justice, and transparency can thrive.
Crypto has exhausted its fundamental drivers for change. Web3 needs ethical finance, and ethical finance needs Web3 – and it needs it today.
Mohammed AlKaff AlHashmi is an entrepreneur with a series of cutting-edge tech initiatives. He is a co-founder of Islamic Coin: a currency dedicated to empowering an ethics-first Shariah-compliant financial ecosystem HAQQ Network. AlHashmi is a public speaker and mentor, seeking to educate community members.
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