IBFx: The Future Currency of Islamic DeFi

IBFx is being designed as the crypto currency of IBF Net: The Islamic Business and Finance Network. With the introduction of this currency, the network would witness a shift from an exchange of views to an exchange of values among its members. It is a landmark development for IBF Net, which is the oldest online community in the field of Islamic banking, finance and business, set up on Yahoo Groups in the year 1999. It metamorphosed into a think tank in the field, the maiden provider of e-learning courses in Islamic banking, insurance and investments, and was given the Global Excellence in Islamic Finance award at the prestigious International Islamic Finance Forum (IIFF) held in 2007. IBF Net moved from India to Malaysia in 2019.

Slated to be launched during 1442H, IBFx would initially be a closed-loop virtual currency used for payment in intra-network transactions. As the network would grow stronger leading to an increase in the volume of intra-network transactions, it is expected to steadily enhance the intrinsic value of the currency. Given the closed-loop nature, it will be unregulated. At a cut-off level of fundamental value, in the next phase, IBFx would be converted to an open crypto and regulated. IBFx is being developed by IBF DigiLabs – the Singapore-based flagship of IBF Net.

The coming months for IBF Net would involve extensive efforts at expanding the size of the network by incentivising membership of the network while demanding minimal data. Transactions and use cases would be introduced in the network in a phased manner from simple to complex and depending upon permissibility or otherwise of specific types of transactions from a regulatory perspective. 

Member Types

1. Member
2. Donor- Volunteer – Beneficiary 
3. Buyer – Seller of goods/services
4. Sender – Receiver of money
5. Borrower – Lender of money
6. Investor – Investee of money

KYC would apply for certain user types depending on financial regulations in a given territory. Halal screening would apply for all transactions.

Transaction Types

1. Gift > one-way flow of value
2. Donation > one-way flow of value (with/without milestones and monitoring)
3. Exchange > two-way flow of value (spot settlement; applies to commodities, currencies) trade/remittance
4. Loan > two-way flow of value (deferred repayment; with/without maturity; with/without collateral; with/without guarantee)
5. Financing > two-way flow of value (spot delivery; deferred payment & vice versa) instalment sale, leasing, sale against advance
6. Financing > two-way flow of value (deferred payment and delivery)
7. Investment > two-way flow of value (value in future is uncertain and determined by contract terms)

Token Type

• IBFx is being designed as an Algorand Standard Asset (ASA) that enjoys the security, scale and economy associated with layer 1 Algorand protocol.
• IBFx is a utility token as distinct from a security token, that gives holders a right to use the network and benefit from free resources.
• IBFx is free from securities regulation, since no asset tokenization is involved.
• IBFx is a fungible token, as distinct from collectibles or NFTs.

Value of IBFx

The value of IBFx like that of any other token made up of its intrinsic or real or fundamental value and speculative value. The speculative value is what the token gains from speculative traders who expect its price to fluctuate in the near future. In conventional DeFi space, the speculative value is usually under focus as the following narrative clearly suggests.

“For better or worse, speculation and fear of missing out (FOMO) are major culprits behind why people have been buying and trading utility tokens. Although you can’t redeem a utility token for goods or services, a holder can go onto crypto exchanges (think of a thinly regulated NYSE or Nasdaq type of entity) to buy and sell utility tokens. A person purchases a utility token hoping that there will be positive sentiment towards the underlying project, which will entice someone else to want to pay a higher price for the same token. Another person sees how the utility token has been increasing in price, and fears that if he or she does not buy now, he or she will miss out on buying the utility token cheap enough (i.e. FOMO), and thus buys the utility token at the higher price. The price or value given to the utility token is derived mostly from speculation, and the merry-go-round of price appreciation continues as long as there is a third party willing to buy the utility token at a higher price. That being said, utility tokens have the potential to create and retain real value as well.”

While the presence of some speculative investors may improve the liquidity of the token, it is hazardous for it to be priced purely on its speculative value. Overall, it is grossly un-Islamic, though it may not be possible to label a specific transaction as prohibited, since intentions behind transactions are largely unobserved. In the Islamic framework, the intrinsic value or the value that the token gains, is from the credibility and utility of IBF Net as a project. This is what governs the economics of tokenization.

So, how does the IBFx Coin get its intrinsic value? The intrinsic value is created by the underlying project and how much percentage of that value is captured by the token. This is one of the primary functions of tokenomics or token economics; William Mougayar came up with the term and also came up with the three tenets behind a token’s value. According to Mougayar, there are three tenets to token value and they are: Role, Features and Purpose.

Each token role has its own set of features and purpose. Let’s examine each of the roles that IBFx can take up.

• Rights (bootstrapping engagement): By taking possession of IBFx, the holder acquires certain rights within the ecosystem, e.g. partial access to e-library resources, right to undertake a survey, right to freely audit e-learning courses offered by IBF Net, voting rights on membership privileges, etc.
• Value Exchange (economy creation): IBFx aims to create an internal economic system within the confines of the IBF Net project itself. This helps the buyers and sellers trade value within the ecosystem. This creation and maintenance of individual internal economies is one of the most critical tasks of tokens.
• Toll: It can also act as a toll gateway for the use of certain functionalities of a particular system, e.g. need for the use of IBFx coins in order to gain full e-library access, take examinations and get certified in IBF Net courses, and a few other premium services such as preservation of documents on blockchain, translation of documents, research support in the form of data analysis and language editing.
• Function (enriching user experience): IBFx can also enable the holders to enrich the user experience inside the confines of the particular environment, e.g. holders of IBFx will get the rights to enrich the customer experience by adding advertisements or other attention-based services on the IBF platform.
• Currency (friction-less exchange): IBFx can be used as a store of value which can be used to conduct transactions or sale of services inside the given ecosystem.
• Earnings (distribution of profit shares): IBFx coin can help in the equitable distribution of profits or other related financial benefits among members of the network.

IBFx coins, by having multiple properties will have more intrinsic value. With a fixed supply of IBFx coins, higher intrinsic value is expected to be reflected in its exchange rates against fiat money.

Network Size

There is a strong relationship between the size of the IBF network, the number of transactions on the network and the value of that network itself. This is captured in Metcalfe’s Law – a theory of network effect. Metcalfe’s law states that the effect of a telecommunications network is proportional to the square of the number of connected users of the system (n²). For example, if there are two telephones in a network, then only one connection can be made. If there are 5 telephones, then 10 connections can be made. However, if there are 12 telephones in the network, then 66 connections can be made, implying an exponential growth in value. Furthermore, it must be noted that networks tend to have a life of their own. As more and more people use them, they tend to attract more and more users. This is the reason why most successful networks tend to enjoy extreme exponential growth.

Since a large chunk of the initial members of the IBF Network would largely come from a community of students, researchers and academia, the demand and supply for IBFx will reflect these factors.

Factors contributing to Demand-Supply for IBFx in Phase I:

Members can earn IBFx through the following ways (including but not restricted to):

• Posting blogs
• Posting infographics
• Sharing articles, books and reports
• Reviewing submitted resources
• Listing courses
• Providing research guidance
• Mentoring and coaching
• Providing editorial assistance
• Providing translation services
• Selling listed halal goods and services, etc.

Members can Spend IBFx to (including but not restricted to):

• Enrol for courses
• Buy articles, books and reports
• Gain access to resources
• Place adverts and promotional material
• Use the network for conducting voting
• Use the network for conducting surveys
• Avail other membership privileges
• Preserve documents on blockchain
• Buy listed halal goods and services

Notes:

• The ecosystem may be huge with diverse regulatory requirements and different time frames (e.g. transaction types 1, 2 and 3, except remittance, generally do not require licenses; types 4 and 5 are usually subject to banking/NBFC regulations; type 6 is governed by security market regulations).
• Specific IBF products will be offered to the public beyond the IBF Network, where fiat or other open cryptos will be the medium of transactions; but will eventually be supplemented with IBFx as an additional payment option.
• Scalability should be sharply under focus, given the different time frames for different transaction types; it should be possible to ensure seamless integration of new smart contracts into the IBF ecosystem. 
• Flexibility across multiple use-cases (same contract types with different project types as in the case of a loan product for a microenterprise or an education loan with different values of product features, e.g. loan value, purpose, eligibility of borrower, maturity, number of instalments) would be emphasised.

Let me finish this blog by repeating a question I raised earlier in one of my blogs. Can a crypto without ANY intrinsic value (can only be used as medium of exchange) without ANY network to back it survive in a market with 7000+ cryptos (unless it is artificially jacked up in the short-run); and what happens when the jack disappears? If we want to introduce any crypto in a halal way (without the jacks or manipulators), let us not fool ourselves or let Satan deceive us – we can do this only by first building a strong network, ensure good “value” for the users of our crypto – and this is possible only by building multitude of use cases in our crypto-centred ecosystem. IBF Net has in its drawing board a series of use cases involving multiple sub-sectors of Islamic business and finance, including philanthropy (sadaqah, zakat and waqf), non-profits (qard, kafala) and for-profit (trade, lease and partnerships) that would ensure sustained and high intrinsic worth for IBFx in future.