Is the QELT convertible token structure involving one dollar repayment considered Riba al-Fadl or any other type of Riba in Islam?

Our Shariah Board Chairman Dr. Usman Quddus, PhD in Islamic Studies and Finance, reviewed the complete question and issued the following formal ruling:

Original ruling in Urdu:

ربا الفضل و النسیئہ رائج سود کی شرعی تقسیم ہے جس میں ہم جنس کی ہاتھوں ہاتھ کمی و زیادتی اور وقت کی نسبت سے ہم جنس اشیاء کی کمی زیادتی مراد لی جاتی ہے جس سے شرع نے منع کیا ہے۔ QELT ایک ٹوکن ہے جو معدنیات و ذخائر کی نمائندگی کر رہا ہے جس کی قیمت ان کا نظام طے کرتا ہے۔ بوقت واپسی شئی کی قیمت کو بنیاد بنا کر واپس کرنا بہتر ہے اس میں سود کا شبہ نہیں رہتا۔ مگر جس قیمت پر ٹوکن لیا گیا تھا اس میں کمی کر کے دینا غرر کے قبیل سے ہے اس کو سود تو نہیں کہا جا سکتا لیکن غرر کے باعث یہ تجارت مکروہ ہو گی۔

English translation of the ruling:

Riba al-Fadl and Riba al-Nasiah are the recognized scholarly divisions of conventional interest in Islamic law. Riba al-Fadl refers to an immediate exchange of the same type of commodity in unequal quantities, while Riba al-Nasiah refers to an increase in the same type of commodity due to the passage of time. Both are prohibited by Islamic law.

QELT is a token representing minerals and natural reserves whose value is determined by their own system. At the time of redemption, returning the token based on the current market value of the underlying asset is the better approach and in this case the doubt of Riba does not remain.

However, returning less than the price at which the token was originally purchased falls under the category of Gharar. This cannot be called Riba, but due to the Gharar involved, this type of transaction would be considered Makrooh, meaning discouraged.

CoinStudy Answer:

Our Shariah Board Chairman Dr. Usman Quddus has issued a formal ruling on the QELT convertible token structure. The ruling addresses both the Riba question you raised and introduces an important additional concept that provides complete guidance on this mechanism.

On the Riba al-Fadl question, the Chairman confirmed that Riba al-Fadl and Riba al-Nasiah are the recognized scholarly categories of interest in Islamic law. Riba al-Fadl is an immediate exchange of the same commodity type in unequal quantities. Riba al-Nasiah is an increase in same-type commodities due to time passage. The Chairman then made a crucial determination: QELT is a token representing minerals and natural reserves, not currency, and not the same type of commodity as the dollar used for redemption. This means the standard Riba al-Fadl analysis that applies to gold-for-gold or silver-for-silver exchanges does not apply directly to QELT in the same way.

On the Riba question more broadly, the Chairman's ruling is favorable for one specific scenario. When the QELT token is redeemed at the current market value of the underlying mineral and resource assets at the time of redemption, the doubt of Riba does not remain. This means that a redemption system where the token holder receives the fair current market value of the assets the token represents at the time they redeem it is permissible and free of Riba concerns.

The concern the Chairman identified is not Riba but Gharar. If the token is redeemed at a fixed one dollar value that is less than the price the token holder originally paid, this creates Gharar, meaning excessive uncertainty and unfair ambiguity in the transaction. The token holder purchased at a certain price, the underlying assets may have increased in value, but they receive less than they paid. This is not Riba but it is Gharar, and the Chairman ruled that a transaction with this structure would be Makrooh, meaning discouraged rather than outright prohibited.

The practical guidance from the Chairman's ruling is specific and actionable for Muslim investors evaluating QELT. If the redemption mechanism returns the current fair market value of the underlying mineral reserves at the time of redemption, the transaction is permissible with no Riba or Gharar concern. If the redemption mechanism returns a fixed one dollar value that may be below the original purchase price or below the current market value of the underlying assets, the transaction is Makrooh due to Gharar and should be avoided. Muslim investors should specifically verify which redemption model QELT actually implements before participating. If the redemption is at current asset market value, participation is permissible. If the redemption is at a fixed rate that could return less than paid, the Makrooh ruling applies and avoidance is the safer approach in keeping with the general Islamic principle of leaving what makes you doubt for what does not make you doubt.