Could FTX Be Averted If Islamic Finance Ethics Were Applied?

6 min readDec 7, 2022


On Nov 11, 2022, the centralized cryptocurrency exchange FTX plunged from $32 billion to bankruptcy in a matter of days, dragging down the CEO Sam Bankman-Fried (also known as SBF) along with it. Here’s a summary of events:

  • A report by CoinDesk on Nov 2 revealed that Alameda Research, the trading firm run by Bankman-Fried, held a position worth $5 billion FTT (a native token of FTX).
  • This prompted concern across the crypto industry regarding the trading firm’s undisclosed leverage and solvency.
  • A few days later, Binance, the world’s biggest crypto exchange, announced its decision to liquidate its entire position in FTT tokens as a risk management measure.
  • Seeing this move, other investors also started to withdraw their assets.
  • SBF tried to secure funds to manage the liquidity crisis but soon all FTX assets were frozen and an investigation of FTX had begun.
  • FTX filed for bankruptcy on Nov 11 and the CEO admitted that FTX did not have sufficient assets to meet customer demand.

Discussion on the FTX Debacle

Following the news, there have been talks of putting in place crypto regulation to weed out the bad actors and ensure consumers have faith in the institutions. But there hasn’t been a consensus as to how this can be implemented.

MRHB (pronounced ‘Marhaba’) has brought forth another argument: ethics in crypto.

On Nov 17, MRHB invited Khalid Howladar (Chairman of the MRHB Advisory Board) and Mufti Ismail Ebrahim Desai (Global Islamic Finance Expert) to discuss whether applying the principles of Islamic Finance could have averted the FTX debacle. This discussion was moderated by Ahmed Jawa (MRHB Head of Marketing Ops) and was aired live on YouTube.

Initial reaction to the FTX collapse

Echoing the crypto community, Khalid was shocked to learn about the FTX collapse given the participation of many seasoned investors such as Sequoia Capital, SoftBank, Temasek Holdings, and asset management titan BlackRock.

“The fact that sophisticated investors suspended their diligence is very shocking,” remarked Khalid.

Because of this incident, people would mistakenly think that crypto cannot be trusted and is synonymous with scams or fraud.

But Khalid suggested that this was wrong and that we should look at the bigger picture and appreciate the fact that ‘crypto’ incorporates web3, NFTs, digital assets, blockchain — all are critically important for the future of trade, commerce, and finance.

During the .com boom 20 years ago, there were also frauds and bankruptcies and most companies lost over 90% of their value. This was around a $1.7 trillion drop in market cap — not too dissimilar from the loss in crypto market cap this year. As a nascent technology, there will be lots of growing pains until a stronger foundation is built and good projects emerge from the ashes.

Mufti Ismail thinks this incident with FTX is a good thing longer term as “misconduct is nipped in the bud”.

How should a business be conducted with ethics in mind?

While there isn’t yet a universal ethical standard, we don’t need to create one from scratch. Islamic ethics has already existed for centuries, guiding Muslims (the people who practice Islamic values) to live ethically in all aspects of their lives. This includes finance.

Islamic finance is an approach to financing activity that must comply with principles of Shariah (Islamic law). These principles of Islamic finance are many but one key thing that differentiates Islamic finance from conventional finance is that the exploitative practice of charging interest in debts or riba is strictly prohibited. This is in common with the other Abrahamic faiths of Judaism and Christianity.

It is also forbidden to invest in any business involved in prohibited activities that include but are not limited to gambling, pornography and the selling of alcohol and pork.

According to Mufti Ismail, to earn a halal income, Muslims should ensure that their financial dealings are 100% Shariah-compliant.

Key in Islamic finance is that financial activities and dealings are held in an honest and accountable way, thus scams and frauds like what happened with FTX could be avoided.

“There need to be basic things like corporate governance, integrity, trust, audits, and transparency within crypto,” said Khalid. “If you remove ethics from business, all you get is greed and corruption”.

But isn’t crypto supposed to be unregulated?

FTX was a centralized system that managed people’s money. Centralized business structures that hold people’s money need to be regulated.

“If it was a decentralized finance project, the approach would be different,” explained Khalid. “Regulation would then depend on smart contract protocols. You would have ethical guidance built into the code as long as that code was designed and written by ethically minded people.”

As much as it is desirable, we are still a long way away from fully automated regulation using smart contracts. In the meantime, a company can easily put in place independent auditors and directors to provide corporate governance.

What’s the current market sentiment? Can we get their trust back?

Events like the FTX fallout are “a good clean out”. In this bear market, it can be a good thing that fraud projects are detected and abolished to make way for genuine projects.

In terms of recapturing trust, it’s all about being transparent and putting in place an oversight governance structure.

What happens when money is managed by smart contracts?

Technically, it is possible to encode specific commands to smart contracts so that a crypto company can be regulated in a just manner. However, there are currently lots of hurdles to go through for this concept to be operational. For one, the code that is written is only as good as the person writing it so a series of audits have to be done.

But this ideal or pinnacle where an organization is run by the community in structures like DAOs (Decentralized Autonomous Organizations), for the community, is something that a crypto company should aspire towards.

The Role of MRHB in Implementing Ethics in Crypto

Khalid was present during MRHB’s infancy when the idea of ethics within crypto was proposed.

“They (ethics and crypto) didn’t seem like natural companions,” recalled Khalid. “It’s such a new space and you can be quite vulnerable to the lack of ethics within the founding team”.

However, as MRHB grew with the right people, including several highly educated Shariah scholars, the idea of ethics within crypto has been championed as the foundation of the MRHB ecosystem.

The following process has helped MRHB implement Islamic finance into DeFi:

  1. Building a company where ethics is at the core of business decisions with a ‘community first’ approach.
  2. Ensure that business processes and decisions are undertaken in a halal way, under guidance from the Shariah Scholars in accordance.
  3. Ensuring transparency and engagement with our community of ethical and social impact minded stakeholders.

By following the business principles of Islamic finance and putting ethics at the core, MRHB continues to grow and be a leader in ethical DeFi.

How MRHB provides access to a new and growing web3 ecosystem for business, trade and finance.

While only in its second year of operation, MRHB has not wasted time in building a loyal investor community and launching products that have real utility.

The Sahal Wallet is not just a typical self-custodial crypto wallet. It also acts as the gateway to the entire MRHB ecosystem. What’s more, all the tokens listed on Sahal have been screened by the Shariah Governance Board (SGB) to ensure that each token or project listed is halal and not involved in interest-based dealings.

The SGB comprises of Shariah scholars who are experts in the field of Islamic finance and cryptocurrency. They make sure that all MRHB products and the activities related to them are Shariah-compliant.

You can also access MRHB’s latest product, TijarX via the Sahal wallet. TijarX is a decentralized commodity exchange where you can invest and trade in tokenized gold and silver.

“If you’re worried about inflation and you don’t like crypto,” said Khalid “physical gold is probably a good place to start”.

MRHB has teamed up with a regulated bullion provider, the Gold Silver Standard of Ainslie Bullion Group Australia, so users may invest in tokenized assets that are 100% physically backed by gold and silver bullion in their vaults and mines.

Recently, MRHB integrated Chainlink Price Feeds with TijarX so that users can access precise reliable, and decentralized gold and silver price data.

Considering the weaknesses of centralized finance as demonstrated by the FTX debacle, MRHB believes that ethical DeFi is the future. If you wish to be a part of this future, download Sahal wallet and explore what MRHB has to offer.