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  1. Goldsand Introduction

Is staking halal?

Is the yield generated from staking halal?

PreviousWhat is stakingNextProposing a block

Last updated 5 months ago

There are 3 main pieces to look at when considering whether Ethereum staking is halal:

  1. Proposing: are the fees earned from proposing halal?

  2. Validating: are the fees earned from validating halal?

  3. Staking service: is the contract between the staker and the staking service (eg Coinbase, Lido) halal?

We'll first look at each in standard staking protocols like Lido - and then how Goldsand changes the game.

To answer this question, we need to understand the sources of yield generated through staking and analyze the permissibility of this income.

The details of the yield earned from staking are discussed but at a high level, the rewards earned by the validator nodes come from two main sources

  1. Network inflation, i.e., newly minted ETH, for following the protocol rules

  2. Priority fees that are paid by the transactions to encourage validators to confirm these transactions quickly.

Because part of the yield comes from confirming transactions, the purity of the yield is affected by the activities enabled by such transactions. If these transactions enable a haram activity such as Riba, the staking income is tainted. Because of that, our view is that the current Ethereum staking setup is not 100% halal or at least not 100% pure.

The reason is pretty simple: all existing staking protocols don’t differentiate between different transaction types. That means that these blocks could include haram transactions. In fact, between 80 and 90% of the blocks produced by current Ethereum validators include at least one impermissibl transaction from applications such as Aave, Compound, or other lending applications. In these lending protocols, users borrow money and pay interest on these loans. As interest is impermissible, such lending transactions are impermissible. Existing staking protocols, e.g., Lido, include such impermissible transactions in their blocks by default. Hence, staking ETH with these protocols empowers impermissible transactions and benefits from their fees. This contaminates the yield generated for such staking operations.

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