Middle Eastern Financial Institutions Welcome Arrival of Islamically Sanctioned Digital Currency Pegged to US Dollar
In a significant development, a Shariah-compliant stablecoin, PUSD, has expanded its reach by integrating with the ADI Chain blockchain network, which is rooted in the Middle East. This strategic move brings the total number of digital currencies on the settlement platform to two, with the backing of prominent financial institutions in Abu Dhabi.
PUSD, which is issued by Palm Azgar Finance, boasts a unique structure that sets it apart from other stablecoins. Rather than holding US dollars directly, it maintains reserves in Saudi riyals and UAE dirhams, both of which are pegged to the US dollar. This approach is crucial to its Shariah-compliant design, which caters to institutions that operate under Islamic finance principles. These principles prohibit the collection of interest and necessitate asset-backed transactions.
With approximately $2.3 billion in circulation, PUSD is currently operational on several major blockchain platforms, including Ethereum, BNB Chain, Solana, and Tron. The addition of ADI Chain to its network marks a significant milestone, enabling institutions to settle transactions using either a dollar-linked or dirham-denominated token on the same platform.
ADI Chain was initially developed as a settlement layer for a dirham-backed token, which was the result of a partnership between International Holding Company and First Abu Dhabi Bank. The Central Bank of the UAE has licensed this blockchain network, underscoring its legitimacy and potential for growth.
The ADI Foundation, which oversees the network, envisions it as a key player in facilitating payment corridors across the Gulf region, the broader Middle East, and parts of Africa. The Islamic finance market, which is estimated to be worth over $3 trillion globally, presents a vast opportunity for blockchain-based solutions. However, the strict guidelines of Shariah law, which prohibit interest-based transactions and speculation, have historically limited the adoption of crypto products.
To meet these stringent standards, a stablecoin must hold verifiable reserves and refrain from generating interest-based returns. While it is unclear whether PUSD has obtained certification from a board of qualified Islamic scholars, its integration with ADI Chain is a deliberate attempt to tap into the corporate treasury, exchange, and payment processing markets.
The UAE has emerged as a regulatory hub for stablecoins, with the Central Bank and the Abu Dhabi Global Market establishing frameworks for both dirham-pegged and dollar-denominated tokens. This development has attracted established players, including Tether, Ripple USD, and Circle, which have all received approval to operate within the ADGM financial zone. As PUSD competes with these global giants for a share of institutional transaction flow, its Shariah-compliant design and unique structure may prove to be a key differentiator in the UAE's vibrant financial landscape.