Arbitrum

Is Arbitrum (ARB) Halal? A CoinStudy HCS Analysis

Ethereum has a scaling problem. And Layer 2 networks are the most practical solution the industry has found.

When Ethereum congestion drives transaction fees to uncomfortable levels — ordinary users get priced out. When simple token swaps cost more in gas fees than the value being transferred, blockchain stops serving its purpose of enabling accessible decentralized applications. Ethereum's base layer security is genuinely exceptional, but that security comes at a cost in throughput and speed.

Arbitrum is one of the most successful and widely adopted answers to this problem. It processes Ethereum transactions off the main chain, batches them, and settles the results back to Ethereum's secure base layer — delivering transaction costs that are a small fraction of mainnet fees while preserving Ethereum-level security guarantees.

By many measures, Arbitrum has become the dominant Ethereum Layer 2 by total value of activity flowing through it. For Muslim investors evaluating Ethereum scaling infrastructure, this makes Arbitrum worth careful examination.

We ran ARB through the full CoinStudy Halal Crypto Standard (HCS) methodology. Here's the complete picture.

Quick Verdict: Arbitrum Is Generally Halal ✅

Arbitrum passes the CoinStudy HCS Sharia red-line screening with no violations. It scores 87 out of 100 and is classified as Halal. It has strong Ethereum scaling utility, perfect scores on both Underlying Business Activity and Utility and Real Use, no built-in interest mechanism at the protocol level, and genuine infrastructure value.

What Is Arbitrum?

Arbitrum is a Layer 2 blockchain scaling network designed to improve the scalability of the Ethereum ecosystem by reducing transaction costs and increasing transaction speed for decentralized applications and smart contract infrastructure.

The ecosystem focuses on blockchain scalability, smart contract infrastructure, decentralized applications, lower transaction costs, faster transaction processing, and Ethereum ecosystem expansion. ARB tokens are used primarily for governance participation — allowing community members to vote on protocol upgrades, ecosystem decisions, and network development direction through the Arbitrum DAO.

Arbitrum has become the most widely used Ethereum Layer 2 network by total value secured — a position that reflects genuine adoption by developers and users who have chosen Arbitrum's infrastructure for real applications.

How Does Arbitrum Work?

Arbitrum uses optimistic rollup technology — the same approach used by Optimism and other Ethereum Layer 2 networks. Transactions are processed off the main Ethereum chain, with the results periodically submitted to Ethereum's base layer as compressed batches.

The "optimistic" part means the system assumes transactions are valid by default and only conducts a full challenge verification if someone submits proof that a transaction was fraudulent. This design allows much higher throughput than Ethereum mainnet while maintaining the ability to fall back to Ethereum's full security model when needed.

Users experience dramatically lower fees and faster confirmations while their funds remain ultimately secured by Ethereum's validator network. Applications built for Ethereum can deploy on Arbitrum with minimal modification — the same smart contract code, the same development tools, just faster and cheaper.

ARB's governance role gives token holders influence over Arbitrum's technical roadmap, fee parameters, and ecosystem grants — meaningful governance over one of the most important infrastructure networks in the Ethereum ecosystem.

Real World Utility

Arbitrum scores a perfect 10 out of 10 on Utility and Real Use — reflecting substantial and verified real-world usage across a broad ecosystem.

The network hosts one of the largest collections of active decentralized applications of any Layer 2 network — including major DeFi protocols, gaming applications, NFT platforms, payment systems, and enterprise blockchain deployments. Transaction volumes are consistently among the highest of any Ethereum scaling solution.

This isn't speculative future adoption. Real users are making real transactions on Arbitrum right now because it makes Ethereum applications practically accessible in ways that mainnet fees don't allow.

The DeFi Ecosystem Context — The Key Compliance Nuance

This is where Arbitrum's compliance profile requires honest and careful explanation.

Arbitrum's Financial Exposure Risk score is 22 out of 25 — lower than Polygon (23/25), Mantle (21/25), and notably lower than pure infrastructure plays like Kaspa (25/25) or Filecoin (24/25).

The reason is straightforward and important. Arbitrum's ecosystem has a particularly large and active DeFi lending presence. Major DeFi lending protocols — including Aave — are among the most active applications on Arbitrum, generating significant lending and borrowing volumes. The Arbitrum ecosystem is deeply integrated with Ethereum's broader DeFi infrastructure, which includes substantial interest-based lending activity.

The Arbitrum protocol itself is neutral infrastructure. But the ecosystem it hosts has a higher concentration of interest-based DeFi lending applications than some other Layer 2 networks. That indirect ecosystem exposure is honestly reflected in the lower Financial Exposure Risk score compared to Polygon or other Layer 2 options.

This doesn't make Arbitrum haram. The infrastructure is neutral. But Muslim investors holding ARB should understand that the token's value is tied to the growth of an ecosystem that includes — prominently — DeFi lending applications that are themselves haram. That indirect connection is real even though the protocol itself is clean.

Islamic Finance Analysis

Riba — Infrastructure Pass With Ecosystem Note

Arbitrum the protocol is not built around lending markets, borrowing platforms, interest-generating products, or debt-based finance. The network functions as blockchain scaling infrastructure.

At the protocol level ARB is free from Riba. Transaction processing, governance participation, and scaling services are all functional uses tied to genuine infrastructure operations.

However — the honest assessment requires acknowledging that Arbitrum's ecosystem hosts major DeFi lending protocols including Aave as prominent applications. The ecosystem's health and ARB's governance value are partially tied to the activity of these applications. That indirect connection — more pronounced in Arbitrum's ecosystem than in some alternatives — is reflected in the Financial Exposure Risk deduction.

Gharar — Well Managed Infrastructure

Arbitrum operates through transparent network operations, clearly defined technological utility, and publicly verifiable infrastructure. The rollup mechanism is well-documented and independently auditable.

The Gharar score of 13 out of 15 reflects strong technical transparency with small deductions for competitive landscape uncertainty in the Layer 2 market and ecosystem development risks.

Maysir — Scaling Purpose Clear

Arbitrum was built for blockchain scaling and infrastructure development — not speculative financial products. The technical design consistently reflects this infrastructure purpose.

The Maysir score of 11 out of 15 reflects no gambling mechanics in the core scaling infrastructure with deductions for speculative market trading in ARB and some higher-risk ecosystem applications.

CoinStudy HCS Screening Results

Layer 1 — Sharia Red Line Screening

Arbitrum clears every hard red line.

Riba Exposure — ✅ Passed. Not a lending or interest-based protocol.

Gambling and Betting — ✅ Passed. No gambling mechanism exists.

Haram Industry — ✅ Passed. No involvement in prohibited industries.

Guaranteed Interest — ✅ Passed. No guaranteed interest obligations.

Synthetic Interest Products — ✅ Passed. No synthetic interest instruments.

No red line violations were found. Arbitrum is fully eligible for HCS scoring.

Layer 2 — HCS Score Breakdown

Arbitrum is scored across 7 Shariah principles with a total of 100 points.

On Financial Exposure Risk, weighted at 25%, Arbitrum scores 22 out of 25. The core protocol is clean infrastructure. The deduction is more significant than for some other Layer 2 networks because Arbitrum's ecosystem has a particularly large concentration of active DeFi lending applications — creating indirect exposure to interest-based financial activity that is honestly reflected.

On Gharar and Uncertainty, weighted at 15%, Arbitrum scores 13 out of 15. Transparent infrastructure with well-documented rollup technology. Small deductions for competitive Layer 2 landscape and ecosystem development uncertainty.

On Maysir and Speculation, weighted at 15%, Arbitrum scores 11 out of 15. No gambling mechanics in the core scaling protocol. Deductions for speculative market trading and higher-risk DeFi applications within the ecosystem.

On Underlying Business Activity, weighted at 15%, Arbitrum scores a perfect 15 out of 15. Ethereum Layer 2 scaling infrastructure — making decentralized applications faster and cheaper — is fully permissible and represents genuinely valuable productive economic activity.

On Utility and Real Use, weighted at 10%, Arbitrum scores a perfect 10 out of 10. One of the most actively used Ethereum scaling networks with substantial real transaction volumes and broad application ecosystem development.

On Tokenomics Fairness, weighted at 10%, Arbitrum scores 8 out of 10. Token distribution has some concerns around initial allocations common to venture-backed projects. The Arbitrum DAO treasury management and community governance are transparent.

On Transparency and Governance, weighted at 10%, Arbitrum scores 8 out of 10. Open-source with active community governance through the Arbitrum DAO. Strong technical transparency with some deduction for ongoing governance maturity development.

Overall HCS Score: 87 out of 100 — Halal

Arbitrum vs Polygon vs Mantle — Ethereum Scaling Comparison

Muslim investors evaluating Ethereum Layer 2 options have now seen three options in our analysis series:

Polygon (POL) — 88/100. Strong institutional adoption by major brands, broader ecosystem diversity.

Arbitrum (ARB) — 87/100. Dominant DeFi ecosystem with highest Layer 2 TVL, but more pronounced DeFi lending exposure.

Mantle (MNT) — 82/100. BitDAO legacy treasury concerns and elevated DeFi ecosystem exposure.

All three are classified as Halal. Polygon scores highest in part because its ecosystem includes more diverse mainstream adoption including Starbucks, Nike, and JPMorgan deployments — which dilutes the DeFi concentration. Arbitrum's dominant position in the DeFi Layer 2 space is both its greatest strength (massive adoption) and a reason for the slightly lower Financial Exposure Risk score compared to Polygon.

Muslim investors choosing between Ethereum scaling options should factor in how much the DeFi lending ecosystem concentration in Arbitrum concerns them personally relative to the genuine infrastructure utility and adoption Arbitrum provides.

Practical Guidance for Muslim Investors Holding ARB

A Muslim investor can hold ARB as an infrastructure investment while simultaneously avoiding the DeFi lending applications within the Arbitrum ecosystem. These are separable positions.

Holding ARB means participating in governance over and benefiting from the growth of Arbitrum's entire ecosystem — including both the halal applications (gaming, payments, enterprise tools) and the DeFi lending protocols (Aave, etc.). Muslim investors should be conscious of this indirect connection and factor it into their personal assessment.

Engaging with specific Arbitrum-based applications is a separate decision from holding ARB. Muslim investors should evaluate each application they use on the network individually — not assume that Arbitrum's halal infrastructure rating extends to every application running on it.

Important Questions for Muslim Investors

Before investing in Arbitrum, ask yourself honestly:

Do I understand what Arbitrum does as Ethereum scaling infrastructure and why this creates genuine economic value? Am I aware that Arbitrum's ecosystem has a particularly prominent DeFi lending presence and does that indirect exposure concern me personally? Am I investing based on conviction in Ethereum Layer 2 infrastructure adoption — or following TVL metrics and ecosystem size without considering the composition of that activity? Am I actively committing to avoid DeFi lending applications within the Arbitrum ecosystem? Is my investment strategy focused on long-term infrastructure value rather than ARB price speculation?

Arbitrum rewards investors who understand its genuine infrastructure value while being honest with themselves about the DeFi ecosystem composition.

Final Verdict

Arbitrum (ARB) is generally considered halal under the CoinStudy Halal Crypto Standard with a score of 87 out of 100.

It serves a legitimate technological purpose as Ethereum Layer 2 scaling infrastructure. It operates without built-in interest mechanisms at the protocol level. It provides real utility — earning perfect scores on both Underlying Business Activity and Utility and Real Use.

The Financial Exposure Risk score of 22 out of 25 — lower than some other Layer 2 alternatives — honestly reflects that Arbitrum's ecosystem has a particularly large DeFi lending presence that creates more indirect exposure to interest-based financial activity than networks with more diverse application ecosystems. This is the most important nuance for Muslim investors to understand.

The protocol is clean. The ecosystem requires active navigation. Responsible Muslim investors should engage with Arbitrum understanding both the genuine infrastructure value and the ecosystem composition honestly.

Disclaimer: This analysis is provided for educational and research purposes only. This analysis is based on guidance from CoinStudy's HCS Shariah Board members. CoinStudy does not issue personal fatwas or financial advice. Please consult a qualified Islamic scholar for individual guidance.