HCS Score
Red Line Violations
These are absolute prohibitions in Islamic finance. If any red line is triggered, the asset is automatically classified as HARAM.
Riba Exposure
Not an interest-based lending or borrowing protocol
Gambling / Betting
No gambling or betting mechanism
Haram Industry
Not involved in haram industry
Based on Red Line Screening and HCS Scoring.
Haram / Non Compliant
This cryptocurrency is evaluated as Haram for investment and use because the asset demonstrates material Sharia compliance concerns within the CoinStudy HCS framework.
Explanation
This asset shows significant concerns related to Sharia compliance, financial structure, or speculative design.
Reviewed by
CoinStudy Shariah Board
Falcon Finance entered the synthetic dollar market with a pitch that sounds more sophisticated than most.
Rather than backing USDf with Treasury bills like USDT or USDC, or creating it through collateralized debt positions like GHO, Falcon uses a different approach. It generates yield through institutional grade trading strategies, specifically basis spread arbitrage. The promise is a synthetic dollar that delivers competitive yields through financial engineering rather than simple reserve management.
For conventional investors, this is genuinely more interesting than a simple Treasury backed stablecoin. For Muslim investors, the sophistication of the yield generation mechanism is exactly where the compliance analysis becomes most important to understand.
We ran USDf through the full CoinStudy Halal Crypto Standard (HCS) methodology. Here is the complete picture.
USDf fails the CoinStudy HCS Sharia red line screening. Four red lines are triggered, namely Riba Exposure, Gambling / Betting, Guaranteed Interest, and Synthetic Interest Products, resulting in an automatic Haram classification with no further scoring.
USDf joins Ethena's USDe as a synthetic dollar protocol whose yield generation mechanism relies on perpetual futures trading strategies that trigger multiple Islamic finance red lines simultaneously.
USDf is a synthetic dollar issued by Falcon Finance, a protocol that describes itself as transforming synthetic dollars into sustainable yield opportunities. Users deposit liquid assets, mint USDf, and earn yield through staking.
The ecosystem has two primary tokens. USDf is the base synthetic dollar, minted by depositing eligible digital assets as collateral. sUSDf is the staked version, created when users stake USDf and receive ongoing yield from Falcon's trading strategies. The protocol also offers restaking, which locks sUSDf for fixed terms to amplify returns.
Falcon's own description makes the yield generation mechanism explicit. sUSDf provides diversified institutional grade trading strategies beyond blue chip basis spread arbitrage. The strategies are financial engineering, not productive economic activity.
Understanding USDf's compliance requires understanding what basis spread arbitrage actually is, because this is what makes Falcon's model distinct from Treasury backed stablecoins and what creates the most serious compliance concerns.
Basis spread arbitrage in crypto involves simultaneously holding a spot position in a cryptocurrency and an opposing short position in perpetual futures contracts on the same asset. The strategy captures the funding rate, which is the periodic payment between long and short perpetual position holders, as profit.
Here is a simplified example. You hold one million dollars in Bitcoin spot. Simultaneously you hold one million dollars in short Bitcoin perpetuals. If Bitcoin rises, your spot position gains and your short perpetual loses, so the positions cancel. If Bitcoin falls, your spot loses and your short perpetual gains, so they cancel again. The net result is roughly market neutral. Your profit comes from the funding rate, which is the periodic payment from long perpetual traders to short perpetual traders, and which has historically been positive on average.
This strategy extracts yield from perpetual futures markets without taking directional price risk. But the yield is generated from perpetual futures trading activity and the funding rate mechanism.
Perpetual futures are the same product that makes Hyperliquid, Injective, Jupiter, EdgeX, LAB, and PancakeSwap haram in our analysis series. The funding rate mechanism is the same interest like transfer between position holders that makes perpetuals specifically problematic, as we analyzed in our dedicated perpetual trading blog.
USDf's yield does not come from Treasury bills. It comes from being a counterparty in perpetual futures markets and capturing funding rate income. That source of yield triggers the Gambling / Betting red line through the perpetuals involvement.
Muslim investors who have read our Ethena (ENA) analysis will recognize USDf's structure immediately. Ethena's USDe uses the same basis spread arbitrage approach, combining delta neutral positions with perpetual futures shorts to capture funding rate income.
We classified Ethena with four red line failures for identical reasons to USDf. The perpetual futures involvement triggers Gambling / Betting, the yield generation from funding rates creates Riba and Guaranteed Interest concerns, and the synthetic dollar products are synthetic interest bearing instruments.
Falcon Finance describes its strategy as going beyond blue chip basis spread arbitrage, suggesting even more diverse financial engineering strategies beyond the basic delta neutral approach. That diversification into additional institutional trading strategies does not reduce the compliance concerns. It potentially expands them into additional areas of financial engineering.
USDf's yield generation relies on financial engineering strategies, primarily basis spread arbitrage through perpetual futures markets. The funding rate income captured through these strategies is generated from the interest like transfers between perpetual futures position holders that we have identified throughout our analysis series.
The protocol explicitly positions itself as a yield generating platform. Its tagline is "Your Asset, Your Yield." That yield comes from financial engineering rather than productive economic activity. The financial relationships created in generating that yield involve interest like income from derivatives markets.
Basis spread arbitrage requires holding short positions in perpetual futures contracts. Perpetual futures are the same financial instrument that makes Hyperliquid, Jupiter, Injective, EdgeX, and every other perpetuals platform haram in our series.
Even in a delta neutral strategy where the directional price risk is hedged, the perpetual futures positions themselves remain derivative instruments involving funding rate obligations. The positions are on a platform where other traders are making leveraged bets on price movements. The funding rate income that makes the arbitrage profitable comes directly from those leveraged traders' funding rate payments.
Capturing income from perpetual futures markets, even through an apparently neutral strategy, involves participation in and dependence on the gambling like speculative activity that perpetual markets facilitate. This triggers the Gambling / Betting red line.
sUSDf explicitly distributes yield to stakers as ongoing percentage returns on their staked USDf. The protocol advertises a specific APY for sUSDf. Users deposit USDf, stake it, and receive predetermined percentage returns over time.
This is guaranteed interest income on deposited capital regardless of what underlying strategy generates it. The financial relationship between sUSDf staker and the protocol, which is deposit capital and receive ongoing guaranteed percentage returns, is the same relationship that makes every yield bearing stablecoin product haram in our analysis series.
USDf is a synthetic dollar whose stability and yield characteristics are maintained through financial engineering rather than direct asset backing. sUSDf is an even more direct synthetic interest product, a token that accrues value over time as yield from arbitrage strategies flows to stakers, functioning as a synthetic fixed-income instrument backed by derivatives market activity.
USDf fails four red lines. Under the CoinStudy HCS framework a single failure results in automatic Haram classification. Four failures makes this result comprehensive and definitive.
Riba Exposure — ❌ Failed. Yield generation through basis spread arbitrage and institutional trading strategies creates income from interest like financial mechanisms in derivatives markets.
Gambling / Betting — ❌ Failed. The basis spread arbitrage strategy requires holding short positions in perpetual futures contracts, the same instruments that trigger this red line across all perpetuals platforms in our analysis series.
Guaranteed Interest — ❌ Failed. sUSDf provides ongoing percentage yield to stakers on their deposited USDf. This is guaranteed interest income on deposited capital funded by derivatives market strategies.
Synthetic Interest Products — ❌ Failed. USDf and sUSDf are synthetic financial instruments. sUSDf is explicitly designed to distribute derivatives market income to holders as an accruing synthetic yield product.
Haram Industry — ✅ Passed.
Four red lines failed. Layer 2 scoring is skipped entirely.
Overall Result: Haram — Red Line Violations
Falcon Finance positions its strategies as institutional grade, emphasizing the professional financial engineering behind the yield generation. The strategies are more sophisticated than simple Treasury bill holdings. The risk management is more complex. The returns are potentially more competitive.
Islamic finance evaluates financial structures, not their sophistication. A highly sophisticated interest like yield generation mechanism is still generating interest like yield. Institutional grade basis spread arbitrage through perpetual futures markets is still arbitrage through perpetual futures markets.
The sophistication of the strategy is acknowledged and genuine. It does not change what the strategy involves, which is perpetual futures positions and funding rate income, or the Islamic finance implications of those instruments.
CoinMarketCap tags USDf as part of the WLFI Ecosystem, connecting it to World Liberty Financial, which we analyzed as Haram in our series. This ecosystem connection is noted without being determinative. Our compliance assessment is based on USDf's own financial structure rather than its ecosystem associations. The four red line failures are sufficient without the WLFI connection.
Before investing in any yield bearing synthetic dollar protocol, ask yourself these questions honestly.
Does this protocol generate yield through derivatives trading strategies including perpetual futures? Does the yield mechanism involve capturing funding rate income from perpetual futures markets? Does the staked version of this token distribute ongoing percentage returns to holders from derivatives trading activity? Would the protocol's yield generation stop if perpetual futures markets ceased to exist? Would a qualified Islamic scholar recognize funding rate income from perpetual futures as permissible financial activity?
For USDf, the honest answers are clear and consistent.
Falcon USD (USDf) is classified as Haram / Non Compliant under the CoinStudy Halal Crypto Standard.
Four Sharia red lines are triggered, namely Riba Exposure, Gambling / Betting, Guaranteed Interest, and Synthetic Interest Products, resulting in automatic Haram classification. Falcon Finance's yield generation relies on basis spread arbitrage through perpetual futures markets, capturing funding rate income from derivative instruments that independently trigger multiple red line failures.
The institutional sophistication of Falcon's strategies is genuine. The yield potential is real. But the source of that yield, which is perpetual futures funding rates and derivatives market financial engineering, is incompatible with Islamic finance principles regardless of how professionally the strategies are executed.
USDf follows Ethena's USDe into the same compliance category. Synthetic dollars whose yield comes from perpetual futures arbitrage are haram regardless of the sophistication of the arbitrage approach or the institutional credentials of the team executing it.
For Muslim investors, USDf is not a permissible stablecoin alternative. Its yield generation mechanism is built on the same derivatives market activity that makes perpetual trading platforms haram throughout our analysis series.
CoinStudy's HCS methodology classifies this stablecoin as Haram based on the structural Riba concerns in its reserve backing. The yield generation mechanism relies on interest like income from perpetual futures markets. This structural Riba triggers our red line screening.
However CoinStudy's Shariah Board acknowledges a significant scholarly disagreement on this question that Muslim investors deserve to know about.
Some contemporary Islamic finance scholars hold that using dollar pegged stablecoins purely as a medium of exchange is permissible. Their reasoning is rooted in a well established Islamic jurisprudence principle, which is that the sin of a prohibited act belongs to the actor who performs it, not to every person in the chain who subsequently uses the resulting product. Under this view, Falcon Finance commits the prohibited act through its interest like yield generation mechanism. That sin belongs to the protocol. The Muslim who uses USDf for basic payments or trading is not participating in the perpetual futures strategies and not committing the prohibited act themselves.
This position is further supported by the fact that ordinary users who simply use USDf as a medium of exchange never directly interact with the perpetual futures positions or funding rate payments that generate the yield. Their contact with the Riba generating mechanism is zero.
However an important distinction applies specifically to USDf. The scholarly disagreement about medium of exchange usage applies to basic USDf holdings only. It does not extend to sUSDf or restaking products where the user is actively and directly receiving yield income from derivatives market activity. Those products remain clearly prohibited under both the structural and usage based scholarly views.
CoinStudy's HCS classification remains Haram because our methodology evaluates structural compliance. The yield generation structure triggers our red lines regardless of user intent or usage purpose.
But Muslim investors should understand that this is a genuine area of scholarly disagreement, not a settled question with unanimous consensus. If you use USDf purely as a medium of exchange and do not stake it or seek yield from it, you should consult a qualified Islamic scholar for personal guidance on your specific usage.
The prohibition of the structure and the permissibility of the usage are two different questions that can have different answers. CoinStudy answers the structural question. The usage question requires personal scholarly guidance.
Why USDT and other stablecoins are Haram if FIAT is not? Read here: https://coinstudy.co/blog/is-usdt-haram-if-fiat-isn-t
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.
Guaranteed Interest
No guaranteed interest obligations
Synthetic Interest Products
No synthetic interest instruments
4 Red Lines Failed
This asset is automatically classified as HARAM.
