DOT

1.  What is DOT?

DOT is the native cryptocurrency of the Polkadot network. Polkadot is a layer 1 open-source blockchain platform designed to facilitate interoperability among diverse blockchains, enabling them to seamlessly exchange data and value (including DOT tokens, NFTs and tokenized assets). Co-founded by Ethereum co-founder Gavin Wood, Polkadot aims to overcome the limitations of existing blockchains by connecting them into a unified network.

DOT is a utility token. It plays a crucial role in maintaining the functionality and security of the Polkadot ecosystem through governance, staking, and bonding.

2. Polkadot Consensus Mechanism

Polkadot employs a Nominated Proof-of-Stake (NPoS) consensus mechanism. A variation of the Proof-of-Stake (PoS) mechanism, NPoS introduces nominators alongside validators, as follows.

• Nominators: Nominators are responsible for selecting validators and monitoring their performance, including changes in commission rates.

Similar to an electoral system, a nominator submits a capped list of preferred candidates, and the network evenly distributes the nominator’s stake among the selected validators. In each new era, the validators with the highest backing are elected and become active.

In return, nominators receive a share of the validators’ rewards. However, they also risk losing their staked tokens if they support a validator that behaves maliciously.

• Validators: They are responsible for producing new blocks and securing the network. They are selected based on the amount of DOT they stake and the nominations they receive from nominators, the validators staked tokens remain locked for up to three months after exiting. This period ensures that any past misbehavior can still be penalized until the periodic checkpointing of the chain. Punishments range from reduced rewards to slashing.

3. Use Cases of Polkadot Blockchain

Polkadot’s primary use case is enabling independent blockchains to communicate and share data seamlessly. This is particularly important for cross-chain applications.

However, there are many use cases for Polkadot blockchain which were introduced on its official website, or other platforms, like:

• Gaming and NFTs

Polkadot is increasingly being used for blockchain gaming and non-fungible tokens (NFTs). An example is Efinity (by Enjin), which is building NFT platforms on Polkadot.

• Tokenization of Real-World Assets

Polkadot is being used for transforming real-world assets (RWAs), from real estate and commodities to intellectual property, into liquid, transferable digital assets.

• Decentralized Physical Infrastructure Networks (DePIN)

Polkadot enables the development of decentralized physical infrastructure solutions, that bridge the physical and digital worlds, empowering industries such as internet of things (IoT), energy, healthcare, and storage.

• Decentralized Finance (DeFi)

Polkadot supports DeFi applications by providing a scalable and interoperable environment, enabling lending, borrowing, and trading financial instruments across chains.

• Other use cases

Polkadot is being used in a wide range of fields and industries, e.g., Decentralized Artificial Intelligence (AI), Supply Chain Management, Enterprise Solutions, Social Networks and Content Platforms.

4. Use Cases of DOT token

The DOT tokens “are neither intended nor designed to be used as a currency”[1]. Their primary role is to secure and operate the platform; yet, they are utilized in various use cases, the most significant of which are:

• Governance:

DOT holders have the right to participate in the governance of the Polkadot network, which includes voting on protocol upgrades, parameter changes, and the addition or removal of parachains[2].

• Staking:

DOT is used for staking to secure the Polkadot network through its NPoS consensus mechanism. Participants must stake DOT to become validators or nominators, thus securing the network and earning rewards for their contributions.

• Bonding Parachains:

To add new parachains to the network, a certain amount of DOT must be bonded (locked up). This serves as a form of collateral, ensuring that the parachain operators have a vested interest in the network’s health and security. Once the parachain is successfully launched, the bonded DOT can be released.

• Transaction Fees:

DOT can be utilized to pay transaction fees on the network. This includes fees for sending messages between parachains and interactions that require computational resources.

• Rewarding:

DOT is used to reward participants in the Polkadot ecosystem, including validators, nominators, and developers. Also, DOT holders can propose projects or initiatives to be funded by the Polkadot Treasury, and the community votes on these proposals.

• Collateral for DeFi Applications:

DOT is increasingly used as collateral in DeFi applications built on Polkadot. For example, Acala Network allows users to lock DOT as collateral to mint stablecoins.

5. Shariah Screening

In this section, we will highlight Shariah’s stance on some aspects of the Polkadot blockchain and subsequently draw Shariah’s opinion about the exchange and use of DOT cryptocurrency. This screening is based on Polkadot’s whitepaper, Polkadot’s website, wiki Polkadot’s website, as well as information published on various sources such as DeFiLlama.

• The legitimacy

Polkadot has gained significant trust and acceptability. Below is a summary of the key factors:

• Auditing and Security:

Polkadot’s codebase is open-source, allowing for continuous auditing by developers and security experts. The network has undergone multiple third-party audits (e.g., Trail of Bits and SlowMist).

• Adoption and Widespread Use:

Polkadot’s adoption is growing rapidly. The Polkadot relay chain averaged around 8,500 daily signed transactions in the last week of January 2025. In addition, on the parachain activity, parachains like Moonbeam and Astar are driving much of the network’s usage, with sum of daily transactions reach 210,000. The network’s ecosystem has over 100 projects built on the network.

• Experienced Team:

Polkadot was founded by Dr. Gavin Wood, a co-founder of Ethereum and the creator of the Solidity programming language. The project is developed and maintained by the Web3 Foundation, a Swiss-based organization dedicated to building a decentralized web.

• The project

As mentioned before, Polkadot’s main goal is to enable independent blockchains to communicate and share data seamlessly, this goal does not conflict with the Shariah objectives, and adds value to the real and web3 world.

• Underlying relationships
  • Relationship between Polkadot and Users

Users submit their transactions on the Polkadot blockchain, where these transactions are implemented, validated, and recorded on the chain according to the network’s protocol. In return, Polkadot charges transaction fees. This relationship is an Ijara إجارة contract between both parties, where a service (processing and validation of transactions) is provided in exchange for a pre-determined fee. It is valid from a Shariah standpoint, with the condition that the application for which the transactions are processed is valid. If the application is prohibited, the processing and validation Ijara contract will be haram and the payment of DOT for that will accordingly be Shariah non-compliant.

• • Relationship between Polkadot blockchain and Validators

Validators’ primary responsibilities include validating transactions, producing blocks, participating in consensus and facilitating cross-chain communication by helping relay messages between parachains and the relay chain.

In return for these roles, validators earn Stake rewards.

The relationship between Polkadot and its validators aligns with the Shariah contract of Ja’ala (جعالة), where both the service and the fees are pre-determined, and the work is not assigned to a specific validator but is distributed based on consensus and performance. This arrangement is permissible from a Shariah perspective, subject to the same conditions outlined in the previous section regarding the underlying application’s compliance with Islamic law.

• • Relationship between nominators and Validators

As described in section 2, DOT holders stake their tokens to a list of validators and the network evenly distributes the stake among the selected validators. The validators with the highest backing are elected and become active. Once one of the validators chosen by the nominator becomes active, Polkadot automatically supports them with all the bonded tokens available to that nominator.

If the validator is honest and performs well, he gets a reward. If they act dishonestly, behave abnormally or underperform due to any reasons including technical difficulties, their reward is reduced by a pre-determined percentage and in some cases, they are penalized with deductions from the staked tokens. We believe that this relationship is a Wakala bi Ajr (paid agency) for performing work وكالة بأجر في العمل, whereby the validator acts as an agent for the token owner, and the agent’s reward is an agreed upon percentage of the total token owner’s return, this percentage is set by each validator and vary as they compete for nominators. This is valid as per AAOIFI Shariah Standard no. 23, as outlined in previous screening reports. Determining the remuneration as a portion of revenue is an opinion of Imam Ahmed Ibn Hanbal.

Based on that, we don’t see any clear violation of the rules Shariah in this relationship.

• Rewards

We focus here on the direct rewards offered by Polkadot platform. The rewards offered by projects based on Polkadot fall out of the scope of this report.

The main reward in that context is stake rewards. Tokens owners who staked their tokens to an active validator receive a portion of the validator’s earning. The validator first deducts his commission, then the remaining rewards are distributed to nominators proportionally based on their stake relative to the total stake bonded to the validator.

Below is an example of reward calculation.

Assumption:

• A validator charges a 10% commission.
• The validator earns 100 DOT in staking rewards.
• A nominator has staked 10% of the total DOT bonded to the validator.

Calculation:

• Validator commission: 10% of 100 DOT = 10 DOT.
• Remaining rewards: 100 DOT – 10 DOT = 90 DOT.
• Nominator’s share: 10% of 90 DOT = 9 DOT.

This reward shows no breach of Shariah principles and rules.

There are two additional rewards within our scope: Treasury Funding Rewards and Cross-Chain Incentives[3]. Nothing has come to our attention that causes us to believe these rewards are in breach of Shariah, as they serve purely as incentives without involving any contractual obligations.

• Use cases

The Shariah status of applications for which transactions are processed is important in determining the Shariah compliance of staking and exchanging DOT. If a given application is known to be prohibited, then all transactions and related processing and staking are prohibited.

We have outlined five main types of Polkadot use cases in section 3. There is no reason to prohibit any of them, except for collateral in DeFi and gaming, due to the prevalence of Shariah violations in these activities.

Tracking the exact usage of the token is challenging, even using the TVL (Total Value Locked) metric, as the figures are distributed between the relay chain and parachains. However, there is currently no evidence that the majority of the platform’s usage falls into the prohibited activities. Accordingly, we deem that DOT exchanging, staking, using in governance and fees is permissible until there is different evidence. This is based on the Shariah rule that the default ruling in things is permissibility.

Conclusion of Shariah Opinion

This Shariah screening confirmed that the Polkadot project is permissible, and its underlying contracts and relationships are also in compliance with Shariah. Furthermore, we found that some of the uses of DOT are impermissible, but no evidence suggests that these represent a majority of use cases. Based on this, the general Shariah ruling on DOT is that trading, staking and using are allowed. However, it is not allowed to exchange DOT or contribute in staking to support a well-defined prohibited use case.

[1] Polkadot Whitepaper, p 21.
[2] A parachain is an independent blockchain that runs parallel to Polkadot’s Relay Chain, benefiting from its shared security and interoperability. Each parachain can have its own design and rules tailored to its specific use case.
[3] The first one consists of DOT rewards offered to support projects that are nominated by the Polkadot community. The second one consists of rewards offered by projects building cross-chain bridges to incentivize DOT holders who support their infrastructure.