Sui

1.  What is Sui Platform?

Sui is a Layer 1[1] infrastructure platform designed to enable faster deployment of smart contracts and improve transaction speeds. With its object-centric design, Sui objects can encode any type of asset – including fungible and non-fungible tokens. The SUI (in capital letters) token is the platform’s native asset, which is a utility token, serves primarily as the “currency” of the platform, used in paying transaction fees and rewards, participation to network security through the staking mechanism, as a versatile liquid asset for various applications including the standard features of money and more complex functionality enabled by smart contracts, and in governance mechanisms. SUI has a maximum supply of 10 billion tokens.

2. Use Cases of Sui

Sui is a general-purpose platform, its use cases encompass a wide array of uses including gaming, finance, commerce, decentralized social interaction and non-fungible tokens (NFTs).

3. How Sui works?

First, a user cryptographically signs transaction t with their private key and sends it to the committee of validators. Each validator validates the transaction and, in case of success, signs the transaction with their own private key and sends the signed transaction back to the user.

The second step occurs once signatures from at least 2/3’s of the validators by size of stake

have been received (See section 4).

These responses are then collected to form a transaction certificate. This certificate is subsequently sent to the validators, who check its signatures and execute the transaction. Finality is achieved once a quorum of validators has executed the certificate.

Rewards are given to validators. These in turn share them with the SUI holders who delegated their SUIs to validators, based on a predetermined sharing ratio. The source of the rewards is mainly the transaction fees, which are a function of the computation units and the storage units for each transaction on the platform.

Since processing each transaction requires that a quorum of validators participate, all validators can benefit in proportion to their share of total stake if they behave honestly. A larger stake share lets validators reap more stake rewards, large validators are also more likely to be prioritized by clients during regular network operations. Consequently, larger rewards are partially offset by the increased costs of scaling operations; thus ensuring all validators enjoy viable business models regardless of their delegated stake size. Sui’s economic model includes a storage fund designed to provide a sustainable and viable long-run mechanism for compensating validators for the cost of storage.

4. Consensus Algorithm: The Delegated Proof-of-Stake (DPoS)

The Sui platform relies on delegated proof-of-stake to determine the set of validators who process transactions. The amount of stake is relevant in that it determines the share of voting power each validator has to process transactions.

The Sui platform implements delegation by allowing any owner of the SUI token to

delegate all or part of their holdings to a specific validator and participate in the staking

rewards earned by such a validator. When SUI token holders delegate SUI, the SUI tokens

are locked at the chosen validator for the entire epoch[2].

SUI token holders can unlock their SUI or delegate them to different validators when

the epoch changes. Rewards from Sui’s operations are distributed across various entities, including the set of validators and SUI delegators (token holders).

5. Shariah Screening

The Shariah screening is based on the information provided in the platform’s documentation, website and blog, especially the platform tokenomics paper. In order to determine the viability of the SUI token from the Shariah standpoint, we examine the following elements:

• The legitimacy
• The project
• The relationship between parties using the token
  • Contracts
  • Rewards
• The use cases (applications)

• The legitimacy

Sui website and documentation offer detailed information about its projects, operations and status. Sui whitepaper provides detailed information about the technical aspect, while Sui tokenomics paper provides detailed insights on the economics of the platform. The network and affiliated products undergo regular third-party audits. Their reports mentioning the findings and actions taken are published regularly on Sui website.

• The project

The SUI token acts as the native currency within the Sui network. Its ultimate goal is to facilitate the functioning of the network, that is, building blocks of smart contracts for various applications using the platform’s technology, which is in itself a valuable and legitimate service. Further, it is used for governance purposes on the platform. SUI is an accepted currency on its network, with the full features of money therein, a unit of account, a medium of exchange, or a store of value. This is based on the acceptance of Particular Urf العرف الخاص, i.e., the particular custom within that network made it an acceptable currency that is subject to the rules of currencies in Shariah. Generally, people who buy SUI will use it for delegated staking to get the rewards, paying the transaction fees, and as a liquid asset on the applications supported by Sui (DApps).  The validity of holding and exchanging SUIs will depend on the validity of the underlying contracts within the platform and the use cases of the platform’s operations, which we discuss in the next sub-sections.

• Underlying contracts

The SUI exchanging on the platform involves the following relationships:

• • Relationship between Users and Validators

Users submit their transactions, which are sent to validators for their processing and approval according to the protocol. This is done for transaction fees denominated in SUI. This relationship is simply an Ijara إجارة contract between both parties, where the fees and service appear to be agreed upon. It is valid from a Shariah standpoint, with the condition that the application for which the transactions are processed is valid. Consequently, if the application is prohibited, such as a game involving gambling or a financial service involving interest, the processing and validation Ijara contract will be haram and the payment of SUI for that will accordingly be Shariah non-compliant.

• • Relationship between Token Owners and Validators

Token owners delegate (some of) their tokens to validators for the staking process. This implies locking the specified amount of tokens with the validator until the end of the processing period (epoch). 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) وكالة بأجر , whereby the validator acts as an agent for the token owner, and the agent’s reward is a portion of the total token owner’s return. This is valid as per AAOIFI Shariah Standard no. 23. This Standard states:

“Paid agency is permissible in Shari’ah, whether remuneration is explicitly stipulated in the contract or ascertained in accordance with the customary practices. (…) The amount payable as remuneration for agency should be known, whether in lump sum or as a share of a specific amount of income. It may also be defined in terms of an amount of income to be known in the future”. This latter case is the case of Sui. Determining the remuneration as a portion of revenue is an opinion of Imam Ahmed Ibn Hanbal.

This relationship is not a Qard from the owner to the validator, because the amount of staked tokens is not guaranteed by the validator to the owner.

Therefore, this relationship is legitimate, as we don’t see any violations of the rules of Wakala therein.

• • Relationship Between Token owners

Tokens delegated to a given validator can be provided by many token owners. The relationship between those delegators is Musharaka, whereby they share their profits reaped by that validator according to their respective portions of the staked tokens, after deducting the validator’s commission. They also share potential losses according to their shares. In this relationship, we don’t see any violation to the rules of Musharaka.

• Rewards

The rewards given to validators are rewards for their processing and validation, plus a coverage of their storage costs. There is another source of rewards which is new token issuance, i.e., new tokens given to stakes as a bonus. But these are optional and not a pre-determined condition, so there is no fear of Riba. Since transaction fees are a function of the computation units and the storage units for each transaction on the platform, rewards are considered as the result of real value added. Validators can benefit in proportion to their share of total stake during every epoch. This reward system shows no violation of Shariah. Making the rewards distribution proportional to the share of stake seems acceptable, because larger stakes are likely to increase workload and hence costs, and also put greater risk of slashing in case of underperformance or bad behavior, as this is determined as a percentage of the staked amount. Therefore, we don’t know of a Shariah condition preventing that larger stakes get larger rewards for the work.

• Applications

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

If applications are not known on an individual basis, then we should look at the general pattern on the platform and the majority of application types. For the time being, we don’t have enough data on the typology of applications built on the platform. There is evidence that some applications are prohibited, but there is no evidence that this type constitutes the majority of applications. Therefore, we apply the rule “the default situation in things is allowance الأصل في الأشياء الإباحة” to unknown applications, meaning we assume that the unknown application is halal, until we have evidence of the opposite or evidence that the majority of apps are prohibited. Future updates of this Shariah report may provide new evidence on this matter.

Conclusion of Shariah Opinion:

Based on the information we could review, we approve using SUI token on the Sui platform, and exchanging it for that purpose. This conclusion is subject to regular reviews, especially in relation to the platform’s use cases and applications.

[1] A Layer 1 (L1) blockchain is a base blockchain on which secondary blockchain networks and applications are built. Bitcoin and Ethereum are the two biggest L1 blockchains in the world. L1 blockchains provide the basic infrastructure and security that Layer 2 (L2) blockchains need to function, whereby a L2 blockchain depends on the L1 for security, using its secure proof-of-stake (PoS) consensus mechanism. It also depends on it for data availability, as all the transactions conducted the L2 are posted on the L1.
[2] Time on the platform is divided into consecutive periods, called epochs, lasting roughly 24 hours each.