DIGITAL FINANCIAL ASSETS

Obiyathulla Ismath Bacha, Ali Zhang Hengchao and Mirzet Šeho

Chapter 14 in Islamic Capital Markets:A Comparative Approach, 2025, pp 403-430 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the evolution and dynamics of digital financial assets (DFAs) in Islamic capital markets (ICMs). Following an introduction of the concept of DFAs and their relevance to ICMs, it discusses the evolution of DFAs and the technologies underlying them. The various types of DFAs, including cryptocurrencies, stablecoins, security tokens, and central bank digital currencies (CBDCs), as well as the development trajectories of DFAs, are examined. Through an in-depth case study of Bitcoin, insights into its operational mechanics and role in modern finance are explored. The chapter also addresses the structure and risks associated with the DFAs and the primary valuation methods for DFAs. Following a discussion of the roles and risks of DFAs in the ICMs, the chapter concludes with a review of the latest developments in the DFAs’ space, including Bitcoin’s recognition as a legal tender, the debut of cryptocurrency exchange tradable funds (ETFs), and the growing interest in CBDCs. On completing this chapter, readers should have an appreciation of the risks and opportunities presented by DFAs within the Islamic finance space and the sustainable development of ICMs in this crypto-economy era.

Keywords: Islamic Banking; Islamic Finance; Capital; Capital Markets; Contracts; Instrument Design; Interbank; Interbank Money Market; Islamic Interbank Money Market; Bond; Bond Market; Sukuk; Sukuk Market; Common Stocks; Equity Markets; Islamic Equities Market; Derivative Instruments; Shariah; Shariah-compliant Derivative Instrument; Exchange Rates; Foreign Exchange Market; Digital Financial Assets; Blockchain; Financial Solution; Digital Financial Solution; Conventional Capital Market; Dual Market (search for similar items in EconPapers)
JEL-codes: F3 G15 G18 G23 G24 (search for similar items in EconPapers)
Date: 2025
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