The Threshold Question: Reserve Architecture, Riba, and the GENIUS Act’s Jurisprudential Problem

I. The Question the Act Did Not Ask

The GENIUS Act did not ask whether a payment stablecoin backed by interest-bearing instruments constitutes a ribawi instrument in the hands of the holder. The question was not in scope because the relevant legal traditions were not represented when the legislation was drafted.

The Islamic finance market reached US$3.88 trillion in total assets in 2024, reflecting 14.9 percent year-on-year growth, according to the Islamic Financial Services Board's Stability Report published in May 2025 (IFSB, 2025). Standard Chartered projects that figure will exceed US$7.5 trillion by 2028 (Standard Chartered, 2025). The Gulf Cooperation Council region accounts for 53.1 percent of current global Islamic finance assets. The five principal Gulf sovereign wealth funds; the Public Investment Fund of Saudi Arabia, the Abu Dhabi Investment Authority, the Kuwait Investment Authority, Mubadala, and the Qatar Investment Authority, collectively manage approximately US$5 trillion in assets as of early 2025 (Diplo, 2025). Islamic banking accounts for 74.9 percent of total banking sector assets in Saudi Arabia as of 2024 (Market Data Forecast, 2025).

The stablecoin market reached US$316 billion in market capitalisation in October 2025, with 97 percent of fiat-backed stablecoins pegged to the US dollar. Gulf institutional capital is not peripheral to this architecture. The jurisprudential question is a precondition for the participation of a capital pool that represents, by multiple estimates, one-quarter of total global sovereign wealth fund assets.

II. The Reserve Architecture and Its Interest Mechanics

Section 4(a)(1) of the GENIUS Act limits permitted reserves to: US dollars and demand deposits at insured institutions; Treasury bills with maturities under 93 days; repurchase agreements backed by government securities; government money market funds; central bank reserves; and other similar government-issued assets approved by regulators. Section 4(a)(11) prohibits any permitted payment stablecoin issuer from paying the holder any form of interest or yield, whether in cash, tokens, or other consideration, solely in connection with the holding, use, or retention of the stablecoin (Federal Register, 2025).

The scale of that income is not incidental to the analysis. Circle's USDC reserve portfolio generated US$1.7 billion in revenue and reserve income in 2024 from a reserve base of approximately US$60 billion (Journal of International Economic Law, 2026). From 2022 to 2024, interest earned on reserve assets accounted for 95 to 99 percent of Circle's total revenue (Visa Economic Empowerment Institute, 2025). Tether held US$94.5 billion of its reserves in Treasury bills as of December 2024, representing 65.7 percent of total reserves (Treasury Borrowing Advisory Committee, 2025).

The holder's structural position is as follows: deposit dollars, receive a dollar-denominated token, surrender any claim to the return generated on those dollars for the duration of the holding period, recover the par value of the deposit upon redemption.

III. The Riba Prohibition: Classical Framework and Contemporary Application

The Quranic prohibition of riba is established in Surah Al-Baqarah, verses 275 through 279: "Allah has permitted trade and forbidden riba." The prohibition is unanimous across all four Sunni schools of jurisprudence. Classical jurisprudence identifies two primary categories. Riba al-nasiah, the riba of deferment, refers to any predetermined increase charged on a loan in exchange for deferred repayment; this is the form most directly relevant to modern financial analysis. Riba al-fadl, the riba of excess, refers to the simultaneous exchange of unequal quantities of the same ribawi commodity.

The contemporary Islamic finance industry has built a US$3.88 trillion institutional architecture on the operationalisation of the riba prohibition through instruments that substitute trade, ownership, and genuine risk-sharing for interest income. The sukuk market reached US$971 billion in outstanding issuance by 2024 with projected growth to US$1.5 trillion by 2028 (Standard Chartered, 2025). Every one of these instruments requires a structural connection between the return received by the capital provider and an underlying economic activity involving real ownership, risk, or exchange. The payment stablecoin as defined by the GENIUS Act is not any of these instruments.

IV. Five Points of Jurisprudential Contestation

The structural analysis identifies five points at which the GENIUS Act's payment stablecoin architecture creates a live question under the riba prohibition. AAOIFI has not issued a governing standard specific to payment stablecoins operating under the GENIUS Act's reserve architecture.

The first point concerns the nature of the instrument in the holder's hand. When a holder acquires a GENIUS Act-compliant token, the issuer simultaneously deploys the corresponding dollar into Treasury bills bearing interest. The Act's insolvency provisions grant holders a super-priority claim over reserve assets; this implies a legal relationship between the holder and the reserve pool that a pure-medium-of-exchange characterisation does not easily accommodate. Whether this constitutes a constructive fractional ownership interest in interest-bearing instruments is unresolved.

The second point concerns the principle of al-kharaj bil-daman: return follows liability. The stablecoin holder bears the risk of issuer insolvency; the instruments are explicitly not FDIC-insured under the Act's classification provisions (Pub. L. No. 119-27, sec. 3, 2025). The holder bears that risk without receiving any return in exchange. The issuer captures the income generated by assets the holder's deposit funds. Whether a contractual structure in which risk and return have been systematically decoupled in favour of the issuer is consistent with the al-kharaj bil-daman principle is a substantive jurisprudential question with no published fatwa applying it to a GENIUS Act-type reserve structure.

The third point concerns the use-versus-holding distinction. There is a defensible scholarly position that the use of a stablecoin as a pure payment medium for instantaneous settlement involves no loan relationship and therefore generates no riba exposure. The difficulty is that the GENIUS Act's reserve architecture is continuous: from the moment a dollar enters the reserve pool to the moment the holder redeems, the underlying assets generate interest for the issuer. At what duration the exposure becomes jurisprudentially operative is precisely the question that requires a scholarly ruling.

The fourth point is the three-party yield passthrough and its contamination question. Circle pays approximately 60 percent of its reserve interest income to Coinbase and other platform partners (ABA Banking Journal, 2025). Whether a Muslim participant who uses a payment platform whose revenue model depends materially on reserve interest income participates in something jurisprudentially questionable by proximity is the most contested dimension in the existing literature on financial infrastructure use.

The fifth point concerns the principle of tawriya and constructive participation in a ribawi structure. Whether a GENIUS Act-compliant stablecoin, whose reserve architecture is specifically designed to generate interest income for the issuer at scale, is structurally analogous to existing general-purpose payment networks or represents a more proximate connection to ribawi income is a question the existing fatwa record does not resolve.

V. The Market at the Threshold: Gulf Capital and the Adoption Decision

The UAE Central Bank's Payment Token Services Regulation, effective August 2025, established the first comprehensive stablecoin framework in the GCC and produced the AE Coin, the first regulated dirham-backed stablecoin (Rebelfi, 2026). The UAE received US$30 billion in digital assets in 2024, with stablecoins accounting for 51.3 percent of transactions. The Bahrain CBB's Stablecoin Issuance and Offering Module, which the Fitch Ratings global head of Islamic finance has called a landmark model for the region, requires AAOIFI compliance and independent Sharia advisement for Sharia-labelled products (Fitch Ratings, 2025).

These developments establish active institutional appetite for stablecoin infrastructure. They do not resolve the question of whether US-issued, GENIUS Act-compliant payment stablecoins backed by Treasury bills are accessible to Gulf institutional capital under Sharia mandates. A GENIUS Act-compliant payment stablecoin cannot simultaneously be Sharia-compliant under any interpretation of the riba prohibition that attaches to the reserve structure, because the Act's permitted reserve categories are exhaustive, and none of them generates returns through non-interest mechanisms recognisable under Islamic jurisprudence.

Gulf sovereign wealth funds; PIF, ADIA, QIA, KIA, and Mubadala together invested a record US$82 billion in 2024, with Gulf funds accounting for more than 54 percent of total global sovereign wealth fund deployment in the first half of that year (Skadden, 2025). The question does not require direct stablecoin issuance or holding to become operative; it becomes operative whenever Gulf institutional capital encounters the stablecoin payment layer as a counterparty or settlement mechanism.

Conclusion

The GENIUS Act established a payment infrastructure. It did not establish whether that infrastructure is accessible to capital pools representing US$3.88 trillion in global Islamic finance assets and approximately US$5 trillion in GCC sovereign wealth fund assets under management. The reserve architecture the Act mandates produces interest income at scale; Circle alone generated US$1.7 billion in reserve income from US$60 billion in reserves in 2024. The riba prohibition has been maintained across fourteen centuries of jurisprudence precisely because the prohibition does not yield to the economic convenience of the instrument that bears it.

AAOIFI's standard on payment stablecoins, which as of this writing has not been issued, is the document this market requires. The standard must address the five points identified in Section IV. Absent that standard, Gulf institutional capital will remain at the threshold: not opposed to engagement, but structurally unable to engage without a scholarly foundation that the record does not supply.