Why a financial ratio screen at all
A protocol can pass Layer 1 (its core activity is halal) and still fail Layer 2 if its operations are financed through riba mechanisms. The classic case is a chain whose treasury is parked in tokenised T-bills — the chain's day-to-day operations are halal, but the funding is interest income. Layer 2 catches this.
The 30% threshold
A protocol fails Layer 2 if more than 30% of its accessible treasury is held in interest-bearing instruments (yield-bearing stables, lending pool LP tokens, conventional bond proxies). The threshold mirrors AAOIFI's standard for conventional equity screening and gives a defensible cut.
How we measure
For each protocol in the candidate universe:
- Pull the multi-sig and treasury contract balances on-chain.
- Classify each holding by riba exposure (yes / no / partial).
- Compute the riba-exposed share as a percentage of total treasury.
- Pass if under 30%, fail if over.
The classification is documented per-asset and updated quarterly.
The 12-month quarantine rule
Protocols launched within the last 12 months frequently lack stable treasury data — the balance sheet is too volatile for a meaningful ratio. We quarantine these (exclude from the universe) until enough history accumulates. This avoids both false-permits (a new protocol whose first quarter looks clean but whose long-term policy is not) and false-fails (a new protocol whose treasury is still being deployed).
What Layer 2 does NOT capture
Layer 2 does not say anything about Layer 1 (the protocol's actual activity) or Layer 3 (how we trade it). All three layers must pass for the asset to enter the universe.