Use Cases

Below are just some of the use cases that AZKA's Murabaha Product can be used for:

Financing for operating capital

When embarking on a new business venture or facing financial liabilities such as bills or invoices, you might find yourself short on capital. Instead of liquidating your digital assets—which could lead to tax implications and potential loss of future gains—you can opt for Murabaha. This financial arrangement allows you to secure the necessary operating capital without compromising your assets' potential growth.

Murabaha token speculation and utility

If you're optimistic about the future value of a Murabaha token, such as UNI, in relation to USD, you might consider executing a UNI token Murabaha where the debt is denominated in USD. By doing so, you'd incur a debt in USD that's roughly equivalent to the current market price of UNI, plus a margin. This strategy essentially positions you as bullish on UNI. Should the price of UNI rise, your USD debt remains constant, leading to potential profit. Additionally, there might be short-term utility in holding the Murabaha token. For instance, you might need UNI or a similar Murabaha token (ie, CRV, CVX) to influence a governance proposal.

Delta Neutral strategies

The AZKA Murabaha product opens the door for hedging underlying asset exposure in a Shariah compliant manner. Users can build delta neutral/pseudo-delta neutral yield generating strategies using AZKA's Murabaha product.

1) Psuedo Delta Neutral AMM Strategy :

Lets assume you hold a portfolio of 100K USDC. You identify a very lucrative (x*y=k) AMM pool for ETH/USDC pair yielding 45% APY. Let's assume the price of ETH is 3,333.3 USDC per ETH. Starting with 33,333 USDC you gain long exposure to ETH (purchase ETH with 33,333 USDC). Hence you are starting with 10 ETH long exposure.

With the remaining 66,666 USDC, you go to AZKA and collateralise the USDC and execute a UNI token Murabaha at a DTC of 50% and specify that you want the debt to be denominated in ETH. Assuming there is price parity between ETH/USDC, ETH/UNI and UNI/USDC, your UNI tokens should be worth 10 ETH and if you sold them for USDC, you would receive 33,333 USDC. Let's further assume that the annual fixed Murabaha Fee is 10%.

Now you can sell you UNI tokens for USDC, effectively neutralising your initial ETH exposure. Hence, you have 10 ETH long exposure, 33,333 USDC obtained from selling 10 ETH worth of UNI. The 10 ETH long position and 10 ETH debt effectively cancel each other out by selling the 10 ETH worth of UNI for USDC. You now deposit the 10ETH and 33,333 USDC into the AMM pool. It is important to note that this type of strategy still bears some risk. It is still subject to some level of Impermanent loss and although large price swings still impact the net value of the position, the impact is less severe. This is why it is called pseudo-delta neutral. You would still need to monitor the health of your collateral position, if the price of ETH rises too much, your position may get liquidated.

For this specific strategy composition, the portfolio's net expected yield is given by:

PNEY = Effective yield of AMM position - Effective Murabaha cost

Effective yield of AMM position : (0.6666 * 0.45) = 0.3 or 30%

Effective Murabaha cost : (0.3333 * 0.1) = 0.0333 or 3.33%

PNEY = 26%

There are several layers of complexity and risk management considerations with regards to these types of strategies. This example is just to highlight how Murabaha can be used to hedge asset exposure without going too deep into the quantitative analysis. The effectiveness of such a strategy in practice would depend on various factors not covered in the example.

AZKA will have a dedicated Discord channel and educational material for these topics.

Structured products

azTokens represent underlying exposure to AZKA pools and are in essence yield bearing instruments that can be used within a variety of products. For example, azUSDT, represents exposure to pooled USD that is used to facilitate Murabaha activity. A depositor into the azUSDT pool can always expect to receive their principal back plus some variable return on investment. As such, The potential applications of azTokens are vast:

DeFi Protocols: interfacing AZKA pools and azTokens can be done in an open and permission-less manner for teams, protocols and individuals building yield based products and automated smart contract systems.

CeFi portfolios: azTokens can be incorporated into broader off-chain portfolio frameworks providing a source of yield for underlying asset exposure.

Centralised Fintech Providers: Fintech providers can leverage azTokens as a backend source of yield within their offerings.

Islamic Financial products: azTokens can be incorporated into Islamic financial offerings, such as Takkaful and Sukuk.

AZKA's Murabaha order-book can also be used in similar fashion by third parties to build sophisticated financing options for individuals and institutions .