Digital Liquidity Fragmentation and Stablecoin Expansion: A Maqasid al-Shariah Perspective

Abstract

rapid expansion of stablecoins structurally accelerates digital liquidity fragmentation, producing a monetary dualism between public central bank money and private digital instruments across jurisdictions. This study examines liquidity creation and fragmentation patterns driven by stablecoins and evaluates their implications for monetary stability through the maqasid al-shariah framework, particularly hifz al-mal. Employing a normative-critical qualitative methodology with a systematic PRISMA review, three principal findings emerge: first, reserve-backed issuance generates liquidity outside central bank regulatory perimeters; second, a paradox of concentration and fragmentation exists whereby capitalization remains concentrated in USDT and USDC while functional liquidity disperses across 107–127 blockchain networks, constituting a systemic governance failure; third, fragmentation becomes mafsadah when it undermines value stability, distributive justice, and systemic risk equity. This study contributes by reinterpreting digital liquidity fragmentation as a structural governance problem, operationalizing hifz al-mal as a normative criterion for systemic risk assessment, and conducting comparative normative analysis across five Islamic jurisdictions. Limitations include the absence of empirical quantitative testing, exclusion of non-fiat models and broader maqasid dimensions, and policy analysis confined to five countries. Regulators are urged to implement transparent reserve audits, cross-network interoperability standards, and cross-jurisdictional harmonization to prevent fragmentation-induced erosion of stablecoin benefits.