US-based Coinbase announced this September that it planned to stop all services for users in India. The cryptocurrency exchange claimed that it was forced to take this step after it faced regulatory scrutiny by policymakers in the country and its home turf. 

CoinDCX’s co-founders Sumit Gupta and Neeraj Khandelwal believe that regulations are welcome, even necessary, as they make up for a safer environment for customers and business players alike. However, they tell Outlook Start-Up that they need to be formulated in a way which does not compel companies to shift base overseas. 

Edited excerpts:

Coinbase's decision to discontinue services in India, citing regulatory concerns, has raised questions about the administration’s stance on cryptocurrencies. Do the government’s actions, including applying money laundering rules to crypto transactions, reflect its disinclination towards the virtual digital assets (VDA) industry?

Sumit: There are concerns that crypto could potentially be used for illegal activities. However, a proper reporting framework for exchanges with consistent guidelines will take care of some of the risk parameters of virtual asset service providers. Regulation is a step in the right direction, and we have been asking for it for three years. 

While it can be tough initially, things get easier as the government starts to understand the space better. So, we've got clear guidance on taxation, KYC, rules for maintaining data records, etc. These are unlikely to hamper innovation. Our industry has learned the art of patience, but there will be takers for it as long as it contributes to building a healthier ecosystem and protecting the customer. 

For instance, we have a 7M framework that decrypts any token before it goes live on our platform and filters out quality projects. In its absence, people can pretty much list any token, but that's not the ecosystem we want. 

Within the next couple of years, more guidelines should come out for customer protection. These small steps will essentially contribute to building a regulated ecosystem for this industry.

Despite its regulatory and tax complexities, India stands out as a significant player in the VDA market, as evidenced by the Chainalysis Global Crypto Adoption Index. What factors contribute to India's impressive growth in crypto adoption?

Sumit: One unique thing about crypto assets is that they are completely built on technology without any physical constraints. Since it’s principally borderless, it can easily flow between jurisdictions. 

Moreover, India has a high internet penetration, and overall, crypto and blockchain are the next iteration of the internet. We have the largest demography of technology-savvy young people. These are the fundamental drivers of why Indians are more receptive to new technologies, be it crypto, ChatGPT or UPI. The adoption is happening at the grassroots level, accelerating investments in the sector. 

I was not surprised to see Chainalysis Global Crypto Adoption Index figures about India (The country ranked first in four of the five sub-categories considered for the 2023 index, including centralised service value received, retail centralised service value received, DeFi value received, and retail DeFi value received). If we channel it correctly by cutting out the noise and removing the bad actors, it can be a great catalyst for the country.   

Do you get your internal customers to emulate the benefits of crypto?

Sumit: We don't do it as the current regulations don’t allow us to pay salaries through crypto. Interestingly, India has 75,000 developers working with global companies, and this number has increased by 120 per cent in the last couple of years. Of this, 11 per cent work on Web3 technology, which is expected to go to one-fourth of the global talent pool in the next couple of years. And this pool is getting incentives in crypto assets. 

The 30% tax on gains is a significant challenge for most VDA firms, including yours. How has it impacted your business?

Sumit: The TDS was a major blow to domestic players. Because of these regulations, CoinDCX saw an almost 90 per cent decline in trading volume. Moreover, when things do the opposite of the intended goal, it does not solve the problem; it actually worsens things. Instead, it would help if you incentivised people to pay taxes.

The objective of TDS can be served even with a lower amount. The downside of such a high number is that some foreign platforms will not comply with it. It also puts customers at risk because fewer companies comply with local laws—there are only six Indian FIO protocol registered entities.

Hence, we see a trend where almost 95 per cent of the volumes or activity has shifted offshore. No country would want that. 

We would love a level playing field without any arbitrage because it hurts the customer, businesses and the exchequer. We feel it will get corrected with time and we can just wait it out. In the meantime, we are working on several projects and mainstreaming our use cases. 

That is where Okto steps in?

Neeraj: Sumit and I started CoinDCX in 2017 as a crypto exchange where people could invest in this asset class. However, crypto was not our end game because everyone uses blockchain in their daily lives. 

We have worked extensively on onboarding over 15 million people onto this asset class and spreading awareness about this at the grassroots level. At the same time, we also need to build the infrastructure so that the masses can use applications built on blockchain without heavy liabilities. 

For e.g. Ethereum takes a whopping $20 per transaction. Okto helps bridge this gap by building many applications on top of the blockchain, making it more accessible while improving security and reducing the cost of transactions. 

How many people started using Okto since you launched it in May?

Neeraj: We had roughly 2,00,000 users on the platform till October 2023 and we want to reach half a million by the year-end. Notably, this user growth came without any marketing because we are more focused on simplifying the customer experience to augment technology adoption. We will also target some global geographies like southeast Asia because we want to build from India for the world.  

What is your global market currently? 

Neeraj: Roughly 30% of our user base is from overseas simply because people find it easy to access blockchain-based applications via the net.

Most users are concerned about the growing incidents of cyber fraud and security breaches. How is Okto enabled with AI and ML-based authentication protocols to sidestep this?

Neeraj: 20 per cent of Okto’s engineering team works specifically on this aspect. We use complex technologies, like multi-party computation and account abstraction, to balance experience and security. The keys are distributed so that there is no single point of failure. Only the user has access to move their assets, so their funds can’t be misused. 

That’s the premise of a decentralised exchange, isn’t it?

Neeraj: Decentralised exchange is one of the applications you can use alongside any other decentralised blockchain-based application, including 3D-based gaming, Web3 Finance or any other vector applications. Users can log in for free using their CoinDCX credentials, download Okto, and get onboarded. 

What is the revenue model?

Neeraj: There is a standard transaction fee, though we might introduce a platform fee once we have more transacting users.

• 
• 
• 
•