India's regulatory policies relating to cryptocurrencies despite being hazy has not deterred the investors from plunging into it. However, as a recent Business Today exclusive story had shown, indications are that unlike China, India seems to have moved away from its earlier stance of banning Bitcoin and other assets and may in fact introduce a new legislation to regulate and classify the digital assets during the upcoming Budget session.
BT caught up with Nischal Shetty, CEO and founder of WazirX, India’s largest crypto exchange. Shetty said that he is confident India will not ban the cryptocurrencies considering 20 crore people have now invested in various virtual tokens. China, on the other hand , according to Shetty, may prove to be a strong contender to the global crypto community by creating its own version of digital currency controlled by its central bank.
Shetty, who is often called one of the early new-age crypto entrepreneurs in India, further revealed that he is not a big fan of the “elite unicorn club” and that WazirX is not in the unicorn race. Currently two crypto startups, CoinDCX and CoinSwitch Kuber have raised funds from the global investors at over $1 billion valuation. Edited excerpts.
BT: I will begin by asking you about the recently released transparency report by WazirX which looks like an industry-first initiative. When we studied the report, we came across the fact that thousands of accounts were stated to be locked, some voluntarily and others by the platform. So, is this going to be a regular feature, maybe a monthly or a biannual feature?
Shetty: For the transparency report this is the first time we are doing it or anybody in India is doing this but we want to make sure this becomes a regular practice and eventually the industry also adopts this. We intend to do these every 6 months. That is the initial idea. Any new developments will be covered any time we come into contact with the network.
BT: Can you talk about the accounts which were locked by the platform? What kinds of violations did you see when you came across those accounts?
Shetty: A lot of people also want to stop using the platform and when that happens they raise a request. Because this is a financial ecosystem we are supposed to keep a lot of your accounts for regulation purposes and legal reasons and so in that case also majority of the accounts get in to the lock stage and they remain there because the user themselves voluntarily ask for it so the majority of the request have been that and apart from that the other reason is that when the authority reached out and asks us to put a lock in it.
There are two types of locks that happen. One is that the authorities are investigating it and during that time they want a freeze on the account which also happens in the banking industry as well. This happens well which is temporary and as soon as their investigation is done, they’re okay to release it. The second is when they find some wrongdoing and they want to freeze it and then take action. Now these are small percentages like 2-3 per cent where these things happen but most are just voluntary.
BT: I want to ask you about the vigilance by the regulators when it comes to the crypto exchanges and it was reported that WazirX being caught in the same, have you been able to resolve the concerns put forth by the Enforcement Directorate and the show cause notices you were served, have those concerns been addressed by the regulators and the other agencies?
Shetty: It is an ongoing thing and we have submitted our responses and now we have to wait for how it progresses. Having said that, I think one of the most important things to understand about how WazirX operates is that we’ve been doing KYC since day 1. So, anyone who trades on WazirX has KYC and anyone is traceable and that is how we also interact with law enforcement and regulators when they reach out to us. Now as far as this case is concerned, we have to wait and watch how it progresses but we are already following quite a few self-regulatory mechanisms where KYC is the first most important thing.
BT: There is no clarity when it comes to regulation of digital assets. I understand you were also talking to the government as a part of the industry over the regulations. So, at this point in time do you have any inputs to share with us as to where the process right now stands. Are you still talking to the government, the finance ministry or the committees appointed by the finance ministry when it comes to the regulation of the industry?
Shetty: As far as the interaction of the industry is concerned, we can muster hope right now. In between, there was a talk about a draft bill but I don’t think that also moved yet. Now we're seeing some chatter around it but nothing concrete has come up if we’ve got access to the bill or anything so we're also not sure as to the contents of the bill. Having said that, quite a few law enforcement and regulators are reaching out to understand. We’ve been asked questions on how we look at regulation so that interaction keeps happening but I don’t think anything concrete has evolved or emerged yet.
BT: But do you think India has moved away from its earlier stance on complete ban on cryptocurrencies?
Shetty: Absolutely. One is the large ecosystem, about 15-20 million, about 2 crore people in India today are in crypto. Second is that if you look at every other country, every other democratic nation they are getting into the regulatory zone of crypto, they are trying to figure out how to regulate it. Then you have companies in the US going IPO. I think India is definitely going in the stance of regulation and you rarely hear anything related to a ban or anything because it now seems old school that you’re going to ban crypto as a nation. There is no nation coming forward and saying we want to ban crypto, they’re all saying we want to regulate
BT: China already has. What kind of impact do you see?
Shetty: That’s why I said democratic nations have not banned. China has always been a different case even with the internet. It’s a controlled internet. Even with crypto they’re trying to see a controlled ecosystem. That is how they operate. Even with their Central Bank of China (CBC) they are launching it, and pushing other companies to adopt it. So, it’s not like they’re not getting into crypto, they’re getting into crypto. They are a way ahead than the central banks in the world in crypto. So, they are a strong contender for the crypto ecosystem in general. Banks around the world should really take notice and try to do something similar in the CBC area at least.
BT: There is also a likelihood of India having its own digital currency? Would you favour that?
Shetty: Absolutely I’m very bullish. I would say that India should launch its own token before any other nation does it simply because this is the opportunity for the INR to go global. It’s not just about local currency usage but the global usage will skyrocket. India has that opportunity to be that nation with which many more nations’ trade with which will also make the rupee much stronger. We are a tech nation and in technology we should be the leaders not the followers so I think India should definitely get in. RBI did talk about it but I think they are researching and understanding so let’s hope they come up with something quick.
BT: So, do you think classification of asset class is the most viable thing for crypto currency in India? What kind of regulation do you foresee?
Shetty: Classification is not an all-encompassing classification where everything is a currency or everything is an asset. It depends on what sort of a token it is. For example, Bitcoin is an asset but Ethereum’s token Ether that’s a utility. Then there are these stable coins which are definitely a currency. So, it depends on what crypto this is. The way regulation should also come is it should not be all encompassing saying we are going to regulate crypto but it’ll be more about taking parts of crypto and then regulating it. For example, you can have regulation of exchanges which are intermediaries, you can have regulation of stable coins which are currency, and you can have regulation on the asset. So, I think there will be a breakdown of the whole crypto ecosystem just like the internet has been broken and regulated, I think that is what we’ll see here.
BT: What about the concerns put forth by the RBI governor and the committee which was set up by the finance ministry on data privacy, financial risks and illegal mining, risk to national sovereignty and all of that. So how do you address those challenges at the present?
Shetty: I think regulation solves this to a large extent. For example, if a country is not really comfortable with a currency used, then they can definitely suppress that and say that not to use this as a currency. But I don’t think any country has a problem with utility or the asset part of it. Above that maybe even push for security on the block chain. Today our stock market is a 9-4 stock market which also doesn’t work during the weekend.
Maybe you tokenise it and have a 24x7 market which can be accessed globally by anyone which increases the liquidity as well as the valuation of the Indian startups. Employing such a technology where you can see immense progress can be made and suppressed or regulated, over regulated if you want in the currency aspect. I definitely think India’s INR currency is the strongest currency in the country that should function so maybe don’t allow the currency .
As an industry we’ve been very clear about that and we also as regulators we are already doing self-regulations. They already have a framework that we’ve adopted that they can look into it and see how it’s been operating. It’s not that hard to bring in some guidelines which can make sure the industry goes into the right direction and it’s aligned with what the regulators and the government expects.
BT: So can you talk a bit about the self-regulation mechanisms that have been brought in by the exchanges? At WazirX what kind of mechanism is already in place?
Shetty: We have a subcommittee under Internet and Mobile Association of India (IAMAI) called BACC where all the exchanges in India are a part of it. We came up with a set of guidelines as to what we should do as an exchange. For example KY, AML Policies, making sure that you’re audited, making sure you’re solvent, attending to customers, making sure you have a customer support team which is always responsive getting the right information about crypto, the education; so all of these have been put out into a framework and everyone has shared, agreed to and abide by so that’s how it's been operating. This is the first version, there are a lot of things missing in that now we’ll keep revising it so that we can bring other things into it.
BT: How do you view the rise of crypto unicorns in India. Two of your industry peers have already announced that they have entered the club. I wanted to understand when would we see WazirX, which claims to be the largest crypto exchange, when will it claim the unicorn status?
Shetty: When a bunch of people with money decide that this is the valuation of the company, I think that is not the right way. We should look at industry leaders, the companies that are growing and we should celebrate those companies. What happens to bootstrap companies is that just because they don’t have the money doesn’t mean they are not unicorns. I'm not a big fan of the unicorn club, it sounds too elitist to me that I have to involve a bunch of my friends and tell them to value my company. Otherwise by market share we are the largest trading volume in the country, we are the largest liquidity and we are the biggest everywhere. You can put some numbers together and make some calculations to know what company stands where. But I’m happy for whoever’s getting into the unicorn status.
BT: A lot of start-ups are lining up to list on the exchanges. What is your take on the IPO rush?
Shetty:. It depends on the overall progress, there is no wrong or right way in start-ups, there’s a way where you raise capital and grow, there’s a way where you keep building and growing on guarantee and there's no wrong or right way. The best thing which is the outcome of it is market risks, and that’s the most important thing, the market. With so much investment now, I’ve been a proponent that VCs should come to India and invest in more Indian startups especially in crypto because it makes the market. If you see the outcome of this, the industry is growing. We were 4-5 million 2-3 years ago and now we are 50 million people right now so that’s progress and it’s all a result of what’s happening right now.
BT: Are you looking to introduce any other financial products in your platform or you’ll stick to crypto as of now?
Shetty: We are completely into crypto because the idea is not to go to other sectors because there’s just so much work to be done in crypto alone there’s no time for it. If there’s a deadend where there is nothing left to evolve in crypto then maybe yes, but I think only 5-10 per cent of the market has been explored and a lot more is to be dealt with.
BT: Bollywood has forayed into launching non-fungible tokens, or NFTs, and there are celebs endorsing cryptocurrencies. There has been a lot of talk that crypto is becoming mainstream. I want you to take our viewers through this NFT craze in India and what kind of interest or investment do you see from the retail investors in India?
Shetty: NFT is a non-fungible token. The simplest example is that if I have a 10 rupee note and you have a 100 rupee note we can exchange it and the value remains the same. But if I have a painting of the Mona Lisa and you have a different painting we can’t simply exchange because the paintings are valued differently and that’s called non-fungible where you can’t exchange with the other and the value will remain the same. With NFT what they’re trying to do is they are taking art or music or videos which is something unique by itself and trying to value that. A lot like the traditional art music that you see. Now why NFT is becoming so big is that if you look at crypto it is still in the domain of finance and it is more to if you’re a trader or an investor. But NFT touches a new demographic of people which is the creative audience and their followers who believe in them.
So, you need not get into crypto if you are only an investor but you can also be a follower of the artist and you can buy an NFT or you can also buy as a long-term investment when you think the artist will grow, the NFTs launched today will be of more value. Think about whoever bought the first painting of a popular artist today that painting will be much more valuable. So, it’s all about getting in early. And because it’s something different and very simple, you can see it and understand it. In crypto what happens if you hear of a new token you have to go read the white paper, you have to understand who they are. In NFT it’s very simple what you see is what you get. If you see an art you can buy it if you believe in it. So that’s why it's picking up so quickly.
The thing is still very early and what you have to understand is that anyone can create an NFT. All you need is an image, and how you value that is still something the market is still to understand. So today you see an NFT at a really high value, tomorrow you may not see that because then the market will see that it's not that valuable.
BT: What about Bollywood endorsing it right now? Are you also talking to celebs or influencers for the NFT initiative on the platform?
Shetty: Recently Manish Malhotra, one of the most well-known designers dropped his fashion NFTs. What we’re looking for is interesting use cases we can collaborate with. We have collaborations with musicians and a lot of new collaborations are coming up. Artists and Bollywood personalities are giving their fans a way to connect with them. Now if you can connect with them on music and social media then why not NFTs? I think what everyone should understand is what you’re getting into. Take the right decision, don’t just get into it for the greed that if I buy this NFT I’ll sell it for a million dollars. Those are rare cases. \
Majority of the NFTs will not go up to a million, but it's always good to get involved, understand and let this technology breathe more. I think eventually we’ll see new use cases. For example, a use case which is getting popular is gaming.
What is happening is that traditionally if you were to play a game and when you leave that game and go to a new one you start from zero because you’re a new user. Now in gaming what is happening is that they’re converting your avatars and properties inside that game into NFTs so that you can take it from one game to another. Now that is an interesting case of NFT.
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