Lack of regulation and liquidity in India’s digital assets sector are “major bottlenecks” preventing decentralized finance (DeFi) from penetrating into the domestic market, says Siddharth Verma, co-founder of Nuo Network.
“The fact that regulation is not on the side of crypto or it has not been on the side of crypto up until now or up until very recently, is a big, big bane in the progress of people adopting this technology,” said Verma, whose Bangalore-based company allows users to lend, borrow or margin trade crypto assets.
On the back of reports that the Indian government may be considering a ban on cryptocurrency, India’s digital asset proponents are voicing concerns that, if regulators don’t take action, the country could be left behind when it comes to blockchain innovation and crypto adoption.
See related article: DeFi is ready for India, but are Indian authorities ready for crypto?
- What’s holding back DeFi in India: “We’re really bogged down by two major things that are stopping us from doing that in India and the first one is definitely regulation. The second major reason is the fact that there is really less liquidity in India.”
- Regarding the potential bill on cryptos: “Everyone on this side of the fence is lobbying for bitcoin or cryptocurrencies to not be something which is illegal. So, this will continue to happen until there is a proper bill in the parliament and it actually turns into an act.”
- How crypto businesses are reacting: “The fact that in March 2020 the Supreme Court kind of gave the green light for the cryptocurrency companies or the ecosystem in India to grow is a good enough sign for us to start building that particular base in India and expand that cryptocurrency base in India, which is which is actually at an all time low.”
- Why India’s crypto scene is in a holding pattern: “As citizens of India, you are generally taught not to rebel. So there’s a cultural aspect also something one has to take into account when you’re talking about anything that is revolutionary, even in terms of finance or currencies. So because we are not very rebellious in nature, the very fact that the RBI or the central bank had actually stopped or discouraged people to use cryptocurrencies is why we were just holding our horses and just waiting for things to open up or not.”
- India could fall behind on innovation: “If India really does not allow the Indian crypto ecosystem to pick up, it is just going to be left behind and then there is going to be a huge missing out on a lot of financial action that India could be a part of. So this is one of the biggest reasons why we should, in fact, have regulation.”
Listen to Forkast.News Editor-in-Chief Angie Lau’s interview of Verma to find out more about DeFi in India, the costs of business uncertainty when there is government inaction, and what crypto industry leaders like Verma believe is cryptocurrency’s potential for helping India.
Angie Lau: Welcome to Word on the Block, the series that takes a deeper dive into the stories we cover right here on Forkast.News and the emerging technology that shapes our world at the intersection of business, politics and economics. It’s what we cover right here on Forkast.News. I’m Editor-in-Chief Angie Lau.
So DeFi or decentralized finance is one of the biggest innovations to emerge in banking that marries finance with blockchain, really providing financial services through a decentralized network that interacts with smart contracts. Let’s dive deeper into one of our reports on Forkast, titled “DeFi is ready for India, but are Indian authorities ready for crypto?” India is ripe to emerge as a leader for DeFi in Asia, many say, including our next guest, Siddharth Verma, co-founder of Nuo Network, a Bangalore-based company that allows users to lend, borrow or margin-trade crypto assets. Let’s explore why. Siddharth, welcome.
Siddharth Verma: Thanks so much, Angie, for having me on your show. It’s a great pleasure.
Lau: Absolutely. Our pleasure indeed. Okay, let’s talk about India right now. You’re based where? In Mumbai?
Verma: Yeah, I’m based in Mumbai. So basically after the lockdown, we decided to give up on the office space, which we had in Bangalore. So we’ve just given up on office space. Everyone is now working remotely. And I’m in Mumbai.
Lau: It’s called a decentralized workforce. It’s a distributed workforce. It’s something that we are all really familiar with in this industry. But it also makes for at least in India, there’s a lot of unique realities. At 1.35 billion people, a lot of people are under-served when it comes to banking or worse, even unbanked. What role can DeFi play in India?
Verma: So actually, that’s a very, very interesting take. As you mentioned, we have 1.35 billion people out there and if you really break it down, then there’s a huge portion of people who are still unbanked. And we’d all like to believe that DeFi is going to be the solution to bringing all these people onboard into an alternative banking system, if not the traditional one. But over here in India, actually, I have kind of an opposing view to that. I totally believe that crypto can be the gateway into finance for a lot of people, but in the future.
Right now, we’re really bogged down by two major things that are stopping us from doing that in India and the first one is definitely regulation. Here in India people really believe in the financial institutions as they exist right now, and going forward, the fact that regulation is not on the side of crypto or it has not been on the side of crypto up until now or up until very recently, is a big, big bane in the progress of people adopting this technology.
The second major reason is the fact that there is really less liquidity in India. If you see in much more advanced countries advanced in terms of crypto adoption, all of those countries have institutions coming into play and buying a lot of bitcoin and other cryptocurrencies and providing for the much required liquidity for people to enter and exit at any point and even in large quantities.
But in India, that has really not picked up and again, the major reason for that is regulation. So essentially, it all boils down to when regulations will open up, when institutions will actually start to think beyond just the traditional fiat currency and move the whole nation along with it.
Lau: Well, look, this is a really timely conversation because back in March, the Supreme Court of India overturned the RBI ruling on the banking ban for cryptocurrencies. That was really a critical point that a lot of people thought was going to be kindling, under the fire of innovation in India. That’s something that could spark a true trend. And a lot of people embraced it, including yourself. There’s no doubt.
And now we’ve got news that legislators are now coming in to fill the vacuum, the loophole, close the loophole, whatever you want to call it, and establish or reestablish that ban on cryptocurrency. What’s it doing to the innovation space or even the momentum right now?
Verma: Yes, in fact, this is a very timely time for us to have this conversation. As you mentioned, March 2020 was a pretty remarkable time in the crypto ecosystem in India when the Supreme Court actually quashed the RBI regulation for the banking institutions to serve crypto companies. From that time in fact, a lot of momentum had been generated. And I will come to the point of legislation trying to go back to where it was earlier.
But before that, let’s just touch a little off on how things have changed in India. And in fact, even before we dive into how things have changed in India from March 2020, let’s just take a step back and see how the crypto industry is really placed. So essentially, what is the journey of any typical crypto investor? Be it even when I started investing back in 2011, I’m sure every one of us had this exact journey and this is exactly the journey that everyone else is also going to have.
You first get exposed to a concept called cryptocurrency and usually that concept comes into fruition in the form of bitcoin. So first you really get exposed to bitcoin and then you realize that this is just one kind of cryptocurrency. So there is a plethora of other cryptocurrencies that people can really explore and there’s a market for each one of them. Then you go to the others like a Ethereum, Ripple, and so on and so forth. Then you realize that, OK, this is all governed by blockchain technology.
So blockchain can be used for multiple different purposes. Banks are trying to use it, different organizations are trying to use it, but that’s a whole different story altogether. But you jump into the crypto world with bitcoin and realize that there are other cryptocurrencies in play that you can also invest in. And then you realize that the blockchain technology that actually supports a lot of these cryptocurrencies can have a lot of different applications. That is where DeFi really sits.
So if you just create funnels then the majority of people get blocked out after the first funnel itself and they just start to look at bitcoin and they don’t even look at the other cryptocurrencies, forget DeFi. So this is the journey that even India is going to take very, very soon. And in fact, a lot of people are believing in the fact that India is going to just gain a lot of momentum in the bitcoin side.
Right after March 2020, the Indian exchanges saw a trading volume spike of 300% on a daily basis. On a monthly level, it had gone up to around 250%. In fact, even in terms of new sign-ups, the sad reality is that India was getting around approximately 300 to 400 sign ups a day on an average, and just right after this, that spiked 10x. So essentially, we started getting 4,000 new sign ups every day. So all these interesting things started to happen in India.
As I told you, Indians are very much not rebels. As citizens of India, you are generally taught not to rebel. So there’s a cultural aspect also something one has to take into account when you’re talking about anything that is revolutionary, even in terms of finance or currencies. So because we are not very rebellious in nature, the very fact that the RBI or the central bank had actually stopped or discouraged people to use cryptocurrencies is why we were just holding our horses and just waiting for things to open up or not. Once the Supreme Court has actually opened up the market, that’s when markets started becoming really more excited.
Lau: So people were just waiting for permission from the government, from the higher ups.
Verma: Yes, so the sentiment was waiting for the permission. But honestly, businesses could not run without the bank’s approval. So both go hand in hand to really give all this momentum in an ecosystem.
Lau: But it also I mean, there’s also a really critical role that DeFi can play here. I mean, we’ve got SMEs, as we know, the lifeblood of a lot of nations, including India. And right now, especially Covid-19 and really the global economic slowdown, we’ve got small and medium enterprises that are the most vulnerable. Where are they going to get their loans next? Are the banks flowing the money? And DeFi is a viable option. But potentially even this could be going away soon.
Verma: Absolutely. So just as the U.S. Fed has released a stimulus package of 2 or 3 trillion [dollars], the same way, the Indian government has also released a stimulus package, which is kind of notorious because people are criticizing the government for not really doing enough or not really living up to the promise of the stimulus package. But regardless, there is a stimulus package that the Indian government has come up with, which is around 10% of our GDP, which is approximately 300 billion dollars.
Over here they are also trying to give loans to these SMEs. And a lot of these things were kind of happening in the Indian ecosystem as well. But over here DeFi could not pick up because of one major thing which was liquidity because any collateral bank lending will not really work if there is no liquidity to liquidate your collateral that you would put in as another cryptocurrency. So as I mentioned in the beginning of our conversation, regulation and liquidity, these two other major bottlenecks for us to penetrate into the Indian market.
Lau: And to your point, if the regulators gave it the OK, you potentially could see a surge in liquidity. You saw that after the March 2020 overruling of the RBI ban on banking, on cryptocurrency. You saw the massive uptick of users and in signups across India. And so that was, one could argue, the start of nascent liquidity. I mean, you haven’t reached a maturity stage yet. But if the regulators come down once again, well, where does the DeFi market go, let alone the blockchain and the cryptocurrency industry in India? Is all of this at risk right now?
Verma: Absolutely. In fact, right now the Supreme Court’s latest ruling is being overridden by any kind of bill that the legislation is trying to bring about in the parliament. If that really happens, DeFi is probably the least effective because they’ve not even taken off. So it’s not effective because not even taken off, but the most important thing is that the whole crypto ecosystem would really feel the sentiment dampened.
But having said that, there are a bunch of people in India also who are really fighting for this cause. In fact, that’s why the Supreme Court even heard us. So we are definitely going to take the fight forward and try to get things rolling once again. But, once again, the whole thing needs to start from bitcoin and other cryptocurrencies and then DeFi would really come into the picture in India for sure.
Lau: You’re launching a new venture from the Nuo Network. So you’re also launching Nuo Exchange. At a time when India potentially could be shutting down and squashing this nascent enthusiasm, where does that leave you? Where does that leave this platform that would or could serve Indian populace that’s interested in cryptocurrency?
Verma: So just on the regulation, the document, the legislation is actually trying to dampen this whole momentum, the fact that there is a bill in draft in the parliament that is trying to get circulated inside but has not really happened, this thing has been there since 2018 and or the beginning of 2019. So this whole bill is being circulated by some people in the parliament, but is in draft form for a very long time. This is the speculation. If this does turn into a bill, there is going to be a lot of debate.
Internally, everyone on this side of the fence is lobbying for bitcoin or cryptocurrencies to not be something which is illegal. So, this will continue to happen until there is a proper bill in the parliament and it actually turns into an act. So we believe that this might just turn into a very, very positive thing as well. This might just turn into something where a new act comes, which actually allows or promotes or not discourages people from using cryptocurrencies. That is very much on the cards as well.
It’s just that, right now, especially the article that had just come out, is something that, we believe was a click bait kind of an article, we just wanted people to go into that link so that they could realize that actually there’s nothing of substance that has really happened in the parliament as of now. So the fact that in March 2020, the Supreme Court kind of gave the green light for the cryptocurrency companies or the ecosystem in India to grow is a good enough sign for us to start building that particular base in India and expand that cryptocurrency base in India, which is which is actually at an all time low.
Just to give you some perspective of how much less penetrated the crypto industry is in India, there are about 85 million people in India who have invested into mutual funds. And the number of crypto investors in India is estimated to be at around one million. So, if you just compare this number to the U.S. ecosystem, there the whole population of the U.S. is 300 million and I’m not sure how many people have really invested into any kind of asset. Over there, 15% of the entire U.S. has at some point invested into bitcoin or any cryptocurrency, whereas in India that number is 1% of the mutual fund investors. Approximately 1% of the people who invested in mutual funds. So, it’s like a sleeping elephant which is waiting to be woken up.
So basically we are at that stage where we just need to be out there, get the excitement going, get the buzz going for people who have invested into mutual funds and other safer assets to just allocate 2 or 5% of your entire portfolio into something that would that that might just save 95% of the rest of the portfolio that you’ve invested in the future. Because given the Covid times, everyone wants to hedge their risks by some other uncorrelated asset and bitcoin might just turn out to be that uncorrelated asset that might just save their entire portfolio. So that is what we are going after, essentially with our new product, Nuo Exchange.
Lau: Got it. But it still depends on people’s appetite. And it still depends on political support. If you were able to highlight why policymakers need to pay attention and support, what would one of the biggest benefits be in supporting and allowing for cryptocurrency to be legalized, for banking to flow freely? I guess a much more supportive regulatory environment. Why in your opinion, would India need that?
Verma: Actually, there’s a single one word answer for that. It’s actually FOMO, it drives every other government regulator or investor, everyone, right? FOMO. So essentially, if India does not do that, China has already rolled out its plan. I think the digital yuan is already in play. And, that might just take over a lot of the financial entities across the world. And so on and so forth with a lot of other countries. If India really does not allow the Indian crypto ecosystem to pick up, it is just going to be left behind and then there is going to be a huge missing out on a lot of financial action that India could be a part of. So this is one of the biggest reasons why we should, in fact, have regulation.
In fact, we should talk about things which they’re really concerned about while putting in the regulations, the biggest concern that they have is the anonymity of the transactions that happen across the different cryptocurrency blockchains. So we should actually come up with regulations which make sure that the government is satisfied in all the KYC (know your customer) norms and the fact that who can really do transactions and so on and so forth. So we should really try to do that as regulators instead of just completely banning it.
Lau: Well, historically, the sleeping elephant is slumbering right now, but the potential is enormous and that is always something that the world has said about India and we’re still waiting. So if the regulators can figure it out and be educated and certainly see the kind of talent that is burgeoning across India that is supporting DeFi and blockchain and really this industry that that is growing around the world, then that will be a sight to see for sure. I look forward to that day. Until then, we at Forkast will continue to keep a close watch.
Verma: Absolutely. In fact we are waiting for that to happen and our new product is just gonna be tapping into that particular set of people who have that appetite and have invested in mutual funds, but have not really tried bitcoin.
Lau: Well, it’s going to be interesting. See if they’re gonna bite. Siddharth, thank you so much. I really appreciate the time that you’ve spent with us. That’s Siddharth Verma, co-founder of Nuo Network, talking about DeFi’s promise in India and of course, all the regulatory pressures that are at play at the moment. But the promise is real. Siddharth, again, thank you so much and thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Angie Lau. Editor-in-Chief of Forkast.News, until the next time.