WazirX CEO: India’s crypto industry trying to keep ‘clean’ for regulators

Transcript

Angie Lau: Has the legal status of crypto trading in India finally been clarified, or has uncertainty pushed the industry to self-regulate? And from India to the world, we take a look at the state of institutional interest.

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast.News. I’m Editor-in-Chief Angie Lau.

Well, Indian investors have complained of being denied services from banks due to a 2018 crypto banking ban that has been reversed by the Supreme Court in March of last year. The central bank, the Reserve Bank of India, or RBI, has told banks now to stop referring to this ban, which no longer exists. The RBI then added that their stance on crypto hasn’t changed, and they still have major concerns.

The lack of regulatory clarity has only added confusion among the public, media, crypto Twitter, and beyond.

So now, India’s Blockchain and Crypto Assets Council has teamed up with India’s Internet and Mobile Association to form a guideline for exchanges — self-regulation, if you will — to take matters into their own hands.

WazirX, one of the nation’s biggest crypto exchanges is part of this collaboration. And joining me today is the CEO of WazirX himself, Nischal Shetty. Nischal, welcome to the show

Nischal Shetty: Hey, Angie. Thanks a lot for having me on.

Lau: It has been a tough road. Talk to me about the early days with you, with WazirX, with crypto exchanges in India, and where are we now?

Shetty: We launched in around 2018, and this was just three weeks before the whole banking ban came into the picture. We were really new and most of the exchanges back then had to either shut down or change the business model or leave the country. So that’s where we started, 2018, to today, where if you have been following the India ecosystem, we don’t have a banking ban any more and our government is actively discussing regulations and what’s to be forward.

We’ve progressed a lot coming from no banking access for the industry to today having clarity that we can least access banking. There’s no law against it. This does not mean that the path is smooth or everything’s all amazing on the ground. But I would say I still see this as progress. It’s way better than what it was last year or the year before that. In a way, the ecosystem has been progressing in a positive direction, instead of going downhill. That’s how you would sum it up. While if you compare this with some of the more progressive nations in terms of crypto laws and regulation, this is still behind. But if you look just within, I think we are doing better.

Lau: All right, let’s dig a little deeper here, because being a pioneer is often risky, but the rewards are huge. You framed it up really nicely. Three weeks before the ban, you started, you launched, you had this huge vision. The ban came and essentially it affected a chill on the industry. You kept moving forward. What was your vision? What does it continue to be for India?

Shetty: For me, when I experience the whole decentralized nature of blockchain and the fact that someday the whole ecosystem dreams of having one financial world online. That is the moment that I decided that the best thing I could do, at least as an entrepreneur for our nation, is just make it accessible to everyone. Nothing beyond that. 

It’s very similar to the internet. One of the best things you could do if you were to go back in time is onboard as many people on the internet as you can as fast as possible, because having seen the last 10, 15 years of the progress that every nation has had before the internet access. I think that’s the kind of feeling that I got when I look into crypto and I look at the state of crypto in India. I realized that we are way behind when we compare ourselves to other geographies around the world. So how do we expedite this whole involvement or participation of everyone? And that’s where the idea of an exchange came in, because I see an exchange as the entry or the doorway to getting access to crypto. You go from fiat world to your first crypto buying experience using an exchange.

With that in mind, we launched WazriX. Even now our mission is the same. How do you make crypto accessible to everyone in India? And we are just working towards it. We are building features. Whenever we build something we just think will this give access to more people in India. That’s all we are going towards. India is a large nation and we have about 15 million people in the country today who are into crypto. But that’s about 200, 300, 400 million more people can onboard. The faster to be on board as a nation, the more progressive we can be in the sector.

Lau: It’s a small percentage. You have 1.4 billion people in India. This is an economy that has fits and starts, especially when you have governments that are trying to figure out what innovation and what economic growth means to India. These two are very tied together — economic growth and policy initiatives. Where does crypto fall politically? And do you think that the legislators have evolved that conversation, evolved their thinking?

Shetty: It’s a bit of a stretch to look at, like the last 10, 20 years of India’s progress, software and internet has played a large part. So if you look at it from a political point of view, as a leader, if you want to see progress in the nation in a similar manner, where do you go next? Is the next evolution of the internet or software. That’s where crypto comes in. So any leader in the nation will want to be seen as a progressive thinker, I think crypto falls right in their domain. They do want to support crypto and should show the world that we can innovate and we can regulate something innovative. So that’s one angle.

The other is, the whole unbanked population in India, we have about 200, 300 million unbanked population who are not part of the digital economy. Now, you could build infrastructure around banking, but we’ve seen so many years that banking infrastructure just can’t reach every nook and corner of the country. What can actually reach every nook and corner is the internet. And after the internet, it can be crypto. So the moment we have some sort of digital regulations around the whole digital asset ecosystem, we’ll see these 200 to 300 million unbanked population according to the Digital India initiative. So that’s the other thing.

The third is the fact that because this is a decentralized technology and people around the world can participate, if India does not participate, we know very well that other countries are definitely going to. They’re not going to stop for India to come up with regulations. So there’s this competition that India is already into, whether it wants to be or not. That is, again, driving regulations. Now, in terms of the understanding of our leaders, it has evolved. We’ve gone from a point where I think everyone thought that unanimously every crypto was a currency and it was here to replace fiat, to today understanding that there are more aspects of assets and utilities. And in fact, these are more of the larger use cases of crypto. That evolution, I’m beginning to see among leaders. Quite a few have in fact, come to discuss with the industry. So we’ve had quite a few closed-door discussions where their intention is — they don’t come with the “I know already,” they come with “I want to know, what is this sector, what is this innovation that you guys are building?” That’s very positive — accepting that this is something new and having to interact with the industry. That’s where the whole positive direction is.

Lau: What surprises the most when you have kind of like the closed-door briefings, what is the most common question that they ask, number one, and what surprises the most?

Shetty: The most surprising is the openness because when you look at the whole media news and the whole perception, it seems like the government is so against it or they’re not even interested or they got in trouble. But when you talk to some of the key leaders, you realize that they do want to understand. They do want to participate. They probably feel nothing bad should happen, especially because we are dealing with finance and that people’s money. I think the fear comes from that more than anything else. The fear is how do you protect the end users and other people of the nation from any bad actors?

A few of the questions usually asked are getting a basic understanding of what crypto is and how do we as an industry see it. The second is, I think they are well aware of what is happening globally in the sector. That is very important. They very well know how other countries are treating it. In fact, one of the reasons why you keep hearing of a ban but no country has banned it is because you see that no nation around the world is going in that direction, and that’s why even India does not want to get into that direction. These are some of the interesting things that come up and you discuss.

Lau: One of the things that we monitor here from our vantage point in Asia is clearly the Asia impact and the Asia influence in blockchain adoption. Obviously, China leads a lot of that. There’s a lot of policy direction, policy support. There’s BSN and then there’s everything from multiple pilot trials of a digital RMB or a CBDC. How does that impact Indian policymakers? How do they think about the China competition or the rest of Asia region and the competition from other sovereigns?

Shetty: I think competition is good and it’s good for the sector, and that’s how they view it, that because other nations are into it and they’re way ahead, how do we ensure that we are also going to progress? Because India is one of those top software nations and everyone understands that we can’t lose that edge. And it doesn’t take long for technology to just go over to other geographies. It’s all online and digital.

The willingness to keep innovating and the willingness to keep competing in this whole software domain and the internet domain, that is definitely something very positive. Every time it is in the media, I’ll give you an example. Every time we hear about a CBDC experiment in China, we always see that there is some mention of how India is also trying to understand and get into this space. At least from my point of view, I see it very healthy. In fact, I want more countries around the world to experiment with this so that every other nation is motivated to participate.

Our central bank has, in fact, repeatedly said that they are interested in CBDCs. Now, this would not have happened if other countries had not jumped into it because everyone’s been doing the wait and watch game. Now that China and other nations are talking about central bank digital currency, India is also definitely motivated. And in the next one or two years, I have a feeling we will see some concrete outcome from India’s efforts.

Lau: The current state of policy, however, is still a little murky. We heard from the RBI, there was that consternation about, despite it being overturned by the Supreme Court, banks still refer to the RBI ban, even though it was overturned to refrain from giving banking service to Crypto exchanges, etc. That is now slowly turning.

But still, we still have some legislation sitting on the sidelines waiting to be introduced in the next session of the House. Where are we? What is the current climate towards crypto in India right now from your point of view?

Shetty: So I think the legislation that you’re talking about, which is waiting on the sidelines right now, it’s probably a derivative of a 2019 bill, a draft bill, and that was in the public domain, which spoke about sort of banning crypto.

But recently, in fact, even yesterday, I have had quite a bit of discussion with Mr. Subash Chandra Garg was the one heading this committee that created this draft bill. And what he said was, their objective of a ban or a prohibition is around the currency use case or the use of payments for crypto. He sees that even the in principle do not have any problem with the asset use cases or the utility use cases of crypto. That sort of shows some positive light that if there is any negative outlook from the government or from the regulator, it is more to do with the payment mechanism. It is expected, because our payment systems are fairly evolved in the nation and we are trying to get everyone into that system. And all of a sudden you have an external crypto coming in. So that’s going to be some protectionism around that sector. But the good thing is for the asset and the utility use cases, they do not seem to have any issues.

So what we believe is that this bill will probably get modified along the way. I don’t think it’s ready to be accepted into and made into law yet because it only takes over one aspect of crypto, which is the currency part, but it does not actually talk about the assets or the utilities. How do you regulate them? Are we allowed to use them? And the interesting thing is now you have NFTs. So the time when it was built, some of the use cases did not exist. So now it’s going to be very interesting. And which is right around three weeks back, we heard a news — unconfirmed, but we saw it on one of the top daily newspapers in India which said that the government is now trying to set up a new committee again to revisit the whole thing. So if that news gets confirmed, it will be a large development because that news also said to the government is looking at crypto as an asset class, not a currency. So if this happens, that will be very, very positive. Until then, we are going to have this confusion.

Lau: If that happens, India is going to be a hot space again. And by hot, I’m talking about everybody from innovation to people who want to participate and potentially unbanked people in India. Are crypto companies like WazirX right now free to do banking or conduct other crypto-related business in India right now with ease? Or is it still a little….

Shetty: The thing is, the other issue lies with specific banks and their compliance and legal teams on how comfortable they are. The good thing is that RBI clarification that just came in last week, it says that you should not use the 2018 circular because that has been set aside by the Supreme Court. And it also says that you should do your own due diligence. It tells the banks, do your own due diligence before you get involved. So that is a ray of hope that banks are now free to do it on their own, whether they want to go ahead or not. What we are seeing is this bag of mixed reactions from banks where some are very open. They want to discuss and interact. Some want to take a conservative approach. What I mean by that is usually they want some other banks to move first and then they’ll join. So now we are just going behind those who are positive and we are trying to get a couple of banks to agree because they know the moment a couple of banks agreed and the others will follow.

Lau: It’s still a little cryptic, though, what the RBI put out there, on one hand, they said that circular is no longer valid because of the Supreme Court ruling. So don’t refer to that. However, they did still reconfirm that they are concerned about money laundering, terrorism finance, and the like. Do you think that leaves room for RBI to come in with future guidance or specific regulatory language?

Shetty: It’ll be good if they do, but one of the things we’ve seen from the RBI is they’ve been also waiting for the government to come up with some regulations or guidelines. Because if you look at crypto, it can behave as a currency so maybe we think that the central bank should do it, but then it can also behave like a property or an asset and you want a commodities regulator. Even among the regulators, there’s no clarity whether they’re even supposed to put in guidelines. They’re not aware or they’re not sure whether they should be regulated. So that’s where the guidelines are expecting that guidelines from the central bank or the RBI might be a little too premature for us.

We’re all waiting for the government to come up with some sort of indication whether should it be the RBI even coming up with guidelines. I think even the RBI is waiting on that. So that’s where the confusion is. The only thing RBI can do until then is to release a cautionary note in dealing with the exchanges or dealing with crypto. And that’s what they’re doing. If you look at it, these are just cautionary notes that they’re releasing telling people that be cautious. We are not regulating it at this point in time. So take your own decisions.

Lau: Got it. That’s good advice, generally speaking, whether it comes from the RBI or from you. That, yes, be careful. Look, the Internet and Mobile Association of India estimate 15 million crypto traders in India. You told us that. That’s just about 1% of the country’s population. It doesn’t sound like much, but why is this so interesting for the industry in India? What’s the broader impact that India could have in the entire crypto industry if that number ticks up?

Shetty: Some stats — if you look at the whole equity space in India, we have probably 60 to 70 million people into it. So that’s about 4%. And that’s an industry that has existed for many, many years. And now here you have an industry which sort of in India, I think it’s been only four or five years since crypto really became popular. So the rapid growth. If you look at it in isolation, yes, it seems like 1%. But if you think about it, it’s already 25% of the whole equity space in a very short period of time. So that growth trajectory is something which is very, very visible, that if it continues this way, I think for us, for WazirX, it took us about three years to reach two million users. And then last month we signed up two million people. You see the rapid growth that it shows. 

We’ve seen this happen to anything on the internet — media, e-mail addresses, the social networks — that once it hits an inflection point, it rapidly grows. And I think that is something that around the country, people are noticing, even the regulators, even the government. Otherwise, if you think about it, the government may not really worry too much about the 1% of population doing something in the country. But they are, because they see the rate of growth shows them that it might be five or 10% in the next one to two years.

So how do we really get into this early and make sure that the ecosystem is built on a clean bill? So I think I’m very excited about the growth trajectory we’re seeing. And if it sustains this way, I wouldn’t be surprised if we reach 50 to 100 million people in the next 18 to 24 months in India, because in India, we have a large population. And that’s sort of this whole viral element in the country. The moment something works, it really spreads fast on the internet world in India. That is something that’s keeping everyone in the crypto sector excited: Are we hitting the inflection point? The next three to six months we’ll understand. If this continues, if we continue onboarding two million, maybe three million next month, if that goes on, it’ll be a matter of time before 30, 50 million people get on board to crypto in India.

Lau: Absolutely significant impact, and so don’t pay attention to the actual numbers, pay attention to the rate of growth, that’s 100%. And then I guess this is where self-regulation comes in. We’ve often heard about those headlines, the hacking, the scams, people being left holding the bag.

Where does the industry stand in India? I understand that the Internet and Mobile Association of India is working together with Blockchain in Crypto Assets Council. Top exchanges like yours, WazirX, and CoinDCX — which we’ve also covered — are members. You’ve now set up a formal board to monitor the implementation of self-regulatory code of conduct for member exchanges. What is that code? Why is it important to self-regulate?

Shetty: Sure. In one end of the spectrum, we’ve been going after regulations, we’ve been pushing for regulations, we’ve been asking our government to come up with guidelines. But what is important is while you can always demand for regulations, we know that in a country as large as India, it is going to take time because there are so many things to look into before something becomes part of the law. The idea as an industry was, ‘Should we really just wait until the law comes in and just have anyone do it according to their own wishes? Or can we sort of try to build a template and sort of show the government that even on our own, we’re still responsible and it’s not the wild, Wild West out here?’

With that objective, we decided we should all come together — exchanges in the country — and adhere to some set of guidelines which we will all follow. This has a few major advantages. One is you end up creating an informal template that the government can look into when they eventually want to regulate. Because let’s face it, it’s not a templated regulatory environment in crypto today. Everyone’s trying to figure it out. This was the first aspect.

The second was how do we ensure that when the regulators finally come in, if the ecosystem is bad, they will be spending the majority of their time just putting out the fires. They’ll be focusing on how do you remove or put out the bad actors. But if we self-regulate and we keep the industry clean, they’ll focus on how do we enhance the regulatory aspect, how do we enhance the industry? So we wanted to do that.

Shetty: And the third is customer protection. Most important, because no matter how large an industry you build, if people lose money or if people are affected negatively, you can never expect it to get regulated. These three of the major reasons why we got into it. 

Now, what are the guidelines? We’ve taken a very simple approach to begin with. The idea was, let’s not innovate here. Let’s just replicate what exists in the traditional financial world. So what we’ve done is we’ve tried to pick up whatever we can take from the existing financial regulation, be it KYC, AML policies. You’re working with the law enforcement where necessary, and then consumer protection and combating terrorism, any laws around that.

We’re trying to put these guidelines, some very basic rules. And it’s a very simple document today. Maybe I think around two or three pages we just put out. Then solvency, making sure that all of the exchanges are solvent, a third party audit. Because we can self-regulate, But let’s still get someone external to verify that we are following all of these guidelines. That’s phase one and we’ve started implementing that. 

Phase two will be once we learn this, we will then bring in new guidelines that might be very specific to our industry, but that will happen when to start with the existing guidelines. So that’s two parts for phase one of the existing guidelines we apply. Phase two will be new guidelines, which will be very specific to this industry, but that’s going to take some time.

Lau: Look, guidelines are great, enforcement is the key. You ready to kick somebody out and remove any kind of approval or stamp or whatever it is that allows you to police yourself?

Shetty: Yeah, absolutely, and I think it’s very important because one bad actor is enough to destroy an entire industry. You don’t need too many wrongs happening. You just need one.

As an industry, we’ve held ourselves to the highest of guidelines and we want to make sure that we only bring in the right exchanges and crypto businesses who want to adhere themselves to this and hold ourselves to the highest of standards in the sector. We’re always careful about who we let in and how we go about doing this. And in fact, this is one of the feedback we’ve gotten from some of the important key members in different parts of the government, which is if you’re going to make a self-regulatory body, make sure that you have only the best and those who adhere to all of these. So we are definitely following that.

Lau: So interesting, how this is evolving in India. Look, the industry is also expanding to areas such as DeFi, and it’s not just local regulators, it’s local regulators around the world really struggling to catch up with everyone from the United States to Thailand to India and so on and so forth. How important do you think that regulators in DeFi space will help define its future? We’re hearing it’s been critical in regards to adoption elsewhere, but what about DeFi?

Shetty: I think it is probably a matter of timing. When do you time this? Right now, the world is still in the whole centralized ecosystem regulation. And before you complete that, jumping onto the DeFi regulatory space would be really hard.

You need to take another step. So the first step is how do you regulate centralized crypto businesses first? And then maybe the countries can go into decentralized and bring in regulation then. I just think it’s very premature to think about regulating the DeFi space. Because it is, one, is very new. Two, If you regulate before innovation completes, that innovation cycle is built up. You risk stopping the innovation or blocking innovation. And the thing with DeFi is, it does not depend on any geography at all. So any nation that prematurely regulates DeFi is actually going to just see a brain drain of entrepreneurs leaving that nation and going to some other nation and doing it.

The first would be, regulate the centralized because fiat involvement is there. so I can just leave a nation and go if I don’t like the regulation of that country today, at least in the CeFi space. But in DeFi, countries will have to be really sensitive whether they want the entrepreneurs to stay in that nation and whether they want innovation in that sector. So I would say maybe three to five years from now, DeFi might be ripe for regulation, but right now it’s way too early.

Lau: All right, finally, I want to ask you about just Bitcoin, Ethereum, the whole altcoin space, the cryptocurrency space. From an exchange point of view, the latest round of volatility has hurt a lot of people. And I wonder if that has also hurt adoption, both from institutional investors and also retail investors. Is it slowing down interest?

Shetty: I think that interest is still there, but what’s happening in the last four weeks, six weeks, it’s been a healthy stop, I would say, to the six to eight months we’ve been experiencing in crypto. I think this was a much-needed pitstop for the entire sector to just look into what direction we’re going. And I think this might last for a few more weeks or months. This will bring in more clarity and sanity, because we were definitely seeing the markets being overheated and random ideas were getting random valuations overnight.

There was sort of a fear: “is this 2017 repeating all over again?” What has happened this time is the brakes have been applied way faster before it’s too late. That’s a very good, healthy move. If you look at the price also — still not bad compared to 2020. Most of the people who have been in crypto for, let’s say, a year are still in profit. That’s a good sign. Compared to what happened in 2018 was a lot of the wealth was eroded.

This time, it is bringing in sanity and it was a much-needed break for the entire sector to just think through on what the direction and what sort of projects do you want to get involved in. I’m excited about how now this takes on to the next step once everyone realizes, “Okay, this is the direction we’re going, these are the fundamentals of the various projects that we should be involved in.” And then, that things will start again.

Lau: To your point, that’s a great point in 2017, a lot of projects died because liquidity dried up and sentiment also dried up. This time we see a lot of projects actually still thriving. Polygon is an India-based team that’s leading the Ethereum layer 2 race. This is a great example of how projects and market activities in crypto prices actually plays in the overall growth of decentralization of financial industries. That’s just an interesting aspect of what we’re seeing coming out of India.

Shetty: Yeah, Polygon has done really well. And what has happened from Polygon’s success is it’s motivating a lot more entrepreneurs to now get into the whole blockchain and the decentralized direction because now they’re seeing there’s a team which has made an amazing product out there, which is global in nature, and it’s been well-received by the global crypto community. Can we also now attempt to build a global crypto project? That’s a very good outcome of Polygon coming up as one of those top projects globally, because before that, we’ve not really heard of any large Indian global crypto project coming up. This is going to push more entrepreneurs to build in the sector as well. We’ve had a lot of entrepreneurs in the centralized ecosystem in India, which is focused on the Indian market. But we definitely need global products and global projects coming up. So Polygon is definitely pushing that in the right direction.

Lau: I’m going to just let you wrap up with your pet topic right now, NFTs, where do you see this going as you build out beyond the India space? Do you have global ambitions for WazirX?

Shetty: Look, I would never say never, but I think right now there’s so much in India, there’s so much excitement that I don’t want to lose sight of what’s in front of us. I would still focus on the Indian market for now because it’s just beginning to form and shape up. NFTs, I’m super excited because if you look at the crypto ecosystem until now, anyone who could create crypto tokens were startups and technical folks. Now, all of a sudden you have this amazing opportunity for anyone who is creative to create their own crypto tokens, and we call them NFTs. But what is happening is the number of creators in the crypto ecosystem is going to now skyrocket from a few thousand startups to a few million creators. That’s great progress for the entire ecosystem.

The other is, if you look at the last 10 years, the creators have always given their art away for free and they’ve somehow tried to monetize using ads and sponsored posts, which they don’t like. They hate it. You won’t find one creator saying, “Oh, I love putting ads.” But now they can monetize their creativity and hard work by just selling it. And it’s amazing for collectors and their followers because they can support an artist by just buying up. A like and a comment, I know it does not really give them the fuel for building more into what they’re doing, but when I buy that art, that’s going to motivate them to create more quality content. So I’m super excited about this whole sector. It’s like we’re onboarding a new segment of people onto crypto. We never thought that creative people would come onto crypto. It was all about finance and investments. And now all of a sudden you have a creative section coming on. I think that is amazing.

Lau: Anybody who has seen the economic revival of neighborhoods, when the artists start moving into that neighborhood, something else happens right around the corner. I don’t think this is something that we should ignore. I think something very similar is happening in the crypto space.

Nischal, it was a pleasure talking with you. Not only did we get insights on the evolution of blockchain and crypto innovation in India, we heard about how the industry is also evolving by self-regulating and how you hope to really transform India into a global player. Nischal, it was a pleasure welcoming you to the show, and thanks for joining us on Word on Block.

Shetty: Thanks. Thanks, Angie, for having me on the show. It was a pleasure to be here.

Lau: Absolutely.  

And thank you, everyone, for watching this latest episode, I’m Angie Lau. Editor-in-Chief of Forkast.News. Until next time.