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CoinSwitch Kuber: The story of India’s largest crypto exchange

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The growth of Cryptocurrency over the years has been astronomical. People are now tempted to take their first steps into the world of crypto. To make trading, investing, and knowledge of crypto easier for people, three engineers, Ashish Singhal (CEO), Govind Soni (CTO), and Vimal Sagar (COO) launched ‘CoinSwitch Kuber’ in 2017. This began the journey of a platform that is now home to over 11 million users.

In early 2018, the Reserve Bank of India (RBI) issued a policy that did not allow the banks to support crypto transactions that forced the three founders to spread their idea outside India with the VC, Sequoia Capital funding them in the seed round. But soon in early 2020, their dream of shedding light on the digital currency in India came true as the Supreme Court of India overturned RBI’s policy. ‘CoinSwitch Kuber’ was then introduced to the people of India.

Ashish defines simplified User Experience (UX) and the decision to not provide the users with some trading features as the two factors that helped the platform overtake other coin exchanges.

CoinSwitch recently suspended crypto withdrawals for its users due to lack of clear rules concerning the currency. Clarifying the move, Ashish says, “This was perhaps the hardest call we had to take. But regulators are worried about crypto being used as legal tender and hurting the sovereignty of the Indian rupee. Further, they are worried crypto can be used for money laundering and other illicit activities. So far, no one has figured out how to stop it, but disabling crypto withdrawals in a stopgap measure till the right policies come in place.”

Talking about the future, the founders aim to transform this app into a full-time investment platform with crypto and traditional financial instruments available for everyone. Praising the investors such as a16z, the founders hope that the Indian government defines the rules around crypto better, and compartmentalize virtual currencies based on their use cases and not prohibit it in upcoming legislation.

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Cryptocurrency: increasingly the currency of choice for new India

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Cryptocurrencies took the world by storm when they first emerged in 2009. With no government backing these digital currencies, and no single user having complete authority over them, Crypto has seen a decent rise in the number of its owners. From Elon Musk to Bill Gates, all have spoken about the ‘future’ of currency.  

Recently, BrokerChoose, a broker discovery and comparison website stated in its annual proliferation index that India has the biggest number of cryptocurrency users in the world, with 10.07 crore users. The United States is next, with 2.74 million crypto owners, followed by Russia (1.74 million), and Nigeria (1.30 million).  

The increasing trade volumes and valuations of Crypto exchanges in India is another testimonial to the exponential rise of this virtual currency in the country. The report by Mint states that the Crypto exchange platform CoinSwitch Kuber has 11 million users, whereas WazirX stands at 8.3 million. Within one year of its incorporation in June 2020, CoinSwitch Kuber entered the unicorn club with a valuation of $1.9 billion. Prior to this, just two months earlier, crypto exchange platform CoinDCX became the first crypto unicorn in India with a valuation of $1.1 billion.  

Despite the country’s uncertain future, the cryptocurrency fever continues to grow among the public. The Reserve Bank of India banned cryptocurrency trading in 2018, but the prohibition was eventually overturned by the Supreme Court. In February of this year, the Indian government proposed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which would prohibit the use of private cryptocurrencies in the country. However, the bill has yet to be introduced in Parliament. 

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India’s looming Non-Performing Assets problem

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A Non-Performing Asset,  or an NPA, is a loan for which the payment of interest is overdue for over 90 days. All banks around India are obligated to classify these NPAs into Substandard Assets, Doubtful Assets, and Loss Assets.

A Substandard Asset is due for a period less than or equal to a year. A doubtful Asset is in the substandard region for 12 months and a Loss Asset is one which is uncollectable and is of low value.

There are various reasons for the rise of NPAs. Some include the slowdown in the global economy and the irrational lending of banks to business houses. India as a whole has seen a major problem in this field over the recent period

The NPA problem in India

The financial stability of India’s public banks has seen a major downfall since 2011. Gross NPAs had risen to a total of 9.5% in 2015-16. Most of the loans were given out during the peak period of 2004-2008. The banks continued to be inspired by this peak period and continued to irrationally loan out money to various business houses around the country. 

As a global crisis grew, the damage was too much, the projects were unviable, and losses began to surface. The biggest problem faced by the Indian banking system is the fact that the borrower lacks incentives to repay these loans. The business houses are not obliged to make sacrifices either if they decide to default. This led to a huge NPA problem in the Indian Public sector banks

How can India overcome the NPA issue?

India’s NPA problem is on a  rise, and steps must be taken as quickly as possible to resolve these issues to let the banks focus on lending. A new bankruptcy code can play a huge part in helping this system but it will take a lot of time to bring it into full effect.

The second RBI scheme is the Scheme for Sustainable Structuring of Stressed Assets (S4A), under which the bank can offer existing management an opportunity to rehabilitate the project by dividing the debt into two parts. 

The Indian Public Bank sectors need to work on this looming NPA problem. The quicker this is done, the easier it will be for all banks to resume the process of lending money to the business houses which will inevitably help improve the economic condition of the Indian business market

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Cyberattacks vs crypto exchanges: CoinSwitch Kuber, WazirX, and ZebPay explore a possible solution

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If a centralised crypto exchange falls or is hacked, the system could be crippled, and users assets could be lost. Popular Indian cryptocurrency exchanges, on the other hand, are embracing the concept of Decentralised Exchanges (DEX) as a potential solution. In 2021, India was placed second in the world in terms of crypto adoption, after only Vietnam.

Users can save their bitcoins in electronic and physical wallets, or trade them on more secure DEXs. On this, trades are made directly between investors over a blockchain-based peer-to-peer network. There is no centralised third-party that takes custody of customer funds other than the customers themselves. This could be the need of the hour as in August, a cyberattack on the Japanese exchange Liquid resulted in the theft of $97 million in cryptocurrency.

Concerns about privacy and KYC

DEX is being viewed as the future of crypto and decentralisation by certain Indian crypto exchanges. When signing up for a DEX on a centralised exchange like ZebPay, users are obliged to disclose their personal information with the exchange. With DEXs, there is no trusted third-party involved hence no KYC takes place.

It raises privacy problems for crypto exchanges, especially given the general lack of legislative clarity.

DEX ecosystem in its infancy

DEXs include dYdX, UniSwap, and others. Hundreds of millions of dollars are traded every day on PancakeSwap, 1inch Liquidity Protocol, and SushiSwap. Nischal Shetty, the Founder & CEO of WazirX feels the global DEX ecosystem is still in its infancy. Getting a DEX off the ground and seeing good transaction volumes early on, he believes, will be difficult.

WazirX was the first Indian crypto exchange to officially announce that it is working on a decentralised exchange. Polygon (formerly Matic Network) — an Indian business that has developed a Layer 2 Ethereum scaling solution – aims to commercialise it. Customers should not be forced to trade just on decentralised exchanges or centralised systems, according to Nischal.

Observance of the law

Although the model for creating a DEX is simple and has been done before, local and federal governments continue to scrutinise it. There could potentially be further legal concerns with existing investors under Indian or Singaporean law, according to Tanvi Ratna, Founder & CEO of independent research and strategic advice group Policy 4.0. However, even if specific founders are targeted, DEXs may continue to operate.

With their DEX plans, leading Indian crypto exchanges hope to stay on the right side of the law. In India, no government can regulate or censor a DEX, and exchanges are not trying to go around the legislation. According to Ashish Singhal, Founder & CEO of CoinSwitch Kuber, the rule is in place to safeguard everyone while also fostering a collaborative environment.

Is it possible to create a hybrid model?

A hybrid centralised/decentralised strategy, according to Ashish Agrawal, could be the way forward. Centralised exchanges, according to him, might be more controlled, dependable, and user-friendly. They assist in balancing the demand-supply ratio and allowing users to exchange currency without relying on third-parties.

CoinSwitch Kuber is focusing on liquidity aggregation solutions, which might be a crucial component if it decides to construct a DEX. Users interact with a centralised frontend system, but the backend is decentralised, according to the CoinSwitch CEO.

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