Decentralised Finance (DeFi) companies have reached out to finance ministry for details on the proposed cryptocurrency regulations, seeking clarity over how the government would manage and streamline blockchain operations.
DeFi firms, which offer interest on crypto deposits, insurance, and loans, are hoping that they would not be clubbed along with cryptocurrencies.
DeFi is a decentralised financial ecosystem built on blockchain applications that can be used for remitting money, buying insurance, or even borrowing money against cryptocurrencies.
It essentially emulates banks, brokerages, insurance companies, and any other financial product digitally.
Unlike cryptocurrency exchanges, only a handful of companies offer these services in India.
Most of these have tied up with co-operative societies in the country to offer services to customers. In many cases, companies are even opening branches and have plans to roll out ATMs.
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“We are in touch with the finance ministry and state registrars to understand which path has been taken and so far, it seems that crypto is allowed as an asset class and once it gets regulated we will add more co-operatives in our network to make it nationwide,” said Kumar Gaurav, founder and chief executive of Cashaa, which offers saving accounts, debit cards, crypto loans, and monthly rupee deposits.
Cashaa, a London-based online cryptocurrency platform, has tied up with United Multistate Credit Cooperative Society and has launched UNICAS — the world’s first crypto-friendly financial institution with physical branches and operations.
NFT (non-fungible token) firms have also raised similar concerns as they fear the government may categorise NFTs too as commodities, like cryptocurrencies, creating further complications.
DeFi players say that although their underlying technology is blockchain, they cannot technically be clubbed with cryptocurrencies. This is mainly because they are closer to the financial sector than commodities.
Many Indian crypto exchanges that were looking to launch a separate NFT marketplace have put their plans on hold, on worries over the impact of the proposed legislation.
Others with such platforms are wary about whether they can continue operations.
“DeFi in India is still at an early stage. Since DeFi mostly revolves around cryptocurrencies and staking, it will be massively affected if the crypto transactions are considered as illegal in India. It will depend on how the government defines the crypto transactions and how they set up a system to track them,” said Toshendra Sharma, founder and CEO, NFTically, an NFT marketplace.
The Reserve Bank of India (RBI) had earlier red-flagged DeFi applications and projects and had sought legal advice on their workings, ET was the first to report in October.
This also comes at a time when the government is looking to frame guidelines on cryptocurrency.
The government is discussing with stakeholders whether cryptocurrencies should be completely banned or whether they should be allowed in a limited manner where the RBI will primarily regulate them, ET reported on December 11.
“We want the government to define crypto so that it increases the adoption of crypto and more and more people declare it so that they can use it to take loans or deposit it to earn interest rates,” Kumar of Cashaa said.
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