Co-founder of CoinDCX, shares how CAs and finance professionals can play a key role in crypto, DeFi and blockchain
We need to develop an income tax slab for digital assets, but imposing a 30 percent tax rate on Virtual Digital Assets (VDAs) is a bit too far says Neeraj Khandelwal, Co-founder of CoinDCX.
- Despite several controversies, surrounding crypto assets, one cannot deny the fact that it is going to disrupt the financial industry.
- To gain a deeper insight into this sector that has been making a buzz for a while now, we spoke to Neeraj Khandelwal - co-founder of CoinDCX for our Finance: 2022 and Beyond series powered by Qapita - CapTable and ESOP Management Platform.
How did the idea for CoinDCX come about?
I first met Sumit (Co-founder and CEO of CoinDCX) in 2007 way before crypto was even invented. While searching for a flat in Kota, India I happened to come across his ‘To let’ Advertisement and went on to share a flat with him for about a year.
That is how we became close friends.
As luck would have it, we ended up in the same college, the Indian Institute of Technology (IIT) Bombay to pursue BTech in electrical engineering.
We completed our cryptography course at IIT. That is how our fascination with crypto actually began.
In 2015, we tried our hands at crypto trading and soon discovered that the Indian crypto industry is lagging in terms of liquidity, product qualities, technology, compliance, operation, and services.
That gave us an idea.
After discussing it, we came to the conclusion that this was an untapped market where we could make an impact, and create value with our crypto knowledge.
Thus, the idea for CoinDCX came into being in 2017, and we began working on it.
What kinds of challenges did you face while setting up CoinDCX amid the restrictions?
It was not easy to build new technology. So, for the first 8-9 months we were working for 16-20 hours a day building the product.
We were about to close our seed round when RBI banned crypto trade in India, prohibiting banks from dealing in crypto transactions.
Without a bank account, it would be virtually impossible for us to operate.
That is when a lot of investors who were earlier, excited backed out. Luckily five angel investors who believed in the team and the long-term potential of crypto stayed with us.
Our parents as well advised us to pursue another startup idea or maybe take up a corporate job... they kept telling us - "Why are you launching a startup that is illegal?"
Getting employees on board was another major challenge due to all the negativity around crypto.
We started off nonetheless as a team of five techies from my flat in Mumbai to develop the matching engine which is the core of our crypto exchange.
Simultaneously, we worked on all the other components of the exchange as well.
In May 2018, we finally launched CoinDCX.
What is CoinDCX and what kind of services does it provide?
CoinDCX is essentially an open marketplace where people can buy, sell and withdraw virtual assets, and by virtual assets, I mean crypto coins such as Bitcoin, Ethereum, Solana, and so on.
Overall, on the platform, customers can buy, sell or trade roughly 200 types of cryptos.
We also provide additional services like lending, borrowing, and crypto staking among others.
Staking basically is a way for our users to earn rewards on idle lying cryptos in their wallets by simply staking them on our platform.
For example, we provide roughly a 6 percent estimated annual yield on Ethereum. Staking is one of the easiest ways of earning a passive income.
CoinDCX also has Futures and Margin Trading. Futures are contracts that facilitate the buying or selling of an underlying asset at a predetermined price at a future point in time. Margin Trading is a strategy that allows you to trade more tokens than you would be able to do normally and can yield a huge profit if executed correctly.
It is like a full-fledged financial service around the virtual assets economy.
We have built it in a way that makes it easier for financial professionals to enter this industry.
We believe that crypto is going to disrupt the financial industry as we see it. We also want financial professionals to pursue financial engineering, and create financial products around crypto and other virtual assets.
Our mission has always been mainstreaming crypto. This led to the launch of a platform called DCX Learn, where people can learn about crypto trading easily before foraying into this area.
How has the Cryptocurrency sector evolved and what does the future of Crypto look like?
When it comes to the development of the technology of crypto as well as its adoption, we are in the 1990s era of the Internet when the World Wide Web had just been invented.
If we look at the Internet adoption curve from 1993 to 1998, it would look exactly like today’s crypto adoption curve.
Crypto is at a very nascent stage where its version of Google, Amazon, and Facebook are yet to be born. And they might be under construction as we speak.
Blockchain which is the underlying technology behind crypto is also in its early phase but is rapidly developing.
A lot of investments across the globe are being made to develop crypto technology, which is a good sign for the ecosystem.
If we compare the initial days of crypto with the critical outputs of the technology development of today then we can confirm that it has grown at an immense rate.
Seasoned finance professionals are speculating that Crypto can be illegal and it will not replace fiat currency. How do you address these concerns as an entrepreneur?
Let me clear up the confusion right off the bat; crypto is absolutely legal.
Recently, in India, the government announced that a heavy tax will be levied on all “virtual digital assets" but they have not imposed any sort of ban as such. People can buy and sell crypto legally.
If we look outside of India, many other countries like the US, Germany, Switzerland, Australia, the UAE, Singapore, and Japan, have regulated crypto in one way or the other. It is the technology of the future, after all.
Crypto is surely not going to replace fiat currency but it is a technology to represent the value of a fiat currency.
When you represent fiat currency in crypto, it is called stable coins such as Tether (USDT), USD Coin (USDC), Binance USD (BUSD) and they are worth over 150 billion dollars in valuation today. It is expected to grow very rapidly.
Bitcoin is backed by over 106 million people who have invested in one way or another in cryptos.
While the fact remains that the crypto market is extremely volatile, the same goes for any growing industry. But I do not agree with the statement that it is not backed by anything.
It is an efficient way of representing and transferring assets.
The Indian government has become very proactive when it comes to imposing a heavy tax rate on all “virtual digital assets". Do you believe it is a reasonable decision?
This is a fairly acceptable move by the Indian government, as it gives a certain degree of legitimacy and acceptance to the industry, and reduces the number of illegal activities. At the same time, it also nurtures the ecosystem.
The government still has to be more favourable.
For example, we need to develop an income tax slab for digital assets, but imposing a 30 percent tax rate on Virtual Digital Assets (VDAs) in my opinion is a bit too far.
However, we have been receiving a lot of queries and interest from financial institutions, HNIs (high net worth individuals), and corporate treasurers because serious capital will flow into the industry when there is taxation clarity.
Look at Tesla, for example, it invested $1.5 billion in Bitcoin in 2021.
The Big 4 accounting firms, including JP Morgan, are also entering either the crypto domain, the Metaverse domain or the NFT domain.
Today, many of the large financial corporations, auditing firms, and consultancy firms are also contemplating entering this domain. Sooner or later they have to. Imagine a bank from the 1980s, what would have happened if they had never experimented with the Internet or computers? They would have shut down eventually.
If you do not adapt to the latest technology trends, you are doomed.
How important is the role of a finance team at CoinDCX?
CoinDCX has a very strong finance team, comprising chartered accountants and is led by a qualified director of finance.
The finance team plays a much greater role in all the standard work we do, from taxation filings to the business aspect.
We process thousands of crores of transactions on a daily basis, and there is heavy marketing and cyber security expenditure, so you can imagine how crucial the finance function is for our business.
Recently, we turned to the finance team to ask for advice on where to invest as a company that would be beneficial in the long run. We also sought their advice as to where we should invest in terms of technology because we are in a domain, where technology is under construction.
We are going forward with their input.
Lastly, do finance people play a key role in the crypto ecosystem? How can they learn about crypto and blockchain?
Most people rely on their Chartered Accountants for guidance about their finances. Thus finance professionals play a key role in the crypto ecosystem.
Crypto is already disrupting a lot of aspects of the finance industry. It is going mainstream in terms of investment, trading, remittances, transfers, transactions, and settlements.
There are concepts like decentralized finance where crypto has enabled similar financial functions like lending, borrowing, etc but in a completely decentralized manner, removing all the middlemen. It is cost-effective.
Finance professionals should get a little deeper into crypto, understand the emerging trends of DeFi, NFT markets, and how the regulations are evolving not just in India but across the globe. It is a global industry after all.
As well as what are the parameters to consider for an investment, how to evaluate the technology, how to evaluate the team, and how to evaluate the direction of the industry among others.
They can spend time reading deeper aspects of crypto, how it works, what investing in crypto means, and how to evaluate tokens and assets.
Try to join a crypto company. I think that would be a good starting point.
Infact when we started in 2015, we knew very little about blockchain technology and its real-world applications. But we eventually learned right?
So we believe that everybody can do that, as long as you are smart and passionate about it. First, it was started by tech-savvy software developers but now that the infrastructure is laid out... it is time to build financial and other applications.