The year has been very tough for the Web3, crypto industry and the mayhem which was seen across the startup space has got accelerated in the crypto world. Image: Shutterstock
If ever there was an apt usage for Murphy’s Law (an adage, actually)—‘anything that can go wrong, will go wrong’—it would without doubt be for the crypto ecosystem in 2022. The collapse of stablecoins TerraUSD and Luna, the brain drain to investor-friendly crypto ecosystems, the sustained fall in prices of poster-boy crypto currencies Bitcoin and Ethereum (both down over 60 percent YTD) as investors exited riskier digital assets, and the FTX exchange filing for bankruptcy after a bank-type run all make 2022 a forgettable year for cryptos.
Add to this a fire-breathing regulator in the form of the Enforcement Directorate, which probed the role of at least 10 crypto exchanges in alleged money laundering via cryptos, and you have the proverbial crypto winter which became a long and gloomy one.
But this constant distress has brought about some positive changes. Most crypto exchanges have strengthened their KYC norms and anti-money laundering checks. Towards the end of the year, India’s top crypto exchanges, along with Coinbase and Polygon, had formed an advocacy body called BharatWeb3 Association, to boost the growth of the Web3 ecosystem.
“The year has been very tough for the Web3, crypto industry and the mayhem which was seen across the startup space has got accelerated in the crypto world. It has been painful,” says Sandeep Nailwal, co-founder of Polygon, a multi-billion dollar blockchain startup. But for Polygon itself, the year was a remarkable one, with its cryptocurrency MATIC becoming the world’s 10th largest in 2022. “We truly became a global protocol,” Nailwal told Forbes India on the sidelines of its recently held ‘Polygon Connect’ event in Bengaluru.
The burden of being heavily taxed in an uncertain and unregulated trading environment was felt by retail crypto investors. The average monthly spot trading volumes at some of India’s crypto exchanges (combined) have fallen 85 percent in 2022 till mid-November. This is a reflection of the trident effect of the tax structure on crypto trade and services—a 30 percent flat tax, an additional 1 percent TDS for investors and an 18 percent GST to be paid by crypto exchanges—which came into effect in FY23 and has choked crypto trading in India.
Re-evaluating revenue models
It has led crypto exchanges to re-evaluate their revenue model and tweak it. India’s two crypto unicorns, CoinDCX and CoinSwitch Kuber, did so this year. Both launched their venture investment arms respectively to invest into and incubate early-stage startups in the Web3 and blockchain space.
“CoinDCX carved out a three pronged strategy: Of innovation, education and compliance,” says Sumit Gupta, co-founder and CEO of the company. It innovated with new products and features such as Earn, CIP, Dynamic Fee Structure, and started publishing Proof of Reserve (PoR) on chain and off chain. CoinDCX had closed and over-subscribed its D series funding round of $135 million in May.
Also read: They built crypto unicorns out of India. Now they need to diversify
Rival CoinSwitch Kuber launched a recurring buy plan to make investments into digital assets simpler and plans to introduce non-crypto assets to its platform —stocks, bonds, mutual funds, and fixed deposits—to position itself as a wealth tech startup rather than just a crypto exchange. By the end of 2022, it had also launched CoinSwitch Pro, which allows users to trade crypto tokens across multiple exchanges in India while providing arbitrage opportunities.
2023: Back to the basics
The year 2023 could see more pain for crypto currency traders if funding, liquidity and inflation concerns persist across major economies. The loss of faith in centralised exchanges such as FTX
has led to more attention from investors towards Defi (decentralised finance) options. There has also been the coming of decentralised messaging apps such as TrueConf and Matrix, besides blockchain versions of both Twitter and Instagram in recent years.
“The real innovation and product adoption always happens after the hype cycle is over,” says Pankaj Diwan, co-chair, Blockchain Working Group of IET Future Tech Panel. Diwan says 2023 could see clarity on the policy and regulatory norms and greater adoption of the Metaverse in banking, ecommerce and gaming as trends emerging. Watch here: Rewind 2022: Year in Review All Major Events That Happened This Year
India’s G20 presidency, which commenced December 1, is likely to give direction to the crypto and Web3 ecosystem for the country.
“We have to go back to the basics of Web3, which is decentralisation, self-custody, trustlessness and permissionlessness. We had forgotten these as there was too much froth in the market,” says Polygon’s Nailwal.
(This story appears in the 30 December, 2022 issue of Forbes India. To visit our Archives, click here.)