It'll take two to three years before significant crypto regulations come through: WazirX's Nischal Shetty

In a conversation with Forbes India, Shetty, who shifted base to Dubai in 2022, talks about Shardeum, developments at WazirX, the shutdown of their NFT business, crypto regulations and more. Edited excerpts:

It's been a year-and-a-half since we started Shardeum, a layer one blockchain. It will be a direct competitor to Ethereum, which is the most popular in that segment of smart contract platforms. We launched it because we saw a few problems with the existing blockchains out there. The biggest problem is that none of these blockchains are scalable. This means that all of these blockchains have an upper limit. Once they hit that upper limit, the only way for them to continue executing efficiently is to increase the fee.

Which is why, during the bull market, you'll see or hear about Ethereum fees being $100 for a transaction. That's because there are only so many transactions you can do every second on Ethereum. And when demand and supply kick in, people are ready to pay more to get their transaction processed. And that's the same with the newer blockchains that have been released. It’s just that they have more transaction capacity than Ethereum. But they do not have an unlimited or ever-increasing capacity. Ethereum has about 15 transactions per second. Some of the newer chains have a limit of 300 transactions.

We wanted a solution where, irrespective of how big the market grows or how big this network grows, the fees would always remain low and constant. And that's how Shardeum was envisioned, and the network can expand its capacity regardless of how many transactions take place. If we have a requirement for more transactions, more nodes can join. So, they can just add more servers, and our transaction capacity will increase. This ensures that the fees will always remain low and constant.

Q. How was this solution arrived at?

This is the first time that a scalable blockchain is being built. My co-founder Omar, who is based in the US, started this in 2017. His idea was to just build software and open-source it. He was not thinking of building a blockchain out of it; just build that blockchain software and make it open source so that others can build a blockchain using that software.

When I met him in 2019, I loved the idea of this technology. In 2021, we decided that instead of just open-sourcing the software for others to implement, why don't we do it together? We are yet to launch the mainnet version, which is where actual transactions will take place, and real money and assets will come in. We are in the testnet phase now, where you can actually test the network and do transactions. We've crossed over 800,000 users on this testnet, making us one of the largest of its type in the world.

The last 12 months have been sort of a dampener for the crypto markets in general, globally. In India, it's been a double whammy because of the [crypto] markets fall. The second is the entire FTX collapse, and the higher taxes imposed in India, which led to a dip in trading volumes. WazirX was never funded; from day one, we've always been self-funded and profitable. We wanted to make sure that we got on the path of profitability. So that's what we quickly did: We reduced the team size and ensured trimming costs. Then the whole Anti-Money Laundering (AML) implementation came up.

The next step for us is going to be about how we get into new revenue streams. So, what we're trying to do now is, as an exchange, probably grow from a revenue point of view. What are the other alternative revenue streams that you can bring in, so that even if the times are bad, you can effectively be a well-oiled machine that still generates revenues. So that's the next phase for us, which is getting into revenue generation and understanding what new revenue streams to create.

I'm still involved with WazirX at a strategic level, and I'm trying to help the team if they need it. Unfortunately, we had to lay off some employees, but that's also how the markets have been, not just crypto.

Also Read- After FTX's collapse, there is a need to re-evaluate crypto exchanges

Yes, but in the whole Web3 crypto space, we're not really thinking about going beyond this. Because we believe this market is just in its initial days… right now it's going to grow, at least in places like India, which will see over 100 million people in crypto for sure in the next three to five years. And we want to make sure we focus on this market and give them what they want. So, we're not trying to go somewhere outside of crypto; that's the realm for us.

No, that is not true. The NFT platform was non-custodial, which means we never took custody of either the crypto or the assets. This was one of the first NFT platforms, and a lot of artists created their NFTs and put them on the platform. The unfortunate thing is that the NFT market in India just tanked. We tried our best, but we realised that you can only be there if the market is ready. The NFT market in India is very niche, very small, and very tiny. So, we had to unfortunately sunset the platform, but that affected a lot of people, and especially NFTs. Hopefully, we'll start it again when the market grows to a sizeable size, but not right now. It was just too early.

Also Read- Into the unknown: Why the future of India's crypto ecosystem looks blurred

In regulation, it will never be at the pace that you want. And for us, we are very myopic in our view about regulation; let's just bring it in and let it happen. The good thing is that we are making progress, for sure. We’ve progressed a lot from 2017—when we launched the exchange—to where we are today. The TDS should be brought down to 0.01 percent. India is also probably waiting to see how the global laws shape up before it takes a step in that direction. MiCA in Europe is going to come in 2025. There's a framework built in. So that's a good starting point for India and other countries to start looking at frameworks. The US is still discussing issues, but it will take some time. I'm guessing maybe it will be another two to three years for something significant to come up. I'm really hopeful that, over time, we'll have the right regulation.