Polygon Co-Founder Says India’s Crypto Brain Drain Is “Absolutely Crazy.”
Thousands of developers, investors, and entrepreneurs are fleeing India because of the country’s hesitancy to embrace digital assets, according to the co-founder of the country’s most prominent crypto firm.
Since the Supreme Court reversed a central bank prohibition on digital tokens in 2020, India, which has an estimated 15 million active crypto users, has been in regulatory uncertainty. This year, the government announced a levy on cryptocurrency transactions without publicly stating that trading would be prohibited, a move that epitomized the confusion.
Finance Minister Nirmala Sitharaman said on Tuesday that the government has yet to make a final decision on whether to ban or regulate virtual coins. At the same time, she recognized the industry’s potential as a source of tax revenue: “Many Indians see a future in it, so I see a revenue possibility in it,” she said. The government levies a 30% tax on digital coin transactions.
Nailwal, who co-founded Polygon in 2017, moved to Dubai two years ago. The emirate aspires to be a crypto hub for the Middle East, just as it is for traditional financial services, and on Wednesday it passed a law governing digital assets.
Powerhouse?
Developers use Polygon’s eponymous protocol to make Ethereum transactions cheaper and faster. It has 7,000 decentralized apps (or dapps), over 130 million unique users, and processes over 3 million daily transactions. Polygon raised $450 million in February by selling its Matic token to investors led by Sequoia Capital India.
“I’d like to live in India and promote the Web3 ecosystem,” said the 34-year-old. “However, given the regulatory uncertainty and the size of Polygon, it doesn’t make sense for us or any team to expose their protocols to local risks.”
On the surface, India appears to have the potential to be a crypto powerhouse. The 1.4 billion-person population is young, with a growing, well-educated middle class. According to blockchain research firm Chainalysis, this, combined with a less developed traditional financial system, has resulted in the world’s second-highest crypto adoption rate, trailing only Vietnam. Overall crypto transactions increased 641 percent between July 2020 and June 2021, according to Chainalysis in an October report.
China, just one nation with a greater population, made all cryptocurrency transactions illegal last year.
Governments around the world have long struggled with the need to rein in the worst excesses of an industry plagued by speculation, fraud, and hacking incidents, while also harnessing the industry’s explosive growth and potential for innovation. Countries ranging from Singapore to the United States are now taking a more systematic framework to regulate the market.
Investors and entrepreneurs around the globe have lobbied hard for more clarity. Bitcoin gained up to 11% on Thursday as word spread of an impending executive order from US President Joe Biden to coordinate the government’s approach to cryptocurrency.
“Countries will continue to lose new talent skills until they figure it out,” Nailwal predicted. “Crypto is incredibly disruptive in the context that it has the potential to disrupt not only the concept of money, but also the concept of government itself.”
The Enemy of Crypto
Even as Indians embrace digital assets and the government warms to the potential for tax revenue, the central bank remains staunchly opposed to the industry. While it’s not uncommon for central banks to be skeptical of cryptocurrency, the Reserve Bank of India’s criticism has been particularly harsh.
Governor Shaktikanta Das compared cryptocurrencies to the 17th-century Dutch tulip market bubble last month; weeks later, his deputy said cryptocurrencies are similar to Ponzi schemes, threaten financial stability, and should be banned.
Edul Patel, co-founder of Mudrex, an automated digital asset trading platform backed by Y Combinator, chose to establish his company in the United States in 2019 after India’s central bank disconnected cryptocurrency-related businesses from the country’s payment network. The Supreme Court later overturned the central bank’s decision.
Many Indian crypto companies, developers, and founders are currently attempting to relocate to places such as Dubai, according to Patel in an interview. According to him, one selling point for Dubai is its “sandbox approach,” which India lacks for crypto. Governments frequently use so-called sandbox approach to test promising but unproven financial technologies.
Patel also mentioned Dubai’s accessibility to India as well as its open, transparent, and friendly tax structure for innovators.
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“I’ve often heard the joke that Dubai is the best city in India,” said Nitin Sharma, the Bengaluru-based founding partner of venture capital firm Antler, which plans to invest in Indian blockchain and Web3 start-ups. “And once well-known founders or start-ups relocate, it attracts a large number of others.” instituting a communityโ.