India is the sixth-highest country to adopt ‘DeFi’ and second amongst the global leaders for Crypto adoption ahead of countries such as the US, the UK, and China.
According to a report by blockchain data platform Chainalysis., “Fifteen million Indians are believed to have made investments in private cryptocurrency holdings. Cryptocurrency investments in the nation increased from $923 million in April 2020 to approx $6.6 billion by May 2021, a growth of about 400% in one year.” More Indians started investing in cryptocurrencies from 2020 as the Covid-19 pandemic led to a global economic crisis, resulting in higher volatility and depreciation in traditional assets like equities, currencies, and bonds. As a result, more people around the globe started investing in cryptocurrencies. The growing number of crypto adopters also suggests a shift in the investment paradigm, driven mainly by the country’s younger population. While investments in gold are considered as an ideal hedge in times of economic downturn, more young Indians seem to have changed their appetite. As the situation stands, digital coin investments form a faction of bullion market holdings, but younger Indians — between the age group of 18 and 35 years — find cryptocurrency a better option compared to gold.
Popular cryptocurrency exchanges in the country, including WazirX, ZebPay, Unocoin and CoinDCX, have seen massive growth in retail investors on their platform since 2020. They had recently seen a sharp rise in investors, days before Bitcoin’s value crossed $50,000 after a period of three months.
Indians are primarily driving cryptocurrency investments in the country. India ranks 11th out of 154 nations in terms of cryptocurrency adoption. However, cryptocurrency exchanges feel more Indians want to invest in digital coins but are worried about the future. As a result, global cryptocurrency exchanges have invested heavily in India despite uncertainties.
Hence, the Indian government is planning to regulate and define cryptocurrencies in the new draft bill that proposes compartmentalizing virtual currencies based on their use cases. As a result, cryptocurrencies will be treated as an asset/commodity for all purposes, including taxation and use-cases — payments, investment or utility. In addition, the government will decide which cryptocurrencies will be allowed to trade in India. This would be the first time cryptocurrencies will be categorized by the technology they use, also clarifying that the government will focus on the end-use of the asset for regulatory purposes.
DeFi represents one of the fastest-growing and most innovative sectors of the cryptocurrency economy. DeFi refers to a class of decentralized cryptocurrency platforms that can run autonomously without the support of a central company, group, or person. DeFi platforms are built on top of smart contract-enriched blockchains – primarily the Ethereum network and can fulfil specific financial functions determined by the smart contracts’ underlying code. Popular types of DeFi protocols include decentralized exchanges and lending platforms.
India’s dominant position in Defi adoption indicates that crypto investments in India are widespread and deeply rooted in the country’s economy. It will be wise to say that most businesses and the crypto community are driving the Defi adoption in India. With the highest adoption of decentralized finance (DeFi) system, India urgently needs to take Defi to the masses to transform India’s financial system and make it future-ready. According to the Chainalysis data, while grassroots cryptocurrency adoption generally is highest in emerging markets, DeFi adoption is strongest in high-income countries that already had substantial cryptocurrency usage, especially amongst traders and institutional investors.
The DeFi Adoption Index comprises three component metrics:
- On-chain cryptocurrency value received by DeFi platforms weighted by PPP per capita
- Total retail value received by DeFi platforms
- Individual deposits to DeFi platforms.
DeFi essentially involves a financial system, built primarily on top of the Ethereum network, wherein financial products are available on the decentralized blockchain network and open for use by anyone in a peer-to-peer manner instead of accessing the middlemen such as banks or a company to facilitate a transaction. Buying and selling digital assets are among the common DeFi uses cases.
To Summarise, all eyes remain on the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will determine the future of virtual coin trade in India. The bill is currently awaiting approval from the Union Cabinet, following which it will be introduced in parliament – with officials hinting that trading activities could be regulated — a scenario favoured by all major cryptocurrency exchanges operating in the country. Many cryptocurrency exchanges believe that the early adoption of digital coin trade will help India gain an advantage in the rapidly growing global cryptocurrency ecosystem. They also think that more people will start investing in cryptocurrencies once the government provides clarity on the regulations and way forward.
