How a cryptocurrency exchange in Mumbai flourished despite RBI’s ban on virtual coins

Running a cryptocurrency business in India is no easy feat.

Just three weeks after the Mumbai-based cryptocurrency exchange WazirX launched in March 2018, the Indian central bank imposed a blanket ban on virtual coins in the country. The Reserve Bank of India’s circular put crypto exchanges in a precarious position. With investors fretting over the ban, trading volumes on exchanges dropped severely and some players in India had to shut shop.

The bootstrapped WazirX also found itself in a tight spot.

But it managed to work its newness to its advantage. Being relatively smaller than other players gave it the ability to tide over the ban.

“The ban was a problem for exchanges that were already established and large,” Nischal Shetty, CEO and co-founder of WazirX, told Quartz over a Zoom call. “Since we were just three weeks old, we were already at zero level and we knew that we cannot go lower than that. So the ban did not bother us much.” Dressed in a classic black t-shirt, Shetty, part techie-part entrepreneur, exudes the confidence of having fought one of his toughest battles yet. And rightfully so.

In a bid to navigate the regulatory hurdle, a nimble-footed WazirX launched a peer-to-peer system barely two days after the ban. This would completely eliminate the need for financial institutions and link sellers and buyers directly. “At that point, this launch was very crucial because no one else had it,” recalled Shetty with a smile. “This was one of those key moments where growth skyrocketed.”

Since then, WazirX has not looked back.

The volumes on the exchange are soaring as more Indians have developed an appetite for cryptocurrencies – ranging from bitcoin and dogecoin to ripple and litecoin. It also helps that the regulatory environment is not as hostile as it was two years ago. A combination of these factors has enabled WazirX to hit a user base of over 17.5 lakh with monthly trading volumes to the tune of Rs 171 crore.

How then did a 32-year old Shetty along with two other co-founders spot an opportunity in this nascent industry, survive the ban, and scale up to become India’s largest crypto exchange? The answer is as intriguing as the cryptocurrency space.

Bridging crypto gap

Shetty was not always the new tech enthusiast he is now. In fact, he did not trust the internet when it first came to consumers in India.

“I remember I bought something off e-bay during those early days, and I got a fake product,” he said, laughing. “I had decided then that the internet was full of scammers.” His view on the internet and e-commerce changed, eventually, as did his outlook towards new corners of the internet.

His first brush with cryptocurrency came around 2010 when he tried to mine bitcoin using his personal computer. He never took it seriously and eventually even sold the computer.

Later in 2017, when he was working with a social media management app Crowdfire, he heard a lot of chatter around cryptocurrencies. By the end of that year, much before the bull rally in cryptocurrencies began, Shetty had started taking cryptocurrencies seriously.

“I thought let us invest some money into bitcoin and started searching for places to buy it,” said Shetty, who has completed his bachelor’s degree in computer science from a university in Karnataka. “And that is when I realised that there was a large disparity between the Indian and global exchanges in terms of the user experience.”

He dug deeper and found that many Indian investors had a similar opinion. “The apps catering to this space got maybe 3.3 or 3.4 stars out of five at max on the Google Play store,” said Shetty. “Whereas, apps, which are leaders in their respective areas, have a rating of 4.5 to 4.8.”

So in 2018, along with his former colleagues Siddharth Menon and Sameer Mhatre, Shetty founded WazirX.

Crypto craze

While cryptocurrencies were gaining ground in India in 2017-’18, Shetty did not want to jump onto the bandwagon without preliminary research about the demand.

The founding trio created a website for WazirX and announced that the exchange will distribute its own token, WRX, to those who sign up early with the exchange. The utility of this token was that if investors use it to trade virtual currencies they will get a 50% discount on trading fees.

“Within a week, we got some 40,000 signups,” said Shetty, adding that this helped them realise the strong demand for cryptocurrencies in India.

In its three-year journey, the exchange has gone through several ups and downs. But perhaps the biggest high was in November last year when WazirX caught the eye of one of the biggest global exchanges Binance and got acquired.

“Binance is definitely one of the factors that have helped us as a team to understand and build a better exchange,” said Shetty. “For example, before the acquisition, I had a lot of trouble getting in touch with global crypto teams. But now things have changed.”

Besides, the rise in bitcoin prices has also driven the exchange to new highs. Bitcoin has been the best-performing asset class over the last decade by a huge margin. As bitcoin’s price surges, more and more Indians are flocking towards cryptocurrencies. This is good news for WazirX as their revenue model is based on a trading fee. The exchange charges investors between 0.1% to 0.2% as a fee on each trade.

But for crypto exchanges to be successful and profitable in India, the penetration and size of orders would have to improve. “The amount that people invest is still relatively smaller as compared to the US. But there is potential,” said Shetty.

Adoption of cryptocurrencies

Shetty’s optimism is not misplaced. There surely is a huge potential. But this potential is marred by the policy uncertainty that continues to haunt the space.

India’s finance minister Nirmala Sitharaman recently said that the government would take a “calibrated” approach towards cryptocurrencies. However, this will not be enough to foster a sense of trust. The draft bill prepared by the government in 2019 had taken a harsh view, suggesting that all private cryptocurrencies should be banned in India. What makes matters worse for stakeholders is that there is no regulator to govern the crypto industry.

In such a scenario, the exchanges have taken it upon themselves to carve out regulations. They have formed a body to impose self-regulation such as following know your customers and anti-money laundering compliance.

“You will not hear news about a scam happening in this space in India,” said Shetty. “It is because we have been trying to make sure everything is clean. So when the government decides to regulate it, they do not have to worry about firefighting.”

Apart from stringently following the regulations, Shetty and his team have started “educating” investors about cryptocurrencies. He also believes that a lot of the mistrust around the space comes from its facelessness. That is why Shetty speaks out often, writes blogs, and speaks at panels to spread awareness.

This also includes explaining – and convincing – his family what his job entails. “My friends and family mostly began asking me questions before I even start talking about crypto,” he said. In most cases, there are two kinds of people asking questions – those who are curious, and those who see crypto as some sort of threat, or worse, an alternative to the Indian rupee.

“I start explaining to them how bitcoin is an asset, not a currency and it is not going to compete with the rupee,” said Shetty. “The best thing to do is to explain to them what a cryptocurrency is, why it is innovative, why it is needed, and how they can get involved. And then leave it on people to take decisions.”

Once a conversation begins, Shetty says every question brings with it two more. And that is a process he enjoys. Drawing parallels to the initial resistance to the internet, Shetty adds that the lack of information is the prime reason why some people are wary of cryptocurrencies.

Manavi Kapur contributed to this report.

This article first appeared on Quartz.