“India should focus on smart regulation over restriction,” Ashish Singhal, Co-Founder, CoinSwitch

India has made meaningful progress by shifting from a near-ban on crypto to a more cautious, regulatory-first approach—and that’s the right direction. But when it comes to stablecoins and crypto-linked cross-border payments, India now has a unique opportunity to lead with clarity and innovation.

Stablecoins are emerging globally as powerful tools for faster, cheaper, and more transparent cross-border payments. For India—a country with one of the largest freelance workforces and remittance markets—stablecoins could improve efficiency, reduce costs, and enhance financial inclusion. However, concerns around monetary policy, capital flow risks, and financial stability are valid, especially for a country with a large and diverse economy like ours.

To strike the right balance between innovation and compliance, India should focus on smart regulation over restriction. This includes:

• Defining clear rules for different types of stablecoins—especially fiat-backed ones—so that regulators can address risks without stifling use cases like remittances or trade.

• Creating a licensing regime for issuers and platforms, ensuring that only entities meeting capital, reserve, and compliance standards can operate.

• Monitoring flows through strong KYC/AML frameworks and tech-based oversight tools, without creating excessive friction for genuine users.

• Encouraging sandbox pilots for cross-border use cases in collaboration with banks, fintechs, and crypto-native firms—especially for high-friction corridors.

With the right systems in place, the benefits of stablecoins can be unlocked safely and responsibly.

The Indian crypto industry needs both parity and clarity. With respect to taxes, we need parity with other assets while for asset classification and licensing, we need clarity. The current 30% flat tax on gains, with no provision to offset losses, puts crypto at a clear disadvantage compared to other asset classes. On top of that, the 1% TDS on every transaction reduces liquidity and penalizes active traders. Together, these policies are stifling the growth of a promising sector.

On clarity: the Finance Act, 2022 defines cryptos as "Virtual Digital Assets," there is still no formal classification of  tokens as commodities, securities, or utilities. This results in regulatory ambiguity and overlapping oversight. Clear asset classification would enable regulatory bodies to manage relevant categories, reducing confusion for both businesses and investors.

Equally important is the need for a formal licensing framework. A comprehensive system would enhance transparency, protect consumers, and ensure only compliant entities operate in the ecosystem. Industry stakeholders have long advocated for such a structure. A licensing framework for crypto platforms—akin to what's being proposed in the U.S.—would allow startups to operate at scale.

Finally, India needs policies that encourage crypto and Web3 development—not just trading, but building globally competitive infrastructure, DeFi protocols, and blockchain solutions. With the right regulatory foundation, India has the potential to lead—not just participate in—the future of digital innovation.

The mandatory FIU registration has been a significant milestone in legitimizing the crypto sector in India. By bringing Virtual Asset Service Providers (VASPs) under the purview of anti-money laundering (AML) and know-your-customer (KYC) regulations, it has placed them on par with traditional financial institutions like banks and NBFCs. This move has not only enhanced transparency but has also reduced the scope for illicit financial activity within the crypto ecosystem. It has prompted global exchanges to align with Indian standards, improving the overall credibility of the market.

India now needs to evolve its compliance architecture further—through better consumer safeguards, global coordination, and proactive risk management—to support a safe, transparent, and inclusive crypto economy.

• Global Travel Rule Enforcement: While India adheres to the FATF’s Travel Rule, many jurisdictions do not, creating a regulatory mismatch that bad actors can exploit. A coordinated global framework is essential for effective cross-border enforcement.

• Consumer Protection Laws: Currently, there is no dedicated legal framework in India to protect crypto consumers—leaving investors vulnerable in cases of fraud or platform failures, as seen with the alleged hacking of WazirX. 

• Jurisdictional Clarity and Onshore Operations: Many platforms serving Indian users continue to operate from offshore jurisdictions, making enforcement difficult in case of disputes or fraud. India must require VASPs serving Indian residents to establish a meaningful legal presence within the country. 

• Regular Audits and Reporting: Mandating periodic audits—such as Proof of Reserves—will help ensure that customer funds are safely held and transparently accounted for. This fosters trust and accountability.

• Consumer Education: Government and industry should collaborate on public education campaigns to inform users about the risks, rights, and responsibilities associated with crypto investments. Financial literacy is key to safeguarding retail investors.

• Insurance and Risk Mitigation: Introducing insurance mechanisms for digital assets can provide an added layer of security for users and build long-term confidence in the ecosystem.

Despite accounting for over 12% of the world’s crypto developers and hosting more than 1,200 Web3 startups, India faces critical challenges that hinder its ability to fully lead the global Web3 revolution. The primary bottlenecks include regulatory uncertainty, high taxation, and a growing trend of brain drain, as talented developers and entrepreneurs relocate to jurisdictions with more favorable policy environments—resulting in a loss of domestic innovation.

Bangalore, often referred to as India’s Silicon Valley, is home to over 20% of the country’s Web3 startups, spanning blockchain infrastructure, decentralized finance (DeFi), NFTs, gaming, and the metaverse. With a robust startup ecosystem, increasing global investment, and one of the fastest-growing developer communities, India is well-positioned to become a world leader in Web3 innovation.

Crypto-friendly, forward-looking regulations would enable India’s Web3 sector to not only compete with, but challenge, global tech leaders like the US—placing the world’s most populous country at the forefront of one of the defining technological shifts of our time.

To unlock this potential, India must implement clear, consistent, and innovation-friendly policies that support the ecosystem while ensuring regulatory oversight and compliance. The next Google, Facebook and Amazon are going to be built on Web3, and India should not miss this opportunity!

India’s crypto story is rapidly expanding beyond metro cities, with Tier 2 and Tier 3 regions emerging as vital growth drivers. According to CoinSwitch’s How India Invests 2024 report, a significant share of new investors now comes from smaller cities and towns, reflecting the growing appetite for digital assets across the country. To support and accelerate this momentum, CoinSwitch has prioritized investor education and provides a simplified onboarding experience via an intuitive, user-friendly app designed to suit varying levels of financial literacy. Micro-investment options, such as small lot sizes, make crypto accessible to users from diverse financial backgrounds. To build long-term trust, CoinSwitch also publishes regular Proof of Reserves reports, shares research insights, and communicates transparently across multiple channels. This is complemented by dedicated customer support teams that offer prompt, personalized assistance in users’ native languages—ensuring a smooth and supportive experience throughout their investment journey.

In terms of collaborations with traditional banks, we foresee a future where such partnerships become integral to the financial ecosystem. Blockchain technology offers real-time, cost-effective solutions for cross-border settlements, and integrating these capabilities with traditional banking systems could revolutionize international transactions. By working together, crypto platforms and banks can enhance financial inclusion and efficiency.