Despite negative news in the global crypto space, Indian investors are still chasing better returns through the “earn” features on their exchanges.
Popularly known as “yield farming,” the method sees investors depositing their crypto assets into a pool, which is then used by exchanges to engage in more risky ventures. Through these risky ventures, investors earn returns of between 6% and 12%.
However, what investors may be missing is that unlike formal financial products, where a regulatory infrastructure protects them, crypto exchanges in India are not regulated by any authority, significantly increasing their risk, experts said.
In other regions the story is different. Last week, the U.S. Securities and Exchange Commission indicted crypto exchange Gemini and crypto lender Genesis for “unregistered offerings and sales of securities to U.S. retail clients” in connection with Gemini’s earn program, which is being conducted in partnership with Genesis.
In the recent past, international crypto lenders like Celsius and Vauld, which offered similar products, have both gone bankrupt and have yet to repay funds deposited by customers.
However, in India, crypto rules are still pending and existing securities laws do not apply as the asset class has yet to be officially classified by the government. Even though earn programs are “comparable to deposits, [crypto] is not a recognized currency,” R Gandhi, former deputy governor of the Reserve Bank of India, told BQ Prime.
This takes them outside the purview of RBI and as the Securities and Exchange Board of India has not recognized such assets as securities, it does not regulate them either. Hence, crypto activity in India is “falling between the stools,” Gandhi said.
The RBI and SEBI did not respond to requests for comment on the story.
However, the lack of rules hasn’t stopped users from jumping in for returns. As for Indian crypto exchanges BitBns, Unocoin, and CoinDCX, users of their “earn” features account for about 18%, 20%, and 25% of their total user base, respectively, according to the exchanges.
“I would definitely agree that this will eventually fall under the purview of SEBI,” said Sharat Chandra, co-founder of India Blockchain Forum.
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