A Perspective on the Indian Crypto Market: Descending into Silence or Moving Towards Maturity?

The market is quiet, but India's cryptocurrency adoption rate is globally leading.

Written by: 100y, Hashed Emergent

Translated by: Luffy, Foresight News

The once thriving Indian cryptocurrency market seems to have cooled down, with local trading facing high taxes and regulatory pressures, causing many users to shift to offshore platforms. However, data contradicts this, confirming that India has consistently led the world in cryptocurrency adoption rates for several years. This report from Four Pillars comprehensively deconstructs the current Indian cryptocurrency market from multiple dimensions, interpreting signs of industry maturity through the lenses of developers, cross-border payments, and changes in venture capital, while also detailing risks including tax systems, central bank policies, and talent outflows, debating whether the Indian cryptocurrency market is maturing or stagnating slowly under constraints. Below is the full translation of the report:

TL;DR:

During the bull market from 2020 to 2021, India entered the ranks of the world's core cryptocurrency markets as retail investors flooded in, and decentralized finance (DeFi), non-fungible tokens (NFTs), and the developer ecosystem expanded rapidly. Since 2022, high tax burdens and regulatory pressures have significantly dampened enthusiasm for local exchanges, but this does not mean that real market demand has vanished. Today, the Indian cryptocurrency industry is at a critical turning point, with credible arguments for both market maturation and stagnation.
India remains one of the countries with the highest cryptocurrency adoption rates in the world. According to blockchain data analysis firm Chainalysis, India topped the Global Cryptocurrency Adoption Index for three consecutive years from 2023 to 2025, leading in four dimensions: trading on centralized exchanges, retail investment, DeFi interactions, and large institutional trades. However, this ranking adjusts for purchasing power parity per capita GDP and population size, necessitating a distinction between absolute trading volume and per capita penetration when assessing the Indian market size.
Positive changes in the Indian cryptocurrency market include the industry moving away from a trading-driven speculative nature to gradually extending towards developers, startups, underlying infrastructure, and payment settlement applications. Financing in Series B and later rounds is once again warming up, with India becoming a global hub for Web3 developers, holding about 15.2% of the world's Web3 development talent. However, there are also pronounced risks: the industrial value created by local developers and entrepreneurial teams may not necessarily remain in India; many projects choose to register in offshore jurisdictions to seek regulatory certainty and a more favorable investment and financing structure.
Stablecoins, cross-border remittances, and asset tokenization are expected to become the three major growth pillars of the Indian market, but they are also the most sensitive areas for regulatory scrutiny in the country. Many local companies are trying to build the infrastructure for remittance, settlement, and fund access, but the Reserve Bank of India, due to concerns over monetary sovereignty, financial stability, and cross-border capital controls, promotes the building of an official digital payment infrastructure centering on central bank digital currency (CBDC) and unified payment interface (UPI), being cautious about private stablecoins. This has led to a unique situation: there is a strong demand for private stablecoins in India, but the regulatory positioning of private stablecoins within the national financial system remains undecided.
The biggest contradiction in India's cryptocurrency industry is not whether demand exists but whether the vibrant local user demand and quality talent can stay in a compliant and transparent domestic market. High transaction taxes, limited enforcement focus on anti-money laundering with limited regulatory effectiveness, security incidents at exchanges, withdrawal restrictions, and regulatory uncertainty may all weaken the competitiveness of the Indian domestic market, forcing users and founders to look overseas; conversely, if India optimizes its tax system, implements user asset protection standards, and clarifies regulations on stablecoins, DeFi, and asset tokenization, relying on a vast user base and developer resources, the local market could very well achieve genuine financial infrastructure innovation.

Introduction: Is the Indian cryptocurrency market really quiet?

The Golden Era of Indian Cryptocurrency

Looking back at the 2020-2021 cryptocurrency bull market, India was far from an ordinary emerging market. The keywords of that cycle—retail influx, altcoin trends, DeFi explosion, NFT breakout, global developer expansion—all converged in the Indian market.

According to Chainalysis data, from July 2020 to June 2021, the scale of the Indian cryptocurrency market skyrocketed by 641%; DeFi-related transactions accounted for 59% of trades initiated from Indian addresses, surpassing Vietnam and Pakistan. Single transactions over $10 million accounted for 42% of the total domestic trading volume, and by that time, India had already moved beyond mere retail speculation, with a diverse and mature trading structure.

Additionally, there are many noteworthy examples. The local exchange WazirX surpassed 10 million users in 2021, with a 700% year-over-year increase in registered users from small towns and suburban areas; CoinSwitch Kuber raised $260 million in funding led by a16z and Coinbase Ventures, joining the ranks of unicorns; CoinDCX similarly became a unicorn in 2021.

Projects led by Indian entrepreneurs, exemplified by Polygon, have risen, transforming India from a major consumer of cryptocurrency into a hub of cryptocurrency technology research and development. Polygon, originally founded as Matic Network in 2017, aimed to solve Ethereum's scalability issues and subsequently grew into a leading scaling infrastructure within the Ethereum ecosystem.

Following Polygon, a host of protocols and companies founded by Indian teams or led by Indian founders have emerged, including EigenLayer, Avail, Sentient, Stader Labs, Biconomy, OpenFX, FalconX, and Instadapp, among others.

Is the Indian cryptocurrency market in a lull?

Today, the Indian cryptocurrency market is far quieter than it was, due to multiple factors contributing to this change.

2022 was a watershed year for the industry. As the global crypto market turned bearish, new regulations regarding virtual digital asset (VDA) trading were implemented in India—30% income tax on trading profits from VDAs was introduced, along with a 1% source withholding tax implemented in July of the same year, directly impacting the trading activity of local exchanges. A study by the Indian policy think tank Esya Centre found that after the implementation of the 1% withholding tax, many Indian users shifted to offshore platforms where regulation was less enforceable; from July 2022 to July 2023, over 90% of Indian investors' cryptocurrency transactions were transferred to overseas exchanges.

Regulatory pressures continued to ramp up thereafter. In 2025, the Indian tax authorities intensified audits of cryptocurrency taxes, with the Central Board of Direct Taxes (CBDT) issuing audit letters to 44,057 taxpayers engaged in cryptocurrency trading who failed to report assets in the VDA attachment of their income tax returns. In contrast, the difficulty in tracking offshore traders has significantly increased. Ultimately, this formed a distorted landscape: stringent rules primarily constrain compliant local platforms and law-abiding users, further accelerating the industry's exodus.

However, determining that India's cryptocurrency industry has cooled based solely on a quiet market would be one-sided: the market has simply faded from the spotlight, and demand and trading volume have not disappeared. Chainalysis data confirms that in 2023, 2024, and 2025, India consistently ranks first in the Global Cryptocurrency Adoption Index—despite the waning excitement, real demand remains.

A deeper structural change lies within the market’s core. In earlier years, India was primarily characterized by a vast number of retail investors speculating on cryptos, but now the focus of the industry has shifted toward developers, startups, underlying infrastructure, and institutional landing scenarios. Hashed Emergent reports that the number of Web3 startups in India has surpassed 1,250, with total funding exceeding $3.5 billion since 2020; in just 2025, Indian entrepreneurs raised a total of $626 million, and there has been a warming in financing in Series B and above after three years of stagnation, with a total of $396 million raised in the year. India remains the second-largest hub for Web3 developers globally, with developers accounting for 15.2% of the global total; in 2025, domestic on-chain capital inflows will reach $33.8 billion, nearly doubling from the previous year.

The conclusion of this article follows: on the surface, affected by taxes and regulations, trading activity on local exchanges has contracted and retail enthusiasm has faded, making it seem that the Indian cryptocurrency industry is cooling; however, digging into the data shows that India remains in the top tier of global cryptocurrency penetration, with the industry focus steadily maturing toward developers, initial projects, public infrastructure, and enterprise-level applications. In short, the Indian cryptocurrency industry has not perished; instead, it has shed the bubble of the bull market and entered a phase of mature development.

The Demand for Cryptocurrency in India is Still Strong

Data Source: Chainalysis

Chainalysis's 2025 Global Cryptocurrency Adoption Index assesses 151 countries. The statistical dimensions include total trading volume on centralized platforms, retail-centered trading on these platforms, on-chain DeFi transfers, and large centralized institutional trades, with India ranking first in all four categories and overall, making it one of the few markets where the exchanges are actively engaged with retail, DeFi, and institutional funds.

One reason for India's strong performance in the rankings is the country's structural demand for stablecoins. India has one of the largest remittance markets globally, with millions of families and workers routinely conducting cross-border remittances. In this context, stablecoins can play a practical role: they offer faster settlement times, easier access to dollar-linked value, and reduce friction in cross-border payments, especially for those facing high fees or slow bank transfers or difficulties securing traditional dollar accounts.

Macroeconomic factors also support the demand for stablecoins. With the rupee weak against the dollar, some users might no longer view dollar-linked digital assets as speculative crypto products, but rather as tools for value preservation and appreciation. For freelancers, exporters, overseas workers, and families receiving remittances, stablecoins can conveniently meet local currency needs while seamlessly connecting with global dollar-based payment methods.

Of course, some funds may circulate through grey payment channels, posing compliance risks, but the core of the demand for stablecoins in India arises from genuine financial necessities: cross-border remittances, low-cost currency conversion, accelerated clearances, and protection against domestic currency depreciation. This explains why, despite heavy taxes and regulatory ambiguities, stablecoins remain an important part of cryptocurrency trading in India.

It is also important to view the Chainalysis rankings objectively and dialectically. India's high score arises from two statistical gaps: first, all-dimensional indicators are tied to purchasing power parity per capita GDP, which for India is about $11,160 in 2025, with a low baseline inherently raising the rank; second, the large population size means that if recalculated per capita, India’s rank would drop out of the global top twenty.

Even so, overall, the volume of cryptocurrency transfers and trading in India remains among the highest in the world.

Data Source: Hashed Emergent, CoinSwitch

Following the implementation of the withholding tax from 2022 to 2023, a large amount of capital flowed overseas, but recently retail funds have begun to slowly flow back to legitimate local exchanges. According to CoinSwitch data, in 2025, the trading volume of mainstream cryptocurrencies in India surged by 114% year-on-year, with new traders increasing by 27%; investors aged 18-25 contribute to half of the total trading volume, with 37.6% of active traders aged 18-25 and 37.3% aged 26-35, showing that the youth demographic continues to form the foundation of India’s cryptocurrency demand.

Data Source: Hashed Emergent, Pi42

The growth of the derivatives market is even more rapid. Pi42 data shows that from 2024 to 2025, the proportion of users aged 18-25 among new users in Indian cryptocurrency derivatives surged from 24% to 61%; regionally, trading volume in Eastern India increased sixfold, while it quadrupled in Northeast and Central India, indicating that cryptocurrency derivatives are no longer limited to first-tier cities like Mumbai, Bangalore, and Delhi, but are continuously penetrating lower-tier markets. The key to this penetration lies in the popularization of cryptocurrency self-media in local languages like Hindi, Tamil, Telugu, and Bengali on YouTube.

The growth of the derivatives market is reflected not only in the increase in registered users but also in the per transaction amount. The average transaction value increased from $1,051 in 2024 to nearly $1,960 in 2025; the proportion of high-frequency daily traders rose from 45% to 60%. Derivatives are a high-risk category, but data confirms that Indian users are shifting from simply hoarding coins to active trading. This shift also relies on the country’s mature derivatives landscape: India ranks among the top globally in nominal trading volumes of on-exchange options, and a large number of retail investors are already familiar with high-volatility, high-frequency derivatives, leading to their natural investment preferences spilling over into the cryptocurrency derivatives space.

The Indian Cryptocurrency Market is Not in a Lull but is Maturing

In examining the recent trends of the global cryptocurrency market, some believe that the market is becoming calm due to a slowdown in the introduction of new concepts and poor price performance of altcoins. However, others argue that the market has matured, pointing to the widespread adoption of stablecoins and the keen interest of global financial institutions in on-chain finance.

The same logic applies to India, as the Indian market is moving toward maturity.

A Large Number of Companies Entering the Late B Round Financing Maturity Stage

Data Source: Hashed Emergent

A signature feature of industry maturity is that a large number of local startups are moving into late-stage B round financing. Compared to the funding frenzy in 2021-2022, the overall funding amount for Indian cryptocurrency startups has declined, but the number of financing rounds in Series B and later has markedly increased.

Benchmark companies founded or led by Indian founders that have reached the late stage include:

Aspora: A cross-border finance app focused on overseas users of Indian descent, originally leveraging stablecoin links for Indian remittance services, received B round investment led by Sequoia, Greenoaks, and Y Combinator in 2025, and has since expanded into a full range of financial services including bill payments, wealth management, savings, and credit;
Tazapay: Founded by Rahul Shinghal, Saroj Mishra, and Arul Kumaravel, this B2B cross-border payment infrastructure provider received B round investment in 2026 from Circle Ventures, CMT Digital, and Coinbase Ventures, continuing to build the underlying infrastructure for entering and exiting stablecoins and fiat currency exchanges;
CoinSwitch: A major local cryptocurrency exchange in India that completed C round financing in 2021 with participation from a16z, Paradigm, and Ribbit Capital;
CoinDCX: An established compliant exchange in India, which received D round financing in 2022 from Antera Capital, Steadview, and Coinbase Ventures;
EigenLabs: Founded by Professor Sreeram Kannan from the University of Washington, completed B round fundraising from a16z crypto in February 2024, having core products including the Ethereum restaking protocol EigenLayer, data availability layer EigenDA, and off-chain computation verification layer EigenCompute;
SuperGaming: A longstanding game developer in India that secured B round funding from Steadview, Bandai Namco, and a16z Speedrun in 2025, transitioning from traditional mobile games to the Web3 crypto space;
FalconX: A U.S.-based major crypto prime broker founded by Raghu Yarlagadda and Prabhakar Reddy, which secured D round funding in 2022.

Additionally, the Web3 gaming project KGeN, which has raised a total of $43 million, and the crypto AI project Sentient, which raised $85 million in its first round of seed funding, also represent key industry figures.

The Developer Ecosystem is Becoming More Complete

When judging the maturity of the industry, it cannot be solely based on transaction volume and financing; developers are the core leading indicator. Developers in the cryptocurrency field are not ordinary workers; they are the supply engines of protocols, applications, underlying infrastructure, development tools, and new products. A continuous expansion of the developer scale signifies that the industry is accumulating capacity for the next bull market.

Data Source: Hashed Emergent, Devfolio

From this perspective, India firmly occupies a key position in the global Web3 landscape: local Web3 developers account for 15.2% of the global total (up from 12% in 2024), ranking second globally, only after the United States, and is the fastest-growing hub for Web3 talent in the world. The 2024 Developer Geographic Report from Electric Capital corroborates this, showing that U.S. developers account for 19%, India 12%, and the U.K. 4%; among the world's top economies, only the share of Indian developers is significantly rising, while the U.S. share is declining year by year.

Geographically, Bangalore leads the nation with 23.6% of developers, followed by Delhi with 11.8%, Mumbai with 6.4%, Pune with 3.4%, and Hyderabad with 3.2%. The advantage of Bangalore is based on the country’s established IT industry foundation, supplemented by regular hackathons and talent incubation projects such as Solana ecosystem Superteam and Ethfolio, which continuously supply new talent. The blossoming of various locations including Delhi, Mumbai, Pune, and Hyderabad indicates that Web3 talent in India is not clustered in a single city but is instead distributed across multiple areas, relying on the mature IT industry throughout the country.

Data Source: Hashed Emergent, Devfolio

The most striking feature of the Indian developer ecosystem is its youthfulness. According to a developer survey jointly conducted by Hashed Emergent and Devfolio, 82.2% of respondents are aged 18 to 25, with approximately 70% being students. This means that India’s current Web3 ecosystem is better characterized not as a mature labor market but rather as a vast reservoir of talent that will gradually enter the market over the next few years.

Another noteworthy point is that the developer community is no longer composed solely of newcomers. The survey reveals that 42.6% of Indian Web3 developers have more than two years of experience, 33.2% have one to two years of experience, and 24.2% are inexperienced developers with less than a year of experience. As new developers continue to join while the proportion of those with more than two years of experience also grows significantly, it can be concluded that the ecosystem is gradually maturing.

The level of global collaboration continues to rise. Among Indian developers who have been in the field for less than a year, 18.9% participate in multinational remote teams; in the group with more than two years of experience, the proportion of cross-border collaboration skyrockets to 55.4%. As their technical capabilities increase, Indian developers are deeply integrating into global Web3 projects.

This means that India is not only supplying talent for its domestic market but is becoming a hub for outsourcing developers on a global scale. The reality of salaries further reinforces this trend: starting salaries for local internet jobs in India are low and living costs are high, while global crypto projects offer remote work, better pay, and flexible growth paths, making Web3 a vital conduit for India’s tech talent to connect with international labor markets and realize their technical value.

The Indian cryptocurrency space has long ceased to be merely a massive retail trading market; it simultaneously boasts a large number of users and builders. If the industry were truly experiencing a downturn, developer entries, hackathon conversions, global team collaborations, and protocol ecosystem investments would all shrink, but in 2025, various metrics in India are moving in the opposite direction—under the façade of cooling trading enthusiasm, the foundational developer base supporting the next market cycle is continually strengthening.

Stablecoins in the Indian Market

Another indicator of the maturation of the Indian cryptocurrency market is the rise of stablecoins. In the past, keywords used to describe the Indian cryptocurrency market included exchanges, retail capital inflow, and altcoin investments. However, recently, the focus has shifted to more fundamental financial infrastructure, such as payments, settlements, remittances, and asset digitization. This indicates that the market is moving beyond mere speculative demand to a phase of thinking about how to apply blockchain in real financial systems.

In India, this shift is first observed at the startup level. Saber Money, a B2B cross-border payment project under Mudrex, focuses on completing corporate cross-border settlements using stablecoins. In early 2026, Saber partnered with the Circle payment network as a licensed collaborating institution, utilizing stablecoins to connect the rupee cross-border payment chain; Circle opened a payout channel to India through Saber: traditional NEFT transfers take two hours to settle, while IMPS/RTGS offers near real-time clearance. Although this does not mean that stablecoins have formally obtained legal payment qualifications in India, it marks a significant connection between India’s domestic settlement system and the global stablecoin network.

Indian entrepreneurs founding Web3 payment infrastructure providers are collectively betting on stablecoins. Transak secured $16 million in strategic funding led by Tether and IDG in 2025, enhancing stablecoin payment infrastructure; a local tech team developed the Lightning Network payment project Speed, which integrates lightning fast settlements with the price stability of stablecoins such as USDT, aimed at applications including e-commerce settlement, creator compensation, platform reconciliation, and cross-border remittances.

However, when considering India's stablecoin market, we must also take into account the regulatory paradox. Stablecoins, which require low costs and quick settlements, have become essential tools for global cross-border payments, yet privately issued stablecoins anchored to the dollar contradict the Reserve Bank of India’s currency management and monetary sovereignty policies, leaving the legal definition of their foreign exchange attributes vague. The Reserve Bank of India (RBI) maintains high pressure on private stablecoins due to concerns over macro-financial stability, monetary sovereignty, payment system security, and cross-border capital control.

The root of the contradiction lies in the RBI's long-standing interventions in the foreign exchange market to stabilize the rupee, inherently rejecting private stablecoins that can bypass the official banking system and allow free holding and transfer of dollar assets. The top-level policy leans more toward promoting central bank digital currency and the UPI official payment network rather than supporting private dollar stablecoins. For stablecoin startups and investors, they face not only regulatory uncertainty but also the top-level policies’ natural aversion to private dollar-backed currencies as an industry headwind.

This contradiction precisely reflects the maturity level of the Indian market. In immature markets, stablecoins are often used for capital influx and short-term speculation; in India, even with tightened regulatory scrutiny of private stablecoins, startups are still deeply focused on cross-border applications, while the central bank simultaneously explores controllable digital currencies through CBDC pilot programs. India has not fully opened up stablecoins but is leveraging official systems to address real pain points such as high remittance fees, delayed clearances, and global payment connectivity that stablecoins aim to resolve.

However, this does not necessarily mean stablecoins will find widespread application in India’s domestic payment market. A more realistic opportunity may lie in cross-border applications, especially considering India is one of the largest remittance-receiving countries globally, with annual remittance inflows exceeding $100 billion. Stablecoins can provide an attractive alternative for international transfers by reducing costs, improving settlement speeds, and providing easier access to dollar-linked values. However, in the domestic market, the prospects for stablecoins are considerably dimmer. India already has UPI (Unified Payment Interface), an instant, free, and deeply integrated payment network widely used by consumers and merchants. Thus, even though stablecoins remain attractive for remittances, offshore value transfers, and global interconnected financial activities, their competitiveness as everyday domestic payment tools may be inferior to UPI.

Regulatory, Tax, and Industrial Implementation Bottlenecks

The structural paradox in the Indian cryptocurrency market is particularly prominent. The country possesses massive users, rapidly growing developer communities, and increasingly penetrating enterprise-level applications, yet the regulatory environment remains ambiguous—neither fully open nor explicitly closed. Currently, India lacks comprehensive cryptocurrency legislation or specialized regulatory agencies; the market mainly relies on tax rules and anti-money laundering requirements for regulation. Moreover, how stablecoins, token issuance, and tokenized assets should be treated under Virtual Digital Assets (VDA) remains unclear.

Reviewing India's regulatory history makes this ambiguity even more evident. In 2018, the RBI issued a ban preventing banks from servicing crypto companies, but the Supreme Court of India ruled the ban unconstitutional in 2020 and overturned it; over the following years, the Parliament made multiple attempts to legislate, but has consistently failed to pass any cryptocurrency ban bills. From a legislative logic perspective, India cannot legally comprehensively ban cryptocurrencies before new laws are enacted; from a fiscal perspective, the taxes associated with cryptocurrencies are a stable source of revenue—only the 1% withholding tax from 2024-2025 is projected to bring in $60 million to $75 million in revenue, providing the government with no financial incentive to completely shut down the industry.

As a result, India has formed a compromise regulatory model that does not rely on specific industry regulations, but instead utilizes tax laws, anti-money laundering rules, and routine administrative oversight that cannot effectively eliminate the cryptocurrency industry. As regulatory audits ramp up in 2024-2025, enforcement will depend on large data analytics to trace tax-related transgressions in crypto, penalizing non-compliant platforms, raising the cost of participation for compliant users and local platforms, and driving capital out of the formal market.

This approach makes it easier to collect taxes and manage the industry in the short term, but in the long term, it significantly restricts industrial development. India has a top-tier scale of cryptocurrency users and developers, but project teams are often unclear about licensing qualifications, product compliance boundaries, and regulatory details distinguishing DeFi from non-custodial wallets. The key to breaking the deadlock in India lies not in strict tax controls but in establishing clear regulations that guide the industry’s sustainable development within the country.

Taxation: Originally Intended for Traceability, but Driving the Industry Offshore

The most practical bottleneck is taxation. Profits gained from VDA asset trading in India are uniformly taxed at a 30% income rate, with an additional 1% source withholding tax (TDS) on qualified transaction amounts. The withholding tax poses the greatest impact on short-term high-frequency traders: 1% is deducted from each trade immediately, forcing traders to wait until tax season to apply for refunds, with substantial portions of liquid capital being tied up for extended periods. High-frequency traders see their principal repeatedly deducted every month, significantly lowering their capital utilization rates and rendering high turnover trading infeasible from a business perspective.

The original intent of the tax system was to control speculation and trace the flow of funds, but the real outcome has been a continuous outflow of local trading. Data from Esya Centre's research shows that after the TDS of 1% took effect, three to five million Indian users shifted to overseas platforms; from July 2022 to July 2023, the total trading volume of Indian users on offshore platforms exceeded $42 billion.

The capital outflow undermines the government's intentions. Once trading shifts to overseas platforms and peer-to-peer (P2P) channels, the difficulty of regulatory tracking and taxation rises in tandem. Estimates indicate that only 9.02% of the crypto assets held by Indian investors remain on local compliant platforms; if the TDS rate were reduced to 0.01%, it could likely draw trading back to local platforms and actually increase overall tax revenues.

The tax issues surrounding Indian cryptocurrency have long extended beyond mere rates; the current detrimental tax structure is persistently pushing compliant trading toward grey and offshore markets, diverging from the original intent of regulatory transparency. To maintain effective market control, India needs to reconsider the high withholding tax policies.

Regulation Centered Around Anti-Money Laundering: The Indian Financial Intelligence Unit as a Substantial Entry Barrier

The core of India's regulatory implementation currently revolves around anti-money laundering. Since March 2023, local virtual asset service providers have been required to register with the Financial Intelligence Unit of India (FIU-IND), implementing compliance obligations such as customer due diligence, suspicious transaction reporting, dedicated anti-money laundering officers, internal control systems for anti-money laundering, and travel rules.

The regulatory authority of India's financial intelligence unit continues to strengthen. In October 2025, the Ministry of Finance's FIU issued violation notices under the Anti-Money Laundering Act to 25 overseas exchanges, including Huione, CEX.IO, and BingX. In 2024, Binance was fined ₹188.2 million (approximately $2.25 million) for failing to complete FIU registration, and the FIU simultaneously prompted the Ministry of Industry and Information Technology to ban non-compliant overseas platforms. Meanwhile, compliance registrations have also become a pathway for overseas giants to re-enter India: in March 2025, Coinbase completed its FIU registration, gaining qualifications for compliant operations in India, with Reuters confirming that Indian cryptocurrency service providers must report their identities to the FIU and fulfill anti-money laundering obligations.

In summary, the current regulatory framework in India is a registration system based on anti-money laundering rather than a detailed license-based entry system. This set of rules outlines the minimum industry baseline, but the entry boundaries for different product types remain vague; decentralized finance protocols, non-custodial wallets, and decentralized applications lack intermediaries, raising questions about who bears the anti-money laundering duties and how they are implemented, with existing regulations remaining silent.

Stablecoins: Strong Demand, Regulatory Focus on Central Bank Digital Currency

Stablecoins present the biggest opportunity for the Indian market while simultaneously being the area with the most stringent regulatory boundaries. India has a massive remittance footprint; the need for freelancers and B2B settlements is substantial; mobile payment penetration is high, and on-chain trading is active. Hashed Emergent believes that despite restricted fund inflow and outflow channels, the landing potential for private stablecoins in India ranks among the top globally.

However, the regulatory attitude from the top is extremely conservative. The foreign exchange classification of stablecoins remains unresolved; the RBI prioritizes central bank digital currency (CBDC) instead, with RBI Deputy Governor T. Rabi Sankar publicly stating in 2025 that stablecoins give rise to illegal cross-border payments, circumvent capital controls, threaten domestic monetary policy, weaken the role of banks as intermediaries, and jeopardize financial system stability.

India is highly sensitive to dollarization; regulatory concerns center on how dollar-pegged stablecoins could undermine circulation of the domestic currency and weaken capital control and effectiveness of monetary policy. Official documents have repeatedly warned that dollar stablecoins might impact UPI and other benchmark payment infrastructures in the country.

The current situation is that private B2B cross-border and offshore settlement projects continue to experiment with USD stablecoin settlements, yet the central bank and policymakers prioritize support towards CBDCs and the UPI ecosystem, refusing to let private stablecoins become core to the domestic payment system. The gap between policy and market demand remains irreconcilable, making it challenging for India to capitalize on the global settlement advantages of stablecoins while integrating with its own financial system under current policies.

Asset Tokenization: Wide Prospects, but Lacking Legal Framework

Global traditional financial institutions are accelerating on-chain pilots for tangible assets like bonds, funds, real estate, bank deposits, and carbon credits. India is pursuing explorations in this area through the International Financial Services Centres Authority (IFSCA) sandbox, the Finternet project, and capital market tokenization pilots, but lacks specific token legislation, making it challenging to implement real-world assets on chain, which is hindered by the need to forcibly apply traditional financial laws.

The IFSCA's 2025 consultation document on the tokenization of real assets clarifies that this document does not bind central bank digital currencies, general cryptocurrencies, or NFTs, focusing solely on tokenization of real assets, covering categories, issuance structures, asset custody, transaction clearing, investor rights, and risk control across all dimensions. This document indirectly validates the regulatory recognition of tokenization's long-term value, yet its accompanying regulations remain in the research and exploratory stages.

The challenges surrounding tokenization go beyond technical issues and involve myriad interconnected problems, such as how a token relates to real asset ownership, whether token transfer is viewed as a lawful transfer of ownership, how to protect token holders' rights in the event of a custodian's bankruptcy, how foreign exchange regulations apply when foreign investors participate, and how to manage profits from token trades under tax laws.

Tokenization is both a marker of the Indian industry’s maturation and a reflection of the complexity of the domestic regulatory system. India boasts globally top-level public digital infrastructures via UPI and Aadhaar, but tokenization touches upon multiple laws involving ownership, foreign exchange, and securities; to scale its implementation, not only does it need technical pilots, but it also requires complementary property legislation and investor protection rules.

Inherent Paradox of the Developer Ecosystem

India has the world's second-largest Web3 developer community, yet the industrial value created by local talent struggles to remain domestically. Many developers work for overseas protocols or register projects offshore, such as those founded by Indian founders in Singapore, Dubai, the British Virgin Islands, or Delaware in the United States.

This becomes evident when looking at the list of companies in the B round and later funding stages mentioned earlier. Many Web3 giants associated with Indian founders or talent, including EigenLabs, Avail, Biconomy, Instadapp, and FalconX, do not base their organizational structures in India. Instead, they preferentially establish their company structures in offshore jurisdictions like Singapore, Dubai, the British Virgin Islands, or Delaware. Notable exceptions are Indian exchanges like CoinSwitch and CoinDCX, which are rooted in the domestic market; however, among protocol and infrastructure companies, offshore registration is often the more common choice.

Offshore registration is not merely a subjective preference of founders. High registration costs in India, difficulties in opening bank accounts, lack of clear regulatory guidelines, high personal tax burdens on equity compensation, and easier offshore arrangements for dollar financing force entrepreneurs into a binary choice: either register a company overseas or work remotely on offshore projects from India. Even if talent remains in India, the enterprise and industrial returns flow abroad.

The consequences are apparent: India continually exports technical manpower, but project equity, intellectual property, and long-term tax sources are all lost. The "second-largest Web3 developer market" only represents talent reserves, not local industrial competitiveness. For India to activate its developer dividend, it must not only expand its recruitment of programmers but also implement favorable regulations, optimize the tax system, relax the process of opening bank accounts, and enhance investment and financing regulations to retain local entrepreneurial teams. Only by retaining project teams can India upgrade from a talent supplier to a global Web3 industry hub.

Conclusion

In summary, the Indian cryptocurrency industry has not experienced a lull, but is steadily maturing towards diversification. In earlier years, industry data was dominated by the number of exchange users and the altcoin bull market; today, the metrics have become more multifaceted: first in the Global Cryptocurrency Adoption Index, receiving $33.8 billion in annual on-chain capital, per-transaction volumes for derivatives nearly doubling, warming in Series B financing, leading global rates for mobile wallet penetration, and a bulk of Web3 pilot projects launched by major players.

The existing drawbacks in Indian cryptocurrency do not stem from a lack of demand; users, entrepreneurs, developers, and on-chain capital data are all ample. The pain points lie in the accompanying systems failing to keep pace with the market scale: high taxes are forcing funds into grey and offshore sectors; anti-money laundering regulations maintain compliance standards but lack specific product rules; the clear demand for stablecoins across borders persists, but the central bank prioritizes support for official digital currencies; while the potential for asset tokenization is substantial, existing absence of relevant property and supporting legislation persists.

The next stage of Indian cryptocurrency's trajectory lies not in adding more retail investors, but in building adaptive systems to accommodate the current user and builder base. If India can adjust its tax structure, establish clear rules for stablecoins, tokenization, and DeFi, and strike a balance between consumer protection and innovation, then the widespread adoption of its cryptocurrencies could translate into genuine financial infrastructure innovation.

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