Coinbase-backed crypto unicorn CoinSwitch released the second edition of its Proof of Reserves (PoR), revealing for the first time that the crypto investing platform holds around Rs 1,944.8 crore in total crypto and fiat holdings. This is an attempt to showcase transparency at a time when the Indian crypto industry stakeholders are in active discussions with the government to decide on ways to regulate the sector under its ongoing G20 presidency.
As of March 31, CoinSwitch's user holdings stood at Rs 1,431 crore, compared to Rs 1,083 crore reported in January's PoR report. The first edition of the PoR, however, only mentioned that CoinSwitch's total holdings were greater than its user holdings without specifying the exact amount.
PoR demonstrates that a crypto platform holds the assets it claims to by conducting an independent review and on-chain validation. The independent reviewer verifies the platform's crypto and fiat holdings (Indian Rupees) and compares them with users' assets and balances.
CoinSwitch currently holds about 6.7 times more INR balance than its users. Speaking to Moneycontrol, co-founder and CEO Ashish Singhal said, “As you can see, our holding ratio is much greater than 1:1. Which means, CoinSwitch holds significantly more assets and cash than those of our users in our custody. Alongside the review of our holdings, we are also making public our wallet addresses. The assets held in these wallets can be verified using blockchain explorers, giving users an up-to-date view of the holdings.”
The report was prepared by G Venugopal Kamath & Co., CoinSwitch's auditors for the past six years, Singhal shared. The first report was made by INMACS.
The full list of these wallet addresses can be reviewed on the company's blog, Building Blocks.
A ratio of 1:1 or higher means that the platform holds all user assets and fiat balances, allowing users to redeem or withdraw them at any time. CoinSwitch, an exchange aggregator, along with Indian exchanges including WazirX and CoinDCX, first started working on PoR towards the end of 2022, in the wake of growing distrust among users after the collapse and bankruptcy of the world’s third-largest crypto exchange, FTX.
The FTX collapse, crypto prices crashing last year, and subsequent regulatory concerns to crack down on illegal transactions and terror financing have spurred several global regulators into action to come up with guidelines and laws.
Governments are currently evaluating the regulatory framework under the Financial Stability Board (FSB) of G20 countries. Additionally, the International Organization of Securities Commissions (IOSCO), an association of global market regulators, has released a set of draft rules on crypto that are currently under consultation.
Decline in new downloads
The Indian crypto industry's fortunes took a hit in early 2022 when the government implemented a 30 percent tax on gains from crypto and virtual digital assets (VDAs), along with a 1 percent tax deducted at the source (TDS) charged on every transaction of over Rs 10,000. This led to a major decline in trading volumes across Indian exchanges, with trading volumes plunging by over 85-90 percent.
To sustain the business, just like its peers, CoinSwitch diversified its business to become a wealthtech platform. It’s in the process to launch at least seven new products including fixed deposits, bonds, exchange-traded funds (ETFs), stocks, and mutual funds this year. It also rebranded and updated its app in December.
As trading volumes got wiped out and the bear market still persists, CoinSwitch has started seeing some slowdown in new user acquisitions.
“This is our third bear market. Though overall traction continues to be good, new user inflow reduced a bit. But old user activity continue, as long as you're able to add value to those users’ life; and solving the problems of the existing users becomes the critical point of growing in a bear market. We still have over 80 percent retention rate with our existing investing users,” Singhal said.
“In terms of new users, if you look at our numbers, we used to be among the top 10 downloaded apps in fintech always. But now you will not find us probably in the top 50 itself, because the new user acquisitions have gone down. Though not reduced to zero, but the number of new users joining the crypto market is going through that flux,” he added.
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