Indian exchanges working on lending, margin trading as crypto dealings go mainstream

Crypto exchanges are rapidly gaining popularity and trading volumes are shooting through the roof across platforms. To take crypto dealings to the next level, exchanges are trying to introduce margin trading and lending options for Indian crypto investors. Industry insiders believe this will help the sector mature and attract serious long-term traders and crypto enthusiasts.

Typically, Indians are engaged in buying cryptocurrencies like Bitcoins, Etherium and others. They hold these in the form of assets and sell when the price jumps. Sometimes they trade the currencies they own in exchange for other cryptocurrencies they might be interested in like Bitcoin to Etherium and others. Once lending opens up, many consumers who hold these assets might look to lend them to active traders and earn some interest in the meantime.

Mumbai-based CoinDCX has started DCXLend where investors can deposit more than 10 crypto assets and earn up to 10 percent interest per annum. The company said that its funds are insured by BitGo.

“More than 1,000 people have already used this feature,” said Sumit Gupta, co-founder of CoinDCX. “We also have DCXMargin as a product which offers six times leverage across more than 250 coins.”

Other crypto exchanges are also in the process of opening up lending and margin trading on their platforms. Bengaluru-based WazirX also has plans to launch lending on the platform as an intermediary.

If someone has one bitcoin, he or she can borrow four bitcoins and start trading, said Nischal Shetty, co-founder of WazirX. These extra bitcoins can be sourced from individuals who are not trading but holding on to it as an asset. This feature will push liquidity; whenever one asks for a bitcoin they can get it immediately.

WazirX was acquired by Binance in November 2019. Binance is a global crypto exchange platform and they also have a lending programme which allows consumers to earn interest through lending to other margin traders.

“These are, however, done through an intermediary; in many cases some decentralised applications are also being built, where there is no need for any intermediary to hold the tokens,” said Shetty.

In the world of blockchain, the role of intermediaries can be taken out since everything can be stored through smart contracts in forms of tokens. These are locked through software codes which are almost immune to breaks.

But industry insiders also point out that these are still early days and if there is a bug or an attack, then in the case of disintermediated tokens everything can be lost. To start with, Indians would need an intermediary who would facilitate these margin calls and also reduce risk. This can slowly help build trust in the system.

Nuo Network is also in the business of offering credit through cryptocurrency. The startup is trying to go beyond the need to have an intermediary and uses smart contracts instead. This removes the requirement of a third-party trusted player. Users can directly interact with the audited smart contracts which can automatically execute margin loan disbursement, repayments and default.

“Margin loans and lending are key financial features, like brokerage, options and derivatives are required for any asset to go mainstream. These enable sophisticated traders to participate, thereby increasing liquidity and eventually encouraging more retail participation,” said Varun Deshpande, co-founder, Nuo Networks, which is backed by Sequoia Surge.