Nischal Shetty, serial entrepreneur and co-founder of the country’s largest crypto exchange, WazirX, and now Layer 1 blockchain network, Shardeum, shifted his base to Dubai in early 2022, around the time the crypto price crash and global crisis started to take off.
Soon, he started working on a new blockchain network for smart contracts. He found a gap in the increasing demand for decentralised services and the expensive blockchains that were existing and wanted to solve them with his blockchain.
Around August last year, Shetty got entangled in a legal battle with Binance’s founder and CEO Changpeng Zhao (CZ), regarding the ownership of WazirX, after Binance said it had acquired WazirX in 2019. In August 2022, Binance said that it didn't own any equity in the exchange.
In an interview with Moneycontrol, Shetty, discussed the final release plan of the new blockchain network, crypto regulations, Binance dispute, hiring and fund-raising plans and more.
Edited excerpts:
You went from being one of the most reliable voices in the Indian crypto industry to starting a new blockchain firm in less than a year in 2022, and, that too, during a global crypto crisis. What went behind the transition?
When we started WazirX, we couldn’t do even the basic things in India. It used to take a week to buy and process a Bitcoin transaction. Today, it is a very strong ecosystem. The next stage is people using decentralised services and custodial wallets. While all that happened in the last 12-18 months, I found a gap between what customers want and the kind of infrastructure that is available. Basic blockchain technology wasn’t available. Existing blockchains are expensive and not scalable.
How did Shardeum happen from WazirX?
So, Omar Syed is my co-founder, and he has been building this technology since late 2017. The thing with technology like this is you have to build it from the ground up. And blockchain is a really difficult thing to do. So when he started in 2017, his intention was only to build an open source and not launch a blockchain.
I met him in 2019 when I was running WazirX actively. I loved the idea and the tech, but he was still building it. So I decided to stay in touch with him. In 2021, we finished building most of the things we had discussed. That is when I got in touch with him. I told him that instead of just open-sourcing it and not launching a blockchain, why don't we get together and build a smart contract platform using the technology you're building. That's how Shardeum was created.
He is a co-founder and I am the guy who is working on the distribution and business part.
You said that the gas fee is going to be comparatively lower for Shardeum. How does this compare with the existing, more established blockchains? Also, since you are reducing gas fee, how does the unit economics and the revenue model work for you guys?
So, we were thinking of the gas fee to be at one cent. That's lower than most of the other Layer 1s out there, which are sufficiently decentralised. Why we could do it and why others can't is because in Shardeum, the transaction capacity increases every time a new node joins the network.
For traditional blockchains like Ethereum, it does not matter how many nodes you add to the network. The transactions per second (TPS) will always be constant at 20-25. The problem is when you reach that threshold of 25-30 TPS, the only way to service everyone will be to levy a fee high. Basically, you give it by bidding on supply and demand. That's how the fee goes high.
Regarding unit economics, we believe it is going to be enough to pay for our hardware costs for that month, and make some more money on top of it.
In Shardeum, the hardware requirement is very low. The unit economics is not a big issue but understand that these things work better at scale. To build that, for the next 20-25 years, there is going to be a network reward on top of the service.
India is currently seeing an increase in L1 blockchain projects. Even global players like Algorand have entered India. How does Shardeum differentiate in its offerings amidst increasing completion? What was the idea behind starting up an L1 blockchain, as late as 2022?
The Indian ecosystem is one of the most attractive ones right now. It also has the largest number of emerging Web 3 developers. I wouldn't be surprised if, in the next few years, the largest number of Web 3 startups emerge from India, where Indian developers will be building different kinds of protocols on top of blockchain. So it's attracting everyone. Everyone wants to have a piece of the market.
In Shardeum, we have been very different to everyone else, right from the core. We are building from India, and we are not bringing a finished product here. We are giving it to the customer to build it as a community member. So it's a very different approach. We are asking you to build it with us. And that will help the customer to be able to understand the product and how things are built.
That's setting your fundamentals right. We're trying to do that for the market. We've got over 800,000 people on our testnet. I think that's the largest number of people on any testnet anywhere in the world. Of this number, for the beta network testing, almost 70 percent users are from India.
You recently launched the beta network for Shardeum. How was the response?
We launched it last year. I think, in March or April, we launched the alpha net, which was like the first step of the network, in which you could not run your own node, but you could try transactions on the network. In this year, we launched the beta net, where you can also run your own node. We saw around 25,000-30,000 people running nodes, which again, is a crazy number.
We never expected that. I don't think any test has seen that. It is still running right now. People will keep testing it. And we'll also keep learning what the flaws are, making it better.
Did you achieve your target of processing 200 transactions per second by the end of 2022?
We don't have targets like that, because it can grow?. So 200 is one number. But let's see what happens when you're hitting 200. Then, the network expands to 300, 400 and 500, and so on. It can go to 1,000, depending on demand and supply. So I don't know, maybe there is some confusion. But yes, this network can process 200, it can also process 300-400.
We are yet to stress-test the network. So right now, we are trying to make the network stable. Last year, we demonstrated where I think there was around 200 or 300 TPS capacity. Right now, this is in the beta net mode.
Late last year, you raised over $18 million in a seed round at a valuation of $200 million. You were recently looking to raise Series A too. Any update on that? How much are you looking to raise and at what valuation?
We haven't yet put those numbers. We are raising a strategic round right now. But again, we're still talking to everyone. When that happens, we'll announce, probably this month. The idea of Series A is after that, probably, in June or July. Again, we've not really decided when we would go out for a Series A.
This is sort of like a strategic round. We got a lot of inbound requests from strategic investors like different developers of different products, micro VC funds or small VC funds from different geographies where we were not really present. They're not really large Series A investors. That's why we opened up a small amount right now. But yeah, that is still underway.
Post your previous round, you were going to expand R&D teams in India. Can you take us through your hiring plans for 2023?
We are now about 45 people in Shardeum. When I was speaking last time, we were maybe 15-20. So we've doubled the team. Of that, around 20- 30 percent is from India. It's a mix of tech and marketing. Our tech team is actually globally distributed. I think we got, maybe, 10-15 percent of the tech team here in India. Not more than that right now.
The idea is to definitely keep hiring. We're not really focusing on just one geography. It's not just restricted to any country. We are also not doing something specific to jobs right now. It's a little too early, I think, probably post Series A, we can do something.
We might double the team to expand up to 80 people in the next 6-12 months, but we don't want to expand too quickly. I believe in lean teams. Lean teams do a lot of work and can move faster as well.
When do you go for the mainnet? Is there a timeline you are looking at?
We are targeting Q3 of this year, let’s say July, August, or September. I would say this is a really new L1, and there's a lot of testing that has to be done. So our focus right now is on three things that lead to the mainnet. The first thing is to be feature-complete. So, there are still some features remaining to be built. Our team is currently working on them. After that, we want to make sure that the security testing and scalability testing go well. That will be in the next quarter. Once that is done, they will be ready for the mainnet. After that, we will decide about the launch.
We are a few months away from the end of our G20 presidency and might get some clarity during the ongoing summit. What are your thoughts about crypto regulations? Is having a common global framework possible and an easy way out?
What India is doing is really amazing. I think we are on the right track and this has come after so many deliberations around regulations, like looking at how to shape global regulations rather than regulating it in isolation. I think our finance minister also recently spoke the same thing, which is they're trying to work on the different global regulatory aspects by collaborating with different nations that are trying to do the same.
I think that is the right approach. If you look at crypto, it is global in nature, unlike banking, where you have local regulations. Crypto is like the internet. You can have local regulations, but that will only be for exchanges that are registered in the country and operating out of the country.
If you think of DeFi, there is no way you can have local regulations. So the best way is to build something global. The question is how long it will take when several countries have to do it together. It's going to take longer.
How about WazirX and Binance’s settlement? Is there an update on that?
If it gets done, we will be the first one to let you know. It’s in the legal domain, so both parties cannot comment on it at the moment.
What’s going to be the targets for Shardeum in FY24?
Priority number one is to hit the mainnet. We want to build a user community of over 2 million in the next six months. We have already done over 100 products on our network in the testnet. We want to cross 500 in the next six months. There are wallets, decentralised exchanges, dex aggregators being built and then there are products built only for Shardeum.
We also have a few geographic targets, like Nigeria, Vietnam and the US. We have already hired a chief growth officer in the US. And then the next fund- raising is on the target.
