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Polygon’s co-founder may have a point, but it doesn’t apply for the entire crypto ecosystem

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Good Evening [%first_name |Dear Reader%],

Welcome to this week’s edition of Tokenised.

I believe what I’m going to do now should be a punishable offence. But it’s not, so I’m going to do it anyway. I’m going to begin with a cliche. 

The more things change, the more they stay the same. 

I don’t think anyone would disagree if I said that crypto is an agent of change. But the ecosystem sometimes throws up some conversations that are long-time acquaintances. Our main topic today is about one such debate. 

There’s also a little bit about crypto exchange Coinbase’s per-user earnings, and a failed Facebook project. 

Let’s jump right in. 

The Indian crypto brain drain: more headline than reality

When regulations get too shifty or onerous, businesses often relocate to more favourable jurisdictions.

And when they do, they tend to take human talent with them. 

We even have a handy term for it: brain drain.  

And, at least according to Polygon co-founder Sandeep Naliwal, that’s exactly what’s playing out in the Indian crypto and blockchain space. Polygon is a platform that helps increase the number of transactions that the Ethereum blockchain can process (and arguably an important one, as my colleague Praveen wrote earlier in The Nutgraf). 

Naliwal didn’t have nice things to say about India’s regulatory environment. 

“I want to live in India and promote the Web3 ecosystem,” Naliwal told Bloomberg, but “overall, the way the regulatory uncertainty is there and how big Polygon has become it doesn’t make sense for us or for any team to expose their protocols to local risks.” Based in Dubai himself, Naliwal also described the resultant crypto-sector brain drain from India as “absolutely crazy”. 

Now, while that may be true for a part of the ecosystem, it doesn’t necessarily reflect the full picture, according to conversations I’ve had with industry participants. 

But before we get into that, it might be useful to lay out how I am divvying up the cake. First, there are projects like Polygon that work as a software base for a whole host of applications and operate a token of their own. Then, India-specific businesses like exchanges that serve the local market. And third, a host of ancillary businesses that provide services ranging from legal to tax consultations.

According to executives who work in the latter two categories, the drain isn’t as visible as it might be for the first bucket. 

“Engineers that write Solidity [programming language] code are rare anyway, so they chase more pay. But otherwise, hiring isn’t a big issue,” said the founder of a crypto exchange. 

The low availability of tech talent is a problem point that hasn’t been fixed by all the funding that has poured into the segment. Though that hasn’t stopped companies from trying. 

“Hiring is the best way for startups to use funding. With things like marketing and business development, there are still short-term metrics you have to hit,” a hiring consultant who has worked with crypto businesses told me. With hiring, those metrics are more long-term and harder to quantify. 

For the third category—ancillary businesses—the rules are territory-specific, which means there is always a local flavour to these services. For instance, India’s recently announced tax regime for crypto-assets isn’t likely to boost business in regulation-arbitrage destinations. But it will create more demand for lawyers and accountants familiar with operating in India. 

And while some destinations like the United Arab Emirates (UAE) or Singapore may seem more appealing to businesses that aren’t too keen on dealing with Indian regulation, the brain drain is more limited to the tech side of things. Not an overarching crypto phenomenon. 

Having said that, we have to remember that the idea of tech brain drain isn’t exclusive to crypto either. A conversation about it surfaces each time a major global corporation appoints an Indian-origin senior executive. Which, most recently, was what happened when Twitter appointed Parag Agrawal as its chief executive. But that problem, too, might be a little overstated. 

“Looking at absolute numbers is misleading. When looked at as a proportion of its population, India has one of the lowest emigration rates in the world,” Amee Misra, a senior economist at the UN Development Program in New Delhi, told DW. 

So, while Polygon may feel that India is missing out on a lot by having slow-moving regulations that keep flipping around, I’d argue that’s more of a business pain point. Not the beginning of a significant flight of human capital. 

With that, let’s turn to some other things that happened in crypto over the last few days.

Crispy Bytes

  • A proposal that would have effectively banned crypto mining and transactions in Europe failed to get enough votes in a EU parliamentary committee. [Al Jazeera]

  • Crypto exchange Binance is eyeing a spate of mergers and acquisitions to expand its presence in traditional financial markets. [Financial Times]

  • Japan has urged crypto exchanges to act in line with sanctions levied on Russia following its invasion of Ukraine. [Reuters]

  • The Indian income tax department is preparing to issue notices to 700 entities who have been avoiding taxes on high-value crypto transactions. [The Economic Times]

  • Big names in the mainstream hedge fund world are pouring billions of dollars into crypto investments. The funds include ones run by veteran traders like Alan Howard and Paul Tudor Jones. [The Wall Street Journal]

  • Venture capital giant Andreessen Horowitz has hired Michele Corver, formerly chief digital assets advisor at the Financial Crimes Enforcement Network (FinCEN), as head of the VC firm’s regulatory division. [Bloomberg]

Deeper Dives

It was in 2017 that Facebook began thinking about a digital currency of its own. Fast forward five years and the project is dead and assets related to it have been sold to Signature Bank. Even though Facebook onboarded multiple large firms and made a big splash about its cryptocurrency ambitions, the project apparently died because it came through the wrong messenger. 

Or, as one politician told Financial Times, “Diem spent years trying to reverse engineer their project to fix all of its faults. But they could never fix being linked to Facebook. It was their original sin.” [Link]

What caught my eye this week

Through 2021, crypto exchange Coinbase made an average of US$64 in transaction revenue from each user. Which seems pretty elevated if we look at how much transaction revenue Charles Schwab, one of the world’s largest brokerage firms, rakes in from its 33.4 million accounts. 

During the same year, Charles Schwab earned a total of US$739 million in transaction revenue. Back of the envelope math would bring its average per account earnings to about US$22—just a third of what Coinbase earns from its 11.4 million monthly transacting users. 

That’s all for this week’s edition. If you have any overarching thoughts (or even nitpicky ones) about this newsletter, please do write to me at [email protected].

I’ll see you again next week. Take care!


Jaspreet Kalra

This newsletter has been discontinued. But you can read The Stack which includes our newsletters around cleantech, fintech, personal finance and e-commerce in India!