'On-chain, security, and innovation': WazirX's founder on how India can lead the next wave of Web3

Nischal Shetty, founder and CEO of WazirX, which was India's largest crypto exchange before the hack in July 2024, is scripting a powerful comeback after facing a major setback last year, when a cyberattack by North Korea’s Lazarus group wiped out over $235 million and brought the platform’s operations to a halt. After the security lapse, which happened in a third-party custody wallet operated by digital asset custody and wallet infra platform Liminal, Shetty believes the global crypto players must strengthen their security systems in order to ensure a robust crypto ecosystem.

Notably, crypto hacking remains a persistent threat, with four years in the past decade individually seeing more than a billion dollars’ worth of crypto stolen (2018, 2021, 2022, and 2023). The year 2024 marked the fifth year to reach this troubling milestone, highlighting how, as crypto adoption and prices rise, so too does the amount that can be stolen. In 2024, funds stolen increased by 21.07% year-over-year (YoY) to $2.2 billion, and the number of individual hacking incidents increased from 282 in 2023 to 303 in 2024, as per a report by a blockchain analytics company, Chainalysis.

The WazirX CEO says cybercriminals are one of the biggest challenges to the crypto ecosystem. "With North Korea, it’s not just some hacker sitting at home whom you can catch. It’s a very complicated ecosystem," he said during an interview with Fortune India.

India's currently position on crypto is somewhat vague. Crypto as an asset class is under the PMLA here, and it remains "unregulated". Crypto assets are taxed at 30%, apart from 1% TDS on transfers of funds and applicable GST on services, which places India among the countries with the highest tax when it comes to crypto. India's central bank, the Reserve Bank of India (RBI) has time and again cautioned users about risks involved with it, highlighting volatile nature of the digital currency.

Shetty feels it'll take a long time before crypto industry sees security at the regulatory level. "If you look at the stock market, after many issues, we have the Demat system and a separate company to handle that, which I think will become an industry standard in cryptos too," says Shetty. He agrees that despite some of the biggest cyberattacks faced by crypto companies, there are not many discussions happening globally around security. "In isolation, some security experts are talking about it, but you don’t see the merger of regulation and product security yet."

Recognising challenges associated with such protocols, he asserts that it’s too early for regulators to get into a framework for security. "The crypto technology is changing rapidly. If a regulator comes up with anything for security today, by the time it’s out, it’ll be outdated because crypto tech changes fast. By the time you define three steps, the blockchain has already evolved."

'India must innovate beyond exchanges'

Shetty said that unfortunately, in India today, crypto is only about exchanges. "Exchanges were meant to be the starting point, not the destination. The real destination is on-chain — where we build products on the blockchain and have our own ecosystem of users."

He agrees that despite having the largest ecosystem of blockchain developers, India remains behind in innovation at the country level. He's confident that WazirX, in its new avatar, will be able to do that. "The world has moved forward; we’re two to three years behind, which is okay. Sometimes, it’s good to learn from others’ mistakes. But now we have to move forward. Someone has to take the lead, and I want to help WazirX do that."

More than WazirX, Shetty is bullish on India's entire crypto industry, and the opportunity it presents to participate in nation building. "That’s one of the reasons I got into crypto. It’s a new tech, and there’s no global leader yet. Unlike traditional financial markets or the internet, where we came late, with crypto we can be early."

Speaking about his views on emerging crypto technologies like blockchain, Shetty says the company will double down on helping the developer community build on latest technologies like blockchain. "We have 30–40 million people who understand crypto (in India). That means 5-8 million can come on-chain. Developers should build lending products, DEXs, wallets, etc., for those Indians. WazirX wants to help them, with listings, with our ecosystem learnings."

'India should allow INR stablecoins'

Last month, FM Nirmala Sitharaman during the Kautilya Economic Conclave said countries must be ready to "engage with stablecoins" as these technologies are "transforming the landscape of money and capital flows". “These shifts may force nations to make binary choices: adapt to new monetary architectures or risk exclusion,” she said. The FM's remarks signal a shift from a tough stance adopted by the government on crypto, though to what extent it'll welcome these newer technologies is unclear.

Shetty says India needs blockchains focused on India, otherwise global players will dominate this space as well. "Most blockchains haven’t bothered about India, they see it as a market to exploit, not create. Shardeum and WazirX aim to create the market, not just tap into it. We want to grow from 5 million users to 30 million."

Shetty says from a regulatory point, he believes India should allow an INR stablecoin. He also believes both CBDC (central bank digital currency) and INR stablecoin can co-exist as they serve different purposes. "Right now, it’s being seen as CBDC or INR stablecoin — but I think both should exist. CBDC fits traditional use cases, while INR stablecoin fits Web3 and on-chain ecosystems. Otherwise, USDT and other stablecoins will dominate. Some regulations need to change to allow it, but it will help INR circulate more and strengthen our economy."

Shetty's project Shardeum, AI & crypto

The WazirX founder-led autoscaling layer 1 blockchain network project Shardeum was launched this year. Its key features include automatic scaling, low gas fees ($0.01), less time running a node (under a minute) with minimal hardware, and seamless expansion. The EVM-compatible use case allows developers to easily port apps from Ethereum, and promises transparency.

On project Shardeum, Shetty says its objective is to help build an on-chain ecosystem in India. "We just launched the EVM version, so now you can deploy smart contracts like on Ethereum. The idea is the same as WazirX, build an Indian on-chain ecosystem. WazirX will onboard users; Shardeum will onboard developers."

Speaking about how crypto can benefit from unprecedented evolution and scale of AI, he agrees that there's a natural connection between AI and crypto: "If you think about a world where AI takes over, one missing component is money. Crypto is AI money, because AI can’t get a bank account. A crypto wallet is the most natural money for AI. It can create a wallet, trade, or perform tasks and earn."

Trading is one of the use-cases of AI in crypto, he said. "You can give AI a wallet with some digital tokens and let it trade or buy things. You don’t need to share your bank account. You can just create a crypto wallet, put 0.2 bitcoin, and let AI work for you. For exchanges, AI-driven trading is getting popular, you can tell AI to perform arbitrage or plan strategies." However, he cautioned about AI's quirks, citing the need for caution. "We’re experimenting with AI, figuring out the first safe step, putting guardrails in place before building AI bots."