Crypto firms bet on cashbacks, rewards as TDS threatens revenues

Cryptocurrency and investment startups are betting on cashbacks, rewards, fixed interest investment schemes and exchange-traded funds (ETFs) to keep trading volumes from falling drastically as the government’s new tax deducted at source (TDS) rule comes into play. The government had announced a 1% TDS on crypto transactions earlier this year, which came into effect from July 1.

For instance, Indian cryptocurrency exchange CoinDCX, offers ‘Earn’, a passive income scheme on the exchange that claims to offer up to 13% interest on a user’s crypto holdings. The scheme is similar to the concept of crypto staking in the web3 space, where a user can hold a chunk of cryptocurrency tokens belonging to a proof-of-stake blockchain network. In such a network, the blockchain validates new tokens in the network based on the volume of tokens held by users.

The higher the volume of tokens held by users, the higher is the percentage of returns earned by them.

Minal Thukral, executive vice-president of growth and strategy at CoinDCX, said that Earn is part of “TDS-friendly products” that the exchange plans to launch going forward, and “has been seeing great adoption” since being introduced on May 26 this year.

Similarly, early-stage exchange weTrade, which started operating for users in May, is looking to target new users and investors with rewards for trading in crypto tokens. These rewards include a 1% ‘cashback’ offer every time a user sells tokens on the platform, which covers the TDS charges on it. Users also get 2% cashback every time they buy tokens.

Beyond crypto exchanges, traditional financial services are also joining the fray. For instance, US-based investment company Vested Finance, which provides services in India as well, has introduced an exchange-traded fund (ETF) for Bitcoin. Viram Shah, chief executive of Vested Finance, told Mint that the ETF is designed to help traditional investors to “diversify their portfolio”.

An ETF is a fund operated by an investment firm that invests in a particular asset class – in this case Bitcoin – along with a number of diversifications in the market. “Entering crypto through an ETF works similar to investing in foreign stock markets, and could be safer than directly investing in crypto right now. Investing through this also avoids the need to pay any crypto taxes directly, and the regular rules and taxes of investment, which are clearly defined under law, would apply,” said Shah.

These offerings come to the fold even as daily trading volumes in Indian crypto exchanges fall to new lows – at least over the past two years. According to data from crypto market research firm Crebaco Global, daily trading volume on WazirX, an Indian crypto exchange, fell 82% – from $9.67 million per day at the end of June to $1.76 million on Sunday, three days into the implementation of the TDS rule in India.

Trading volume on CoinDCX fell from $7.79 million per day in June to around $788,000 on Sunday – a 90% decline. On July 4, homegrown exchange Vauld froze withdrawals and deposits, citing financial issues.

These dips are what could affect the industry further, said Sidharth Sogani, chief executive of Crebaco Global. “The industry had already been heavily hit, and liquidity was running low in Indian exchanges. Even with these rewards and schemes, their impact on the market could be limited in the prevalent market conditions, and if trading volumes decline even further in the next week or two, we may actually see one of India’s top five crypto exchanges shutting shop,” he said.