enforcement directorate, decentralised exchange, launch, wazirx, Ed, found itself in the crosshair, show-cause notice, reported

India’s largest cryptocurrency exchange by volume, WazirX, is on an advanced stage to launch a decentralised exchange of its own, cofounder Nischal Shetty said.

Unlike a centralised setup, where an exchange is the custodian of a customer’s cryptocurrency and controls who can or cannot open an account on it, a decentralised exchange operates without an intermediary organisation for clearing transactions. The trades are executed on self-executing smart contracts.

It is like building software where peer-to-peer crypto trades can be facilitated, Shetty told ET.

The decentralised exchange is currently undergoing tests and will be launched next month.

“Because a DEX (decentralised exchange) does not own the data, even the authorities can't really go to the developer of the exchange and say I want the data,” Shetty said, adding that the data is available on the blockchain for everyone to see.

This development comes as WazirX, has found itself in the crosshair with the authorities in India.

The Enforcement Directorate (ED) had issued a show-cause notice to WazirX in June asking the exchange to explain transactions worth Rs 2,790.74 crore on account of foreign exchange rules violations. The exchange is believed to be preparing a response to the federal agency that probes money laundering.

Several legal and industry experts ET spoke to said decentralised exchanges are less cumbersome legally and provide greater transparency and control to crypto holders. There are less chances of hacking and price manipulation, they added.

Mathew Chacko, a partner at Spice Route Legal, said a decentralised exchange could face fewer risks from regulatory authorities. “From a global legal perspective, decentralised exchanges are seen as less of a legal problem than centralised exchanges. India, unfortunately, does not have any of this nuance in the law.”

Chacko said while the creator of a decentralised exchange can still be called upon for questioning by central authorities and regulators, “there are more grounds to claim mitigation”.

“The advantage is nobody can control your crypto. In most cases, it is one step more difficult for regulators to stop decentralised exchanges because they are owned by communities and not a small group of individuals,” said Akshay Aggarwal, President at Blockchained India, a blockchain focused talent network.

A decentralised exchange can be used by anyone in the world and does not require a user to undergo any identification checks like ‘Know Your Customer’. Essentially, users go on the platform to conduct peer-to-peer transactions and hold the crypto on their private wallets.

ET reported earlier this month that the ED had asked WazirX to explain why “withdrawal from crypto wallets” was not a violation of India’s foreign exchange regulations.

Shetty said a growing number of its 7.5 million users are interested in trading on a decentralised exchange.

There are several dozen decentralised exchanges worldwide, like Uniswap, Sushiswap and MDEX, according to crypto tracking website coinmarketcap.com.

“We know we can provide something which is more unique to a set of customers, especially those who probably use our product already but are looking for decentralisation and have to go to a different brand,” said Shetty.

Currently, there are no laws in India governing cryptocurrency, including centralised or decentralised exchanges. There is no indication on when the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 will be tabled. This Bill, in its current form, is expected to criminalise not only trading but also the holding of cryptocurrency assets.

Salman Waris, managing partner at TechLegis Advocates & Solicitors, said the Bill which applies to all cryptocurrency “is very vague”.

“Cryptocurrencies and its various use cases aren’t defined properly in the Bill. It is unclear in the Bill what virtual currencies are and their different types. Hence the current situation is fluid,” he said.

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