Hi everyone and welcome to another episode of Living on Blockchain. Today we are speaking to Avinash. Avinash has co-founded Taxnodes.
He’s also today exclusively he spoke about Pi42, a perpetual futures trading exchange that he has co-founded with Nishal Shetty and the like. So this was very interesting because we talked about future trading, options trading, how they have the first future with the INR pair for crypto and we dealt a lot with taxation considering his background as a chartered accountant. So this is an interesting conversation if you’re a trader, do tune in.
Hi Avinash, thank you so much for making the time to speak to us again today. How are you doing? Yeah, I’m doing great. I think I hope you’re also doing well, really honored to be here in this podcast.
Yeah, I’m also very grateful that you could make the time and you know I’m very excited about what you’re building with Pi42. But just to give our listeners a little bit of context, we had dealt with your background and how you got into Web3 when we had initially spoken to you a few months earlier. But I would love for you to tell us in your own words about how your journey has been so far in the crypto and Web3 space and what led you to co-found Pi42.
Yeah, so I’m an accountant, I’m a chartered accountant actually. So finance, typically finance background from last almost 25 years. My crypto journey started in 2017, mid of 2017, basically, when I joined Zapier, which was the biggest crypto exchange at that point of time as a CFO.
And since then, obviously, I have grown a lot as an individual, really learned a lot in Web3 space. At the same time, roller coaster ride, basically, ups and downs, crypto crisis. I think two, three times already crypto has been declared dead since then.
Regulatory challenges in India, regulatory challenges, bank challenges. So I think seen a lot in last seven years, approximately, in crypto space. And my current project.
So, so basically, the way it started was that 2022, when the government introduced, like a punitive crypto taxation, and we can go into details. Since then, it has become more and more difficult for Indian residents to participate in crypto ecosystem. Yeah.
Okay. And so we found a way that and obviously, we are expecting there is another bull run into crypto, especially Bitcoin. So, so how do we enable Indian residents to participate in that? And that’s where we found, we founded Pi42, where we basically what we do is that we enable customers to participate in crypto ecosystem in a tax compliant, tax efficient and compliant way.
And we’ll obviously go into details of all these. What does it mean tax efficient? And what does it mean? What does compliant mean? But that’s the idea. Right.
So the inception of this particular project happened during, you know, as you said, when the government had brought in these almost prohibitive taxation, which kind of, in a way, alienates Indians from really dealing with crypto, because it is prohibitive to the point that it is punitive in nature. What is your perspective there? And what kind of change would you like to see? And how does perhaps your platform help its potential user? Yeah. So yeah, so first thing is that, and this has actually this we have been discussing with the government at various level is that the taxation is really punitive.
And the result of that or the basically what government had in mind in terms of what the end objective is, that end objective is also not getting fulfilled because of this. Okay. So number one, I said that it’s very high, which is especially the 1% TDS.
So there are three parts to the taxation. One is 1% TDS, which basically means that every transaction in crypto spot you do, you have to pay 1% TDS. And if it is crypto to crypto, then you have to pay 2% TDS because both the parties or transactions are in a way sellers.
Okay. Second, so that means if you’re, if you’re a trader, basically, and you are trading 10 times in a day, that means your 10% of the capital is got in a way. And in two, three weeks, your entire capital is locked up in TDS, which you can supposedly get back after 18 months of basically.
The second part is around setting off of the losses are not allowed, not allowed. Okay. Which basically means is that if you have, let’s say a hundred dollars of profit in one transaction and $80 of loss in another transaction, you still have to pay 30% tax on the entire hundred dollars.
That means your tax liability becomes $30. So in a way, although you made the overall profit after taxation, you have profit by $10. Okay.
Which is again, not in line with the, the normal practice basically. And you can’t expect a trader to basically have a profit on every day. And third part is this 30% taxation.
Okay. So you have to pay 30% flat tax, irrespective of your tax bracket. Even if you’re in 10% bracket, you have to pay 30% tax.
So these three things combined discourages traders to trade on trading crypto. Okay. Which maybe was one of the objective of the government, but the thing is that because crypto is such that you can go to international exchanges and trade there, where all these things are not applicable.
Okay. So actually 1% TDS is not applicable. 30% tax and set up of losses is not allowed.
It’s still applicable, but 1% TDS is not applicable. So it in a way encourages or incentivize people to go outside to international exchanges, which has their own challenges, both from a compliance point of view, from a risk point of view. Okay.
So, so Indians are in a way still trading on crypto, but they’re not trading on Indian exchanges, which are more compliant, which are registered with FIU, which the founders are sitting in India. So, so legal resource recourse or a moral recourse, if anything goes wrong is available. All these things are not available if you go international exchanges.
So, so that is the, I think overall, overall scenarios as far as taxation is concerned. Right. So that, that is, it is a very dismal picture that, you know, we have in front of us and how does PI42 really help your, the potential user like in, in this aspect or what exactly led you from, you know, probably grappling with this particular dismal reality that we have in front of us to the founding of PI42.
Yeah. So this actually, I said that, that this was in my mind from a very long time, since like 2000, mid of 2022, when these taxation laws came. Okay.
And then over the period of time, I realized two, three things. Number one is that these taxation, punitive taxation is not applicable on crypto derivatives. Okay.
It is applicable on spot, but it is not applicable on derivatives. Okay. So that was one that if you are trading in futures, crypto futures, what you have to understand is that income tax law is a very, very technical law.
Okay. Right. So you have to interpret it technically.
And especially when I was doing the, my last venture tax notes, I went into really, really in depth in terms of taxation. Okay. So, so then I realized that these laws are not applicable on derivatives.
That is one. Second is that as a market, as a maturity, because in any market, any market starts with the spot. Okay.
Whether it’s share market, then there’s some of the traders, they basically graduate or migrate from spot to futures market. Okay. And that again, we realized that that is that growth or that migration.
India is, Indian customers are, I think, ready for that. Trading in futures. So, and the third thing was that in terms of compliance, I said that, that the users, it’s better to, for them or better for my ecosystem point of view, both from a compliance point of view, from a customer protection point of view, that the customer are able to get a opportunity to trade in India, rather than having to go to international exchanges.
So, so, so keeping all these things in mind, we launched Pi42 where, and we started with the, as I said, that derivative, crypto derivative, which is perpetual futures, which is where you don’t have to pay 1% TDS. Taxation, I mean, you still have to pay normal taxation. If you’re making money, you have to pay tax basically.
B, you don’t have to go to international exchanges and C, now from a government point of view, at least from a, for example, FIU PMLA point of view, in a way government has started regulating or at least addressing some of the concerns around money laundering. Okay. So, so to that extent, it is more compliant.
So yeah, so that is, I think that is our proposition as of now, basically. Right. So can you tell me a little about the platform itself and how can perhaps somebody get involved in this perpetual trading? Then we can perhaps touch upon the compliance aspect as well.
Yes, sure. So basically, if you’re a, if you’re a customer, if you’re an Indian resident, you can, step one, you can like sign up on 542 with your email ID and phone number. You complete your KYC.
Okay. And then you link your bank account with 542. Once this is done, then you’re ready.
Basically, you can send INR from your bank account to 542 and start trading. So let’s say you, you, you sent 5,000 rupees from our bank account to 542 account. Now you have 5,000 rupees in your bank, in your 542 account.
You can let’s say buy BTC INR long. So basically, which basically means that you’re buying Bitcoin long, you can go short also, you can go long also. And let’s say you have gone long at Bitcoin being 55 lakh rupees.
And let’s say you’ve purchased one Bitcoin, 0.1 Bitcoin. So that means your exposure is 5,50,000 rupees. Bitcoin price goes up from 55 lakh to 60, 60 lakh rupees.
That means at 0.1 Bitcoin, you have made a 50,000 rupees profit. Okay. That you can close the position and then the money is added in your wallet, which you can withdraw in your bank account.
Similarly, you can go short. Basically, you can opt for leverage from 1x to 20x. So in a way, let’s say if you’re going with 1x leverage, in a way it is mimicking spot.
Okay. With the additional benefit of from a taxation benefit. So you can go 1x, 2x up to 20x based on your risk profile, basically.
And yeah, that’s it. So you can innovate trade as if you’re doing your normal trading, but in futures. Okay.
Right. So would you recommend that somebody who’s perhaps not done this before to try out the platform, do you have any resources on the platform to help, say, a noob trader? Or would you say that this is more for, you know, people who have done this before, who are perhaps good at, you know, timing the market, so to say, and then be using this product? So basically, the thing is that two, three kinds of users. Number one is that users who have already traded in crypto before, they understand crypto.
Okay. They are migrating or they used to trade in spot now they want to trade on futures. Okay, so that is one.
So we have obviously resources available for what is future trading, how the leverage works. Okay. And what we encourage users is to take less leverage in those cases.
If you’re not done future trading, trade at 1x or 2x leverage rather than 20x leverage. So we have resources around this future trading and assuming you already know crypto. Second kind of users obviously are who are totally new into crypto.
Okay. So there again, also we have programs or we have resources where they can understand what is crypto. We again, we recommend that they start with Bitcoin Ether rather than going into altcoins.
Okay. So those are the users which are maybe you are in the stock market, trading in stock market, they want to trade in crypto now. So again, you start with blue chip kind of those kind of we also do city meetups.
Okay, we have a like we have a team and I also go frequently in those meetups where we meet local traders, local customers, current customers and potential customers discuss about crypto discuss about trading. Okay, the idea is that to make it as safe as possible for the customers. So I think every month we have almost every week we have like a like a city wise meetup where we go and meet people.
So we are in a way obviously, there is a long way to go. But we are making a significant effort in terms of educating people both in terms of opportunity, but and also the risks. So, you know, there are resources, the platform is user friendly, as you’ve mentioned, if you had to explain, perhaps one or mention one USB that sets you apart from other crypto exchanges in India, what would it be? So I think what we have the product which we have brought is, is that we have brought it futures but INR futures, okay.
So because people were traditionally used to basically buy and sell Bitcoin in INR. So they are more comfortable with INR. So we are I think the only exchange in India or in the world basically, which offers perpetual futures in Indian rupees, basically, so you can, you don’t need to buy a BTC USDT perpetual future, you can buy a BTC INR perpetual future.
So that so in this manner, you don’t need to touch USDT which was that against its own challenge. And what we are realizing is many people are comfortable dealing trading in INR rather than USDT. Right.
So, in terms of like compliance of future trading does fall under SEBI, does it not? No, it doesn’t. It doesn’t. So basically, there is no policy.
So there are no policy framework. So crypto regulation itself is like, as of now, if you look at there, it’s a long way to go. Government is still debating whether RBI should regulate SEBI should regulate, who should be the regulator or there should be a third, there is a specific crypto related regulator.
Okay, so all those things are not there as of now, basically. But at the same time, there are certain aspects where we have on the regulatory side, we have made progress, which is, for example, almost a slightly more than a year back, government said that crypto exchanges, whether futures crypto exchanges or spot, they have to, they will be treated as a reporting entity under Prevention of Money Laundering Act, which basically means is that they have to put certain compliance mechanism in place, including monitoring anti money laundering, basically tools, and KYC tools, basically, some of these were earlier there, some of these were not there. So we have to implement that we have to implement go and register with FIU Financial Intelligence Unit.
And we have to basically monitor and report if we see any suspicious transactions. Okay. So this has made in a way, the crypto ecosystem in India much more safer from a customer protection point of view from making sure that crypto is not used for illegal activities.
So that in a way is a very big step. But in terms of regulator, I think, I think still some time for that. Right.
So I meant like future option trading and derivative trading in the normal sense is a regulated by CB. So you know, obviously, for the crypto aspect, there are, as you said, it’s a work in progress with the policy. So it’s a little bit dynamic, perhaps in nature, which is absolutely fine.
But your take is that this does not fall under the ambit of the existing guidelines or the policies that do that, that are present in India, vis-a-vis SEBI and, you know, INR futures. Yeah, that’s it. Okay.
So how does Pai42 handle the set off of trading losses? And can you also talk a little about the, you know, the tax efficiency aspect, like you’ve touched upon it, that how the tax, which is applicable on trades is not really applicable here, because this is a perpetual futures exchange. But if you could elaborate a little on both of this, the tax efficiency and trading loss, that’d be wonderful. Yeah, sure.
So basically, I’ll tell you first is what is the normal law under income tax? Okay. So normal income tax law, if you’re doing a trading or anything, you can set off the losses, okay, because if let’s say in one trade, you have a profit, another trade you have a loss, you pay tax on the net amount, not on the gross amount. Okay.
Similarly, under the normal income tax law, there are slabs, there are 20%, 10%, 20%, 30%. So you pay your income tax as per the slab in which you are, if you’re an individual, basically. Okay.
And third is that withholding tax or the TDS is applicable only in cases where we just specify in the law, every transaction you do doesn’t, doesn’t involve TDS. For example, if you’re doing stock trading, there is no TDS there, although there are some security tax, which is not applicable for crypto, but there is no TDS. So those are the normal laws, what government said that, okay, for crypto spot, they brought certain specific laws, saying that irrespective of what is the normal law, these are certain specific laws, they said that if you’re doing crypto spot trading, there is 1% TDS on every transaction, set of losses are not allowed.
And you have to pay 30% flat tax. Okay. Now, these three specific laws are applicable for spot trading, they’re not applicable for futures, which basically means is that if you’re doing trading, if you’re doing crypto trading in futures, then your 1% TDS is not applicable.
Okay. Your set of losses are allowed. That means again, if you’re doing trade and one day there is a loss, second day there is a profit, you can net off and pay tax on the net amount.
And third is that 30% flat tax is not applicable, doesn’t mean the tax is not applicable. 30% flat tax is not applicable. If you’re in 30% bracket, you have to pay 30% tax.
If you’re in 20% bracket, you have to pay 20% tax. Okay. So in a way, what we’re saying is that if you’re trading in crypto derivatives, then you pay normal tax, not the specific tax which are applicable for crypto spot trading.
Okay. All right. Okay.
That’s an interesting perspective. So can you also tell us a little about what is your kind of perspective here about the future of perpetual trading or futures or option trading in India vis-a-vis crypto? Yeah. So there are two parts to it.
One is that obviously from a trading mature, I mean, how do the traders mature in any market? Right. I mean, it’s more from a business point of view. So that I think I see an accelerated growth from two points of view.
One is that crypto adoption in India itself is very, very high. Okay. It’s one of the highest in the world.
Okay. And even in the stock market, if you look good, there’s a large presence or large number of people who trade futures and options. Okay.
So these two indicators and third is that obviously, because in the spot, there are issues around taxation. Okay. So these three things I think leads to the prediction or the hope that the crypto futures market in India will mature or will grow very, very fast.
All these things, I think, will push it in the right direction. Right. And because, you know, the environment for day-to-day trading as it is, is very, very prohibitive.
Users would be pushed more in this direction. Yeah. What are the kind of challenges that you faced by launching Pi42? And can you tell us a little about the challenges themselves and how you overcome them? Yeah.
So basically, I think normal challenges, one is that regulation in India is still evolving around crypto, although we are going into the right direction, but it’s still evolving. Still things which you have to figure out in a way that what is the right course of action, you know, basically. So that is one part that the regulations are still evolving.
Second is that I think banking remains a challenge. Okay. So banking support remains a challenge across the sector.
It was a challenge, I think, 2017, it’s a challenge right now. So I think these two are major concerns. I said that regulation on the regulation side, I think overall, we are moving in the right direction, although a little bit slow.
We are hoping that maybe next one or two years, we should reach a situation where there are full-fledged regulations around crypto in India. Right. So how do you, and this is something that, you know, I kind of ask a lot of the guests who are in favor of regulation as well as are proponents of decentralization, which you are, you do believe, you know, a lot in terms of, you’ve been a strong advocate for open source permissionless and decentralized P2P technology.
How do you, you know, align these two value systems together, decentralization as well as a regulatory framework? Yeah. Yeah. So basic thing is that, as in everything, I think we have to, we have to look for a path, which is, I mean, for me, I think decentralized technologies are most democratic technology, basically.
Okay. And that is the future. And although we deal in like crypto assets, but that’s only one part of it.
I think the other part is where we on a day to whatever we are using on a day to day basis, social media, other services, how we can decentralize those. Okay. So that is, I think, from a technological point of view, from a moral point of view, I think that’s the, that is the future.
That is the direction where I see everyone going. Okay. Having said that, I think government has certain legitimate concerns.
Okay. And any technology, any new technology has to also in some way address those legitimate concerns, which is, for example, customer protection being one. Second is, how do we ensure that the decentralized technologies are not used for illegal activities like terrorism financing or money laundering? Okay.
So those are certain legitimate concern. I’m sure, I think the way we are moving, we, I mean, both the government and the industry should be able to find a path, which is, which makes sure that decentralized technologies move in the right direction in from a technology point of view, and whatever, and we take the maximum benefit out of it. At the same time, ensuring that whatever the concerns of the regulators are or the government is incorporated, I’m sure like from a technological point of view, also, there may be solutions coming in, for example, decentralized identity, being one of them, where you take care of the or you ensure privacy and permissionlessness.
At the same time, you also ensure that legitimate concern of the regulators are taken care of. Okay. So you feel that, you know, these two can live together and perhaps thrive for the end user to really be able to utilize Web3 properly.
And that is a wonderful perspective to have. Now, I would love to understand from you, what is perhaps the next big milestone for PI42? What is it that you’re trying to look at when it comes to expansion? Are you thinking of horizontal or vertical expansion? Can you tell us a little about that? Yeah, yeah. So basically, I think one, number one is that we’ll actually expand our product from a product point of view.
Okay. So for example, right now, we have crypto-INR pairs. We’ll also launch crypto-to-crypto pairs.
Okay. We’ll also move into, which may take some time, is to become a full-fledged exchange and launch spot, okay, spot exchange.
So from a product line point of view, we want to expand. Second is, I think next few years is the right time where what’s happening is that jurisdictions or countries across the world, they are coming up with regulations around comprehensive regulations around crypto. Okay.
So the idea is A, to work with Indian government and B, at the same time, try to expand wherever there are regulatory clarity, go there, apply for the license, launch in their jurisdiction. So basically, the idea is to expand in a more compliant way and try to take Web3 technologies to masses, not only in India, but across the globe. All right.
That sounds like quite a wonderful plan and a lot of exciting developments in the future. Is there any particular timeline that you have in mind for these developments? So the product, right now, at least for next one year, our focus is going to be in India only. So from a product point of view, I think crypto-to-crypto, we should launch end July, beginning of August kind of timeline.
Spot exchange may take like four or five months. So I think before end of this year, we should, we’ll target to launch spot exchange. As far as international expansions are concerned, I think that may take like second half of 2025 to start.
Okay. Can you tell us a little about the kind of traction that you have seen on Pi42 so far? So I think, so we launched in February. So almost like taking four months, kind of.
So we already have around, I think, 17-18,000 customers with us. So we’re seeing very healthy app downloads and on the web. So we’re really seeing like a good engagement and it’s like growing month on month.
We can be like literally seeing day-to-day growth here. Okay. Brilliant.
So you also have another venture called Taxnodes. Can you, would you like to talk to us a little about that and how is that doing? What is the next big thing for Taxnodes? So Taxnodes side, basically what is happening is that, so Taxnodes is basically helping Indian customers to comply with the tax laws in India, which is, as you know, is very, very, it’s fairly complicated, so to say. So I think it’s running, it’s going like a steady kind of business and there basically what is happening is that the compliance level, which we thought will significantly go up from a customer point of view, that has not happened as yet.
That has still like a large number of people are not in a way totally disclosing their crypto income. So that I think from a growth point of view, it’s going to be like a slow and steady kind of business where as the compliance level goes up slowly, that business, Taxnodes will be ready to help those customers to be compliant. But I think that’s a slow and steady growth.
Okay. So is it like a self-service platform or is it more like a service model where the user has to get in touch with you and somebody from your team would help them with their compliance issues? So actually it’s both. Mostly it’s self-service.
Okay. But in certain complicated cases, or if they have to file their income tax return, okay, they can also ask for help. Okay.
So large number of cases, self-service. But if it’s like complicated, they can set up a call with us or ask for our help. All right.
Okay. So now, we’re kind of running a little short on time and I would love to zoom out a little bit and get your perspective in the industry as a whole. You’ve been working in this space for nearly a better part of a decade.
And what is your perspective on just the general maturity or the general majority of the ecosystem that you’ve seen so far? Yeah. So basically, I think two, three things. One is that obviously a lot more people know and understand about crypto than when I started in 2017.
Okay. I think from that point of view, I read somewhere that Web3 or crypto is growing faster than internet adoption. Yeah.
Web3 adoption is actually faster than internet adoption. Yes. And I think one of the reasons for that is, so we have to look at from two points of view.
One is that people putting money in crypto, buying Bitcoin. I think more important than that is people who are contributing in the ecosystem, in the sense, writing codes, promoting crypto. And that adoption has significantly increased because, again, it’s a decentralized technology.
You don’t need to join Microsoft or Google or a big company to be able to contribute in Web3 space. If you have a laptop, you don’t have to code, you can actually start contributing. So that has, in a way, led to very, very inclusive growth.
And because everyone can participate, it has like, from a speed point of view and from a quality point of view, it has really, really helped the ecosystem. I think this will continue. And adoption level will become more fast, I think, in the next few years.
Another thing is that if you notice that this is like one of, I don’t think there is any other asset class, so to say, where in a way the retail guys came first. They supported, they grew the ecosystem and the institutions are coming now, basically. Last one or two years, especially the institutional participation has gone up.
So from that point of view also, it is from a financial point of view, it’s like it is incentivizing the retail guys, it is incentivizing in a decentralized way. It is not that there is one or two companies sitting on the top and they are taking all the economic benefit of this new technology and the asset class. It’s much more distributed that way also.
So I think these things will, I mean, personally, I am very, very optimistic in terms of decentralized technology is becoming very, very big and very, very fast. Great. In terms of the bull run and basically in terms of the market, some people say that we are already in a bull run and some people say that it’s still going to happen.
But what are the kind of niches do you think that would do well in this coming bull cycle? And what would be your advice to entrepreneurs who are building in Web3? So I think two, three things. One is that, I mean, I think there are two parts to it. One is Bitcoin Ether, which are already becoming big.
So if you’re from an investment point of view, especially if you’re a new person, then I think you should start with there. If you are an entrepreneur building in Web3 space, I think the time for this becoming rich overnight kind of has gone. Okay.
Right. You have to consider this as a startup. Okay.
If you’re building a new project, if you’re building anything in a decentralized manner, you have to consider your startup, work very hard, bring value to the customers. Okay. So you have to do it in at least in that manner.
You have to go in traditional way that create value and then you’ll be rewarded. I mean, you can’t have situations or at least that’s not recommended that you hope that you launch some crypto, some coin and it will overnight become very big and then you can basically cash in. That’s not the way to participate in the Web3 ecosystem, basically.
Right. And what about the niches, according to you, that would do really well in the upcoming bull run? So I think I don’t know, I mean, project specific, but I think niches which will create like real-world solutions, for example, you’re talking about tokenization of real-world assets or for example, projects in let’s say communication or social media kind of areas or for example, projects which are in a way promoting let’s say commercialization or like what you call it, monetization of web technologies, where you are actually giving some service in a decentralized way. Right.
Okay, so basically utility products with a certain utility, solving a real problem for the end user as well as real-world asset tokenization is what you’re bullish on for the next cycle and that’s wonderful to know. So I mean, this has been a really wonderful conversation and you’ve given suggestions as well for entrepreneurs to build and start living on blockchain in the true sense of the word. Before we wrap this up, any parting thoughts? Yeah, I think so.
First of all, thanks. Thanks, Trosha. Thanks for giving me this opportunity.
As I said, my belief is that the decentralized networks are the future. Whatever we can do in a centralized manner, I think a large number of those things can be done in a decentralized way. And that is the future because it not only helps the creators, it also helps the user.
I mean, in essence, if you are the user, then you are not only using it, you are in a way participating in the economic benefit of that technology. Right. That is absolutely true.
I think decentralization is very pertinent, especially in various sectors. I think all sectors, mostly because centralization of power, centralization of anything can be risky and it does lead to some level of corruption or the other. And decentralized technologies will have a huge part to play in the coming tech era.
And I think we are both on the same page there. And I would definitely encourage listeners who are still sitting on the fence thinking whether they need to perhaps really get their hands dirty, look into Web3, to really consider looking into Web3. Because, A, it’s not just for the nerds and the people who are very big techies.
It can be for everybody. And like Avinash said, it’s going to be the technology of the future. So thank you once again, Avinash, for taking out the time to speak to me today, to speak to me about Pi42.
I think as a user myself, I can really vouch for how user-friendly the entire interface is and how perhaps, you know, with the kind of resources that you’ve mentioned, even beginners can perhaps start looking at perpetual trading as a viable option. So thank you so much once again. Thanks.
Thanks, Tarusha. Thanks. Really appreciate it.