New Delhi, June 9

A significant part of the happenings around Decentralised Finance (DeFi) and cryptos in recent times are not true financial innovation, but more a case of “regulatory arbitrage”, the Chief Economic Advisor V Anantha Nageswaran said on Thursday.

Addressing the Assocham organised India International Fintech Festival,  Nageswaran wondered if innovation such as DeFi and cryptos would thrive in an environment when monetary policies globally are becoming “restrictive” and higher interest rates are available on most traditional instruments. 

Nageswaran asserted that he completely endorses the Reserve Bank of India’s view (as earlier conveyed by Deputy Governor Rabi Shankar) on cryptos. The RBI has been on many occasions expressing its reservations about cryptocurrencies citing a threat to macro economic stability.

The Chief Economic Advisor’s remarks on DeFi and cryptos are significant as it comes at a time when the government is on the verge of finalising a consultation paper on cryptocurrencies with inputs from various stakeholders and institutions , including the World Bank and the International Monetary Fund (IMF).

Later asked if his views on DeFi and cryptos at this fintech event will get reflected in the upcoming Government Consultation paper, Nageswaran indicated to BusinessLine that may be the case. He, however, did not elaborate further as the paper was being firmed up by the Department of Economic Affairs in the Finance Ministry. 


Decentralised Finance (DeFi) is crypto-market-based financial intermediation in which all financial transactions are performed on a computer network without a Central intermediary. DeFi has been growing rapidly, in tandem with the expansion of crypto ecosystem.. 

Operation within DeFi are automated via smart contracts, and all contractual and transaction details are recorded on the network. Decisions such as changes in collateral requirements or distribution of profits are made by users with voting rights, which often accompany use of the platform.

Growth of fintech has accelerated in recent years as has the rise of assets in DeFi, driving growth in stable coins. The major risk to DeFi is that often involves the build up of leverage and is particularly vulnerable to market, liquidity and cyber risks. DeFi activities are so far taking place mainly in crypto asset markets, but they can increase the interconnectedness of crypto investors.

Also, with rapidly increasing adoption of DeFi by institutional investors, the linkages with traditional financial institutions are growing.

Comprehensive study

Nageswaran highlighted the fall in cost of data, increased funding in last four years, democratic dividend and the natural propensity for Indians to innovate as the main growth drivers for fintechs in India. He however called for greater comprehensive study on fintech growth drivers to figure out the relative weight of each of these factors and how they will remain relevant going forward and what we need to replace them to do sustain the growth. The CEA noted that funding may not be prolific and the Demographic dividend that everybody talks about may not continue in the coming years.

India’s fintech market is now valued at $ 31 billion and is expected to touch $ 150 billion by 2025, according to industry estimates.

Global standard-setter

Nageswaran said that India is now well positioned to lead and be the global standard-setter in the area of fintechs.  “We always say India should adapt to global practices, but this ( fintechs) is one area where India offers the best practice to the world. It is not always the case where India is having to take and adapt to the global best practice”, he added.