'Bharat Web3', promote decentralised finance for user-centric services: Dilip Chenoy

Web3 and decentralisation: Being a digital hub makes India’s role vital for building a global consensus on regulation of decentralised technology. Decentralised finance (DeFi) market, grew with a market size of $13.61 billion in 2022, as per DeFi Technology Adoption Index. India's distinction of achieving the highest level of adopting DeFi, and being second globally in terms of decentralised exchange transaction (DEX) volume is led by the objective to become a leading financial services economy. The country also stands fourth in the use of lending protocols and smart contracts. 

Will this momentum continue to help country's DEX CAGR to reach 46 per cent by 2030? In an exclusive interview with Republic Business, Dilip Chenoy, Chairman, Bharat Web3 Association, a collaboration of leading Web3 technology companies, said Bharat Web3 aims to lead country's financial decentralisation, a movement similar to Nasscom's role in the Information Technology sector.  

Decentralised finance  

Almost two decades ago, one of the crucial steps in the direction of financial inclusion was the Banking Correspondent concept introduced by the Government of India, with an objective to address the country's credit gap. The last decade has seen technology drive microfinance. Now, with Web 3 offering a multidimensional scope and 800-900 startups having mushroomed in India’s Web3 space, Chenoy believes that use of technology will help fill the credit gap in country's lending space. 

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"The traditional money lenders would usually charge high interest rates and availability of easy finance has been a concern area. The concept of DeFi creates local solutions to problem problems and allows open access to services such as saving, lending, borrowing, and exchange of virtual digital assets (VDAs ) without traditional intermediaries, and will continue to innovate with new financial products and services, which could lead to more efficient and accessible financial markets,” says Chenoy .  

As per Chenoy, DeFi is set to transform the banking landscape, helping to bridge the massive credit gap in the country.  “It will also help scale up payments faster, cheaper and more efficiently and help banks streamline their KYC process,” said Chenoy. He said DeFi has the potential to impact the future of finance, particularly as technology evolves and consumer demands change. “However, its scale and speed of adoption will depend on various factors, including technological advancements, regulatory approaches, and the ability to address its inherent risks and challenges,” he added. 

From Web1 to Web 3  

Chenoy recollected that bulk of country’s population at present, may not vividly remember the evolution of Web 1, which empowered people with “read and write only”. He said the present era of Web 2 is more interactive, which involves user data being controlled by big tech companies. Web3 is set to see the unprecedented decentralisation of data, Chenoy added. 

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“DeFi is the next stage of financial innovation, and is helping enable new business models through accessibility, tokenisation of assets, and programmable smart contracts,” said the Bharat Web3 Chairman. A significant growth has been witnessed in the Web 3 ecosystem, with 800-900 startups having forayed into the space. Drawing parallels to Web 1.0 and Web 2.0 eras, Chenoy underlined the transformative nature of Web 3, where users move from passive consumption to active participation.

In the context of Web3 applications, Chenoy referred to a Bengaluru-based platform, illustrating how it differs from the traditional Web2 services. Notably, Web3 enables users to be compensated for activities such as reading news, disrupting the traditional content creation and distribution model, he said. “The elimination of intermediaries empowers content creators, a paradigm shift that aligns with the ethos of decentralisation,” the Bharat Web3 Chairman said. 

Regulatory mechanism 

Discussing the regulatory landscape for Web3, Chenoy pointed out a national-level framework involving centralised exchanges complying with the Prevention of Money Laundering Act (PMLA) and cybersecurity regulations. He highlighted the role of states like Telangana and Maharashtra for addressing user-centric services with new-age technology. Chenoy emphased the need for a cross-border regulatory mechanism in the global context, highlighting roadmap of the International Monetary Fund (IMF). 

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Chenoy delved into the roots of Web3, acknowledging Bitcoin as the pioneer in introducing blockchain technology. He noted the evolving nature of Bitcoin and highlighted regulatory developments in countries like Indonesia and Japan. Tokenisation of real-world assets, valued is valued at $15 trillion, a significant aspect with vast applications in finance.

DeFi has an immense potential of projecting a market worth $13 billion by 2032. Reaffirming the opportunity for developing innovative products and services in this domain, emphasising the potential to address credit gaps and transform traditional lending practices. “The concept of tokenising assets emerged as a key theme, with implications for creating virtual digital assets without intermediaries. The Web3 ecosystem in the Indian landscape is evolving at an unprecedented pace. Over the past few years, the sector has witnessed several developments with respect to formal regulation,” Chenoy said. 

Web3 is an umbrella term used for a group of technologies that encompasses several components including blockchain, smart contracts, virtual digital assets (such as tokens, non-fungible tokens (NFTs) and DeFi, Chenoy said. “In Web1, we were only able to read data shared by certain companies. There was not much beyond what one could do besides read the data that was shared by these technology companies,” the veteran industry leader said.  

Bharat Web3 purview   

As Web3 is still an evolving space, there are certainly several major challenges that are likely to come up in framing regulations for decentralised businesses, Chenoy said. He said the decentralized and borderless nature of Web3 makes it a “difficult beast to handle” for regulators. 

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“As these businesses are decentralised, having an international regulatory framework in place is extremely important. However, with the publishing of the IMF-FSB synthesis paper, and a global effort to build consensus on VDA’s as part of the G20, there has been major progress on this front,” he added. 

As per Chenoy, the pace of technological change in the decentralised space is rapid, and ever-evolving, with a newer set of use cases and challenges. He said this also poses a significant challenge to regulators. 

In terms of innovation and consumer protection, Chenoy said regulators around the world are also grappling with the issue of coming out with regulations that protect the interests of consumers while also not hindering innovation in the Web3 space, said Chenoy. However, several regulators have managed to strike a balance between the two. This includes the EU MiCA which has been praised by the industry and consumers alike, and serves as a good example for Indian regulators when they plan to frame regulations for the sector, said Chenoy, who has also been instrumental in country's skill development initiative.