The move, lauded online as one of the largest philanthropic gestures during the pandemic, has also triggered confusion in India’s crypto and banking ecosystem.
The catch is that the bulk of this donation is in a meme coin called Shiba Inu (SHIB)—a cryptocurrency named after a dog-themed meme and launched to rival Tesla founder
Elon Musk-endorsed Dogecoin.
Buterin, the 27-year-old creator of Ethereum, transferred 500 Ethereum coins and over 50 trillion SHIB (Shiba Inu) collectively worth $1.14 billion to India’s Covid-Crypto Relief Fund, set up and run by Indian crypto entrepreneur Sandeep Nailwal.
However,
regulatory uncertainty over cryptocurrency in India and the highly volatile nature of the asset has posed questions over how this fund will be used towards the ongoing relief efforts. As soon as the donation was announced, the value of several meme coins plunged.
“The main concern is that the central bank in India is not looking favourably at the use of cryptocurrency. There is no regulation which currently permits its use, keeping banks on the edge on tying up with crypto exchanges,” said a private sector banker.
“A conversion of $1 billion worth cryptocurrency to Indian currency is virtually impossible without the banking system. This much liquidity warrants scrutiny on several counts of FATF regulations,” the official said, requesting anonymity.
Typically, as explained by Nailwal, the India Covid Relief Fund converts its crypto into fiat currency through an entity set up in the United Arab Emirates (UAE), business daily Mint reported. This entity then converts the crypto through various exchanges to a foreign account. The funds are finally sent to Indian NGOs under the Foreign Contribution (Regulation) Amendment Act (FCRA). This is then transferred to Indian vendors who undertake Covid-19 relief operations across the country.
“…We plan to do a thoughtful liquidation to ensure we meet our Covid-19 relief goals. We have decided to convert the donation slowly over a period of time,” the official twitter handle of the fund tweeted on Thursday.
Leading global crypto entrepreneurs and celebrities including Balaji Srinivasan and former Australian cricketer Brett Lee have donated to the fund run by Nailwal.
It maintains a live transaction log of all the donations to ensure transparency.
Another concern is regarding the highly volatile nature of meme coins itself.
The price of Shiba Inu, for instance, crashed by almost 30% after news of Buterin’s donation.
This takes the overall value of Buterin’s donation to around $990 million at the time of filing. According to a crypto trader, the actual value of the donation is “meaningless” due to the fluctuating and unpredictable nature of the currency.
ET reported on Tuesday that Indian banks have been asking partner payment gateways to stop offering services to crypto exchanges and merchants owing to heightened regulatory uncertainty.
Concerns about money laundering, advertisements during the Indian Premier League and increased frenzy among Indian traders for Dogecoin has led to Indian banking regulator unofficially asking banks to enforce stricter restrictions, according to sources in the know.