Indian crypto and blockchain startups are reimagining how the web works

Regulatory nervousness could slightly ease on the face of SaaS, gaming, social media applications based on crypto

What economic activities are cryptocurrencies backed by? This question has been the single biggest refrain among crypto naysayers over the past decade – be it regulators around the world or veteran investors like Warren Buffett. 

But that may be changing soon. A new wave of crypto startups are now building out the infrastructure of Web3, an internet which they say will be as big a departure as it was between Web1 – the static web pages of the 1990s – and Web2 – when social networks and mobile apps came about. 

More importantly, a slew of Indian startups like Biconomy, Polygon, EPNS, Persistence, Vauld among others, have caught on to the idea and are working to put together the technological building blocks to make Web3’s mass adoption a reality. 

What is the attraction for them? The Web3 world is envisioned as a decentralised internet which is permissionless and democratic. For example, in such a world, a social media platform like Twitter would not be able to censor posts and Facebook would not be able to maintain a database of billions of users that can be potentially used to influence elections.

However, the startups are not biting more than they can chew at this point. Take for instance, Mumbai-based EPNS (Ethereum Push Notification Service) which claims to be the first communication layer built for Web3. “While most websites and apps have notification systems to alert users, a similar tool has been missing for blockchain-based decentralised applications,” said Harsh Rajat, founder of EPNS.

At present, EPNS is being tested in the alpha mode and will be launched in the Ethereum blockchain for wide usage in 2-3 weeks. The notification tool is already being used by around 40 blockchain companies across the world, boasting of familiar names in the crypto world like Polygon, Uniswap and Gitcoin. 

“Notifications are just the start. In the future, we plan to get into other services like messaging and decentralised video platforms,” said Rajat. The startup has raised $1.6 million in seed funding from the likes of crypto evangelist and former Coinbase executive Balaji Srinivasan and noted Silicon Valley angel investor Naval Ravikant.

Biconomy is another crypto startup with big ambitions. With a funding round of $9 million raised from US-based listed crypto unicorn Coinbase, Bain Capital and others, the company is building SaaS (software as a service products) for blockchain startups.

One of the major pain points for any crypto-based application user is to go through a process that might be as long as 20 steps and paying a fee called ‘gas’ that changes depending on the volume of traffic. However, this is in stark contrast to the current version of the web – it is most often the service providers like Facebook, Netflix, Amazon who pay the cloud computing fees on behalf of the users. 

Aniket Jindal, cofounder of Biconomy, said: “This was a major missing piece in driving adoption among new users who may not have a deep understanding of crypto or are not ready to go through the hassles.” 

Banking on this thesis, the startup came up with a product called Gasless, which enables payments by a dApp developer on behalf of users. Biconomy also provides software bridges called APIs (application programming interfaces) and software development toolkits to blockchain startups. It currently has 80 crypto companies as its customers and sells its software products on a monthly subscription basis for fees that can range from $150 to $300.

Another blockchain startup called Polygon, founded in 2017, made crypto billionaires of co-founders Jaynti Kanani, Sandeep Nailwal and Anurag Arjun in May this year when its native crypto token’s market capitalisation hit $14 billion. The startup aims to solve pain points associated with blockchains like high gas fees and slow speeds, and claims to have more than 3,000 blockchain applications already using its software development kits.

But it was not easy in the initial days as the RBI had banned banks from allowing crypto-related transactions in 2018. That order was overturned by the Supreme Court in early 2020.

“Developers were afraid of legal hassles. You see, we are a tech platform, and we don’t build apps ourselves. People build apps on top of our platform. Community building is thus very important. We did a lot of hackathons in India – in the past two years, we must have done 200-300 hackathons in colleges and other places. We use India as a strength rather than a weakness,” Polygon co-founder Sandeep Nailwal earlier told Mint.

The road ahead

The regulatory uncertainty surrounding crypto in India has meant that venture capital investors have largely stayed away from betting on crypto startups. Although crypto exchanges like CoinSwitch Kuber and CoinDCX have got a fresh lease of life following the apex court’s order last year and attracted unicorn funding rounds on the back of a rush of new users, there have been hardly any early stage funding.

However, this situation is bound to change over the next one year or so, according to Nischal Shetty, CEO and founder of crypto trading platform WazirX. He said: “In 2017, India had around 5 million crypto users. That number has shot up to 20 million now. Even if 5-10 per cent of the total user base adopts a dapp, that means a good 1-2 million users. This is another reason that you will see more startups working in the Web3 space getting funded.”

“VCs are currently looking at blockchain startups that can act as a bridge between Web2 and Web3 platforms. They are also slowly warming up to the idea that these startups do not offer equity in the traditional sense of the term, but instead offer their native crypto tokens in return for investments,” said Shetty.

Short video platform Chingari went through this transition recently when it shifted from a Web2 model of incentives for content creators to a Web3 model. The startup raised over $19 million in October that will help it build its token called '$GARI' on the Solana blockchain. Some of the 30 crypto firms that participated in the Chingari funding round include Republic Crypto, Galaxy Digital, Alameda Research, Solana Capital, Valor Equity Partners and others.

Ashish Fafadia, partner at VC firm Blume Ventures which was one of the early backers of Chingari, told Business Standard: “The creator ecosystem is going to thrive in a model like Chingari’s. The crypto token route will ensure that every stakeholder has an upside as the platform grows.”

He said that the VC firm believes in the promise of crypto and blockchain products and has started accepting pitches from such startups focussed on use-cases like payments, both on companies catering to B2B and B2C users. “There is more clarity needed around regulations from governments globally including India, which could be a make or break moment for the industry. There is still some nervousness and skepticism in the VC community, but broadly there is interest,” he added.