Ethereum co-founder Vitalik Buterin's $1 billion donation to COVID-19 relief in India came with a catch: Most of it was in the form of the ERC-20 token Shiba Inu (dubbed the "Dogecoin killer"). The donation to CryptoRelief is being termed as one of the largest philanthropic gestures made yet since the beginning of the pandemic.
However, the windfall for the CryptoRelief fund by tech entrepreneur Sandeep Nailwal, comes with a set of legal challenges.
As several crypto experts told THE WEEK, those who would accept crypto payments as donations in India will have a tough time liquidating them. Unless there is an exemption under the Foreign Contribution Regulation Act (FCRA), it would be impossible to utilise this massive fund, meaning it end up being left unused until the regulatory mesh is untangled.
“Under current FCRA regulations, donations by crypto funds are not even recognized. There is no question of transferring crypto directly into a fund unless there is a legal provision to facilitate the transfer," Sharat Chandra, Sharat Chandra, Blockchain expert at the IET Future Tech Panel, told THE WEEK.
"The major challenge would be to liquidate this fund to fiat currency so that NGOs and organizations associated with COVID relief can benefit from it. There are also challenges with respect to LRS (Liberalized Remittance Scheme). LRS has a threshold of $2,50,000 per financial year," he says. Given the size of the fund, it can only be utilised if the LRS limits are relaxed, he adds.
A few experts also felt that the Indian banking system has been ring-fenced from the cryptocurrency and the crypto world so any aid under the crypto remit has to come in as a fiat currency like dollars or euros. As Chandra points out, exchanges in the country have been having a tough time with deposits and withdrawals as all leading banks in the country have left them in a lurch despite the Supreme Court undoing the RBI's ban on financial servcies from trading in cryptocurrencies.
One option is to have the donation or aid be converted into an equipment purchase directly from the donor to avoid any non-compliance issues.
“This has to align with the local Indian regulations and regulatory requirements as any inward remittance comes under Foreign Exchange Control Act—unless it’s a rupee inward remittance from Nepal Or Bahrain. [Only if] the remittance comes [as] a US dollar or fiat currency transaction can the transaction be held as legitimate," points out Sudin Baraokar, Global IT and Innovation Advisor.
Any donation under charity or Grant rules come under regulatory guidelines and must follow the same path as defined by RBI who issue directives to commercial banks. It is still unclear whether the central bank has allowed any crypto currency remittance as of now. So the underlying crypto currency will have to be converted into Fiat Currency and then transferred to the beneficiary bank account,” he adds.
Ostensibly, the benefit of sending crypto as aid relief is that it can bypass traditional banking systems and their limitations, allowing one to send funds directly to the organization working in relief. Through this route, one can donate no matter which country one comes from and will not have to worry about currency conversions, transaction time and approvals. The challenge arises at the point of conversion of funds into fiat currencies.
“To collect and deploy those funds would need regulatory approval under the FCRA Act which wants the identities of aid givers and receivers to be transparent. The aid collected on Sandeep Nailwal's Crypto relief initiative is being deployed to organizations that hold the FCRA Licence and have the approval to receive foreign funding. I am hopeful about the interest and the funds generated through this initiative because of the ease and speed it took for thousands of people across the world to donate their crypto. This can be an opportunity for regulatory bodies and organizations in India to consider crypto as a way to raise funds,” points out Darshan Bathija, CEO of Vauld.
(Transparency Update)— India's Crypto Covid Relief Fund 🇮🇳 (@CryptoRelief_) May 12, 2021
We thank @VitalikButerin for his donation of 50,693,552,078,053 SHIBA to @CryptoRelief_ . We plan to do a thoughtful liquidation to ensure we meet our COVID relief goals.
We have decided to convert the donation slowly over a period of time.
A few crypto experts also note that that the Crypto Relief fund team is comprised of specialists. CryptoRelief had initially have announced that they will liquidate the Shiba Inu tokens slowly to avoid hurting the price or causing harm to the Shiba community.
Thanks Wintermute for the proposal (Linked in thread)!— Sandeep - Polygon(prev Matic Network) (@sandeepnailwal) May 13, 2021
Let's put it to community vote.
AFAIK, Wintermute is a reputed & responsible Market Maker(MM). They work w/ many bluechip projects.
Q : Should @CryptoRelief_ align Wintermute to handle $SHIB donated by @VitalikButerin?
As of writing, they are considering taking the help of market maker Wintermute in liquidating their SHIBA INU assets.
Since the fund is registered on the blockchain, its transactions are visible to everyone. You can see the transaction between Butarin and the fund here.
Indian NGOs, however, are still reluctant to accept crypto payments directly.
“We have found in the past that Indian NGOs are still reluctant to accept crypto directly. This is due to the regulatory uncertainty that also makes banks nervous. The fund team has said that for now, they are handling the crypto-to-fiat conversions themselves and then donating in rupees to FCRA-certified NGOs. One can see those donations on their website,” says Avinash Shekhar, Co-CEO of ZebPay.
For those who believe in the vision of cryptocurrencies, they are determined to press on with using it as a mode of relief for India's COVID-19 situation. Shekhar says his company is one out of many that will be holding an online COVID relief fundraising event on May 22. With it, they hope to raise even more funds that will go directly to the NGOs.
“It certainly shows anyone, including Indian regulators, that the crypto community in India and worldwide is full of compassionate and generous people and that those people are also committed to transparency and honest accounting. Those are qualities the law should support and encourage,” says Shekhar.