- Go through the terms & conditions of wallet carefully to determine if tokens are held in your name or not
US-based crypto exchange Coinbase Global, Inc. recently stirred up controversy after a regulatory disclosure suggested that investors’ crypto tokens could be lost if the firm were ever to go bankrupt.
Mint reached out to Indian crypto platforms on the investors’ custodial rights over their tokens.
WazirX said its investors will not lose the custody of their tokens, as these are stored in a separate custodial wallet. “We are a transaction execution platform with no control over clients’ assets. Hence, subject to clause 9.2 of the Terms of Service of our platform, investors have exclusive rights, title and ownership of their cryptocurrency,” WazirX said.
Shivam Thakral, CEO, BuyUcoin, and Khaleelulla Baig, co-founder & CEO of Koinbasket, also said that investors on their platforms would have complete ownership and control over assets.
However, platforms such as CoinSwitch Kuber, CoinDCX, Zebpay and Bitbns declined to comment on this.
In traditional asset classes such as stocks or mutual funds (MFs), regulations have come up over time purely from the perspective of investor protection.
However, cryptos are a different ballgame. “They are quite different from other assets, because those (stocks or MFs) have an underlying asset, which produces cash flows. In crypto, it is just pure demand and supply,” said Sandeep Parekh, managing partner, Finsec Law Advisors.
When it comes to the ownership of crypto assets in India, the issue is the regulatory lacuna.
“Some crypto platforms adhere to a degree of bona fide self-regulation. These platforms act in a fiduciary capacity for their customers holding the crypto assets in custody for the customers. Unfortunately, this is not the case in every situation,” said Anupam Shukla, partner at Pioneer Legal, a law firm.
Therefore, in certain cases if the platform or exchange goes bankrupt, customers may be treated as unsecured creditors and will have to make do with whatever they can get from the liquidated assets of the platform.
Globally, in some countries, there is a rule that a custodian, the entity which holds the crypto for investors, has an obligation of trust to the person for whom they are holding the crypto. Those rules have not yet been introduced in India.
In the Indian context, legal experts say it is complicated to determine the ownership of a token. “If the exchange has a wallet, and is owned by an individual, then technically, assets in that wallet are owed to the investor. It actually depends on the terms and conditions of the wallet and whether they are maintained separately or together,” said Mathew Chacko, partner at Spice Route Legal, a law firm.
Experts believe that the relationship between the consumer and the wallet provider, if structured properly, will result in no threat to the tokens. Therefore, investors should go through the terms and conditions of the wallet carefully to determine whether tokens are held in their names or not.
To protect investor interest, experts feel the need of the hour is proper regulation, regulatory authority, code of conduct, KYC rules and the level of disclosures required for crypto exchanges.
In the meantime, legal experts suggest that investors must operate only on extremely reliable crypto platforms. Other indicators of the stability of exchange could be reputable private equity investors who have invested in such a platform. Further, do check if an exchange is voluntarily undertaking self-regulation and following good corporate practices.
Another way to ensure that your crypto is safe is to hold your tokens in personal wallets. “Keep the key with yourself, or use a decentralized non-custodial wallet,” suggested Chacko.
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