Decentralised finance (DeFi) is still nascent in India, even among crypto investors and Web3 community members.
A report by dYdX Foundation and GravityX found that on average, the Indian crypto investor allocates just 9.6% of their portfolio to DeFi tokens and protocols such as UNI, AAVE, CAKE, etc.
About 60% of the report’s 1,100+ respondents have a relatively small portion of their portfolio (5%-15%) allocated in DeFi. The rest, comprising more advanced investors and traders, have larger allocations towards DeFi tokens.
The Indian Web3 and crypto community prefers higher allocations for bluechip assets (27.3%) such as BTC, ETH, LTC, and XRP; stablecoins (26.3%) such as USDT, USDC, and DAI; and Layer-1 tokens (26.2%) such as MATIC, SOL, DOT, AVAX, and LUNA.
Users preferred to invest in stablecoins for ease of trading, as a store of value and to hedge against volatility. Their investments in Layer-1 tokens show their belief in the development of blockchain infrastructure.
The global DeFi market cap hovered around $51 billion at the time of writing, as per CoinGecko data, with almost $60 billion in total value locked (TVL). At the same time, the global crypto market cap stood at $1.23 trillion, with a DeFi dominance (vs global) of around 4.2%.
Based on this data, it appears the average Indian crypto investor (with 9.6% of portfolio allocated to DeFi) has invested a higher percentage of their funds into DeFi than the global average.
As such, although still nascent, the rise of DeFi may offer new opportunities for increasing financial inclusion and bringing significant benefits in fast-growing economies such as India.
Self-custody and engagement
The collapse of FTX in late 2022 fuelled the narrative that crypto funds may not be safe in the custody of centralised institutions. A rising preference for self-custodial wallets was expected. In fact, leading self-custodial crypto hardware wallet maker Ledger raised most of its ongoing $109 million round last week.
The lawsuit against Binance, filed by the US Commodity Futures Trading Commission, is another factor driving the self-custody narrative.
However, the dYdX Foundation and GravityX report collected responses before the lawsuit, and while the lawsuit did not influence its respondents, it nevertheless found that Indian crypto investors are showing a high preference for self-custodial wallets.
Around 43% of respondents reported that they use the likes of MetaMask and Trust Wallet, with another 11.1% using cold wallets such as Ledger and Trezor. The data showed the Indian Web3 community wants to take more responsibility for its own assets, with a shift away from third party services.
Centralised exchanges still preferred
A further 30.3% of respondents said they still use custodial wallets or exchanges such as Coinbase, Binance, Kucoin, etc to hold their crypto.
While holding a large sum of crypto assets on a centralised exchange goes against the self-custody narrative, these exchanges remain the easiest way to enter the world of crypto and purchase these assets.
Despite banking infrastructure challenges and lack of payment gateways to facilitate seamless fiat-to-crypto conversions in India, the local Web3 community still prefers to engage with the digital assets ecosystem through centralised exchanges.
High engagement of around 29.1% happens in centralised exchanges, while 24.7% occurs through decentralised exchanges such as Uniswap. nd Arou18.7% of respondents engage with crypto through buying and selling non-fungible tokens (NFTs).
However, the volume and number of transactions through centralised exchanges in India have taken a hit. Approximately 44% of users said they have reduced transactions both on centralised and decentralised platforms after India introduced a 30% income tax on digital asset trading and a 1% tax deducted at source (TDS).