Nischal Shetty, co-founder and chief executive officer of cryptocurreny exchange WazirX, plans to launch Shardeum in the first quarter of next financial year. The Layer-1 (L1) network, which is a sharded blockchain being built from scratch, is being tested at present. Headquartered in Switzerland, Shardeum is also expected to soon close an estimated $20 million-seed round funding from multiple investors within the Web3 and crypto industry at a valuation of about $200 million. In a recent interview in Dubai, Shardeum’s co-founder Nischal Shetty declined to comment on his funding plans for Shardeum or talk about the WazirX-Binance issue. However, he spoke about a host of other issues, including the future of WazirX, the roadmap for Shardeum and his outlook on Web3 and cryptocurrencies. Edited excerpts:
What inspired you to build Shardeum? Does Shardeum have any customers? What’s the target market?
I entered the crypto space in India in 2018 when there were about 5 million crypto users and 7-8 exchanges. People asked me then why I am building another crypto exchange. My answer was that this market is growing rapidly, which is why we launched WazirX. The market grew from 5 million to 25 million in four years. As we were at the forefront, we acquired about 50% of the market, which is about 12 million users. I see these 25 million users (number of users who have interacted with crypto in India in these years) touching about 100 million in 3-4 years, despite all the hurdles.
That said, India has never seen a Layer-1 blockchain as all blockchains have been built outside India by people from outside the country and for users out of the country. A Layer-1 blockchain is where everything starts. In India, a mere 2-3% of crypto users use a blockchain, the rest are on crypto exchanges, which is why the opportunity is huge.
How big is Shardeum? We understand you plan to raise about $20 million to expand this network?
Shardeum has 29 employees who sit across the world, including in places such as India, the US, the UK, and even Brazil. We will first focus on the US and India and then spread to the globe since this is an open-source project. I can’t comment on the funding plans.
How much progress have you made with Shardeum?
People in India want a blockchain that scales and is cheap. No one wants to pay $1 for a transaction. Our aim is to reduce the transaction fee (also known as gas fee) to ₹1-2. Shardeum increases the transactions per second (TPS) and total capacity of the network to scale and ensures low transaction fees even as volumes grow. We do so by adding more nodes (servers). It can process more than a million transactions if needed unlike other blockchains, without raising fees. This has never been done before.
My co-founder and chief technology officer, Omar Syed, began working on this technology in 2017. We plan to launch a full-fledged network in the first quarter of 2023. About 100,000 people have tested the platform (Testnet) and most of them are from India. People are, for instance, sending test tokens to their friends.
Our goal is to have one million users, most of them from India, but we have not set a time for this. We will need about 1,000 developers (for applications).
What's unique about sharding? It's not a new concept...
Sharding (breaking down larger pieces of data into smaller ones that are called ‘shards’ to prevent data overload) as a concept is not new. In 2017, Syed wanted to build a sharded blockchain from scratch and it took him four years. This helps reduce the complexity for users. In Shardeum we will also have a flat fee for users, which will be under one cent. Non-sharded blockchains face a major problem when introducing sharding.
What about WazirX? Who actually runs it now— Binance or you?
I have said whatever is to be said in the public domain and have tweeted about it. I can’t comment on this topic any further. (US-based crypto exchange platform Binance publicly announced that it had acquired WazirX in 2019 but on August 5, its CEO Changpeng Zhao tweeted that his firm does not own Zanmai Labs—the entity operating WazirX. A day later in a series of tweets, Shetty said, “WazirX was acquired by Binance. Zanmai Labs is an India entity owned by me & my co-founders. Zanmai Labs has licence from Binance to operate INR-Crypto pairs...”)
What about the enforcement directorate (ED) raids on the exchange in August?
We have explained our position, are cooperating with the ED, and will continue to provide whatever information they need.
Why did you let go about 40% your workforce at WazirX?
It is a function of what the crypto market is seeing in the context of the macroeconomics, taxation, and regulatory spaces. There will be a few years more of pain. This has prompted us to restructure our firm. This will help us sail through the current rough scenario and emerge stronger.
Given the hurdles you face in the crypto industry, why are you still bullish about cryptocurrencies and the Web3 ecosystem?
In crypto, every year is a year of learning. The last 12 months have shown that the crypto industry has reached a stage where the market is large. However, because you’re in an unregulated space, just being compliant may not be enough for crypto exchanges. Just know your customer or simple anti-money laundering checks won’t be enough. One of our goals is to be one of the most compliant exchanges not only in India but also across the world. Every user in the crypto industry is at the same level unlike the financial industry where a larger user is treated differently in terms of compliance. So, the moment you trade in higher volumes, there will be more compliance like understanding more about the sources of income of our users, and their use. Banks do that all the time. However, we are relatively very young. In 2022, volumes shot up and many different types of users joined our platform, which is necessitating these frameworks.
How many users does WazirX have and what are the trading volumes?
We have more than 12 million users and our volume is in the range of 30-45 million per month compared to 400-500 million per month a few months ago. In 2017-2018, too, volumes had dropped but back then, people said crypto is dead. Now, despite the fall in volumes, people are saying that this is a bear market and will be followed by a bull market, which is a good sign. No one is writing-off crypto now. However, we do need compliance and education for not just users but law enforcement agencies too. We are trying to work harder on that. A bear market is a good time for that. We are also focusing on building a clean ecosystem by encouraging people to build Web3 companies because we have so many startups and developers in this space. I believe we will have more than 10,000 Web3 startups in the next few years, where there is more demand for products than supply.
How do you define Web3? There are many definitions are floating around.
Simply put, anything you build on a public (not private or closed) blockchain is Web3. Even the core of crypto exchanges is not built on a blockchain. They are centralized in the sense that they use blockchain only for processing, deposits and withdrawals. A true Web3 is a token-only project. Within Web3, you can have the metaverse, gaming, and decentralized finance (DeFi).Those are simply flavours of Web3.
How do you view the hype around buzzwords such as the metaverse and Web3?
Everyone wants a pie of the metaverse and Web3. But, then, everyone wants to be an AI-ML company too, and earlier everyone wanted to be a dotcom company too. If you have the data and resources, you can be an AI-ML company but big companies typically win. It is an elitist technology. Blockchain is accessible to everyone. In Web3, some projects will sound good as a concept but may not see the light of day. There are others that are mature and allow gaming companies, for instance, to expand with Web3. DeFi is another example.. It allows you to make it global. Adoption will happen eventually, but till then you will see 5-10 players dominating the show.