May 22 marks Bitcoin Pizza Day. Sixteen years ago this day, a programmer in Florida paid 10,000 Bitcoin for two pizzas in what became the first real-world crypto transaction. What was then a curiosity is today a USD 1 trillion-plus asset class.
This year the focus is on how major markets are now trying to regulate an asset class that has already gone global. In this conversation with ETLegalWorld’s Manashvi Tripathi, Mudrex founder Edul Patel says the US CLARITY Act is a clear step toward regulatory certainty, while India’s current tax structure is pushing users to offshore platforms and leaving compliant exchanges at a disadvantage. He makes the case for a proper VDA framework, lower TDS, and a regulatory approach that brings activity back onshore instead of driving it away.
Manashvi Tripathi: How are you reading the recent US CLARITY Act? In simple terms, what is it trying to do for crypto? From a founder’s perspective, why do you think clearer rules for crypto are becoming so important globally right now?
Edul Patel: The CLARITY Act is the most consequential piece of crypto legislation to emerge from the United States because it replaces ambiguity with architecture. In simple terms, it draws a clear line between digital commodities and digital securities, assigns formal jurisdiction to the CFTC for spot commodity markets, and creates registration and compliance frameworks for exchanges, brokers, and dealers. It tells the market what are the rules, who enforces them, and what you need to do to operate legitimately.
For years, the absence of a clear framework was itself the biggest risk in the room. Retail investors couldn’t be sure of the protections they were entitled to. Institutions couldn’t commit capital at scale without compliance pathways. And exchanges operating in good faith had no way to distinguish themselves from bad actors in the eyes of regulators. Regulation by enforcement, the model the US SEC largely followed until recently, punishes the ecosystem as a whole and creates a chilling effect on genuine innovation.
The CLARITY Act shifts the conversation from “should crypto exist?” to “how should crypto operate?” That is a fundamental reset to which markets have responded positively. Institutional inflows into crypto ETFs have been sustained across multiple consecutive weeks. The broader global shift towards regulatory clarity reflects the fact that crypto has scaled past the point where it can be ignored.
Manashvi Tripathi: How are global regulatory moves like the CLARITY Act influencing your product roadmap as an Indian exchange?
Edul Patel: When regulatory clarity improves in a major jurisdiction, it sends a product signal, not just a policy signal. It tells you which use cases are now viable, which partnerships are now possible, and which user expectations are about to shift. The CLARITY Act, alongside the GENIUS Act for stablecoins, is doing exactly that.
At Mudrex, we have been building in a few specific directions that are directly shaped by these global developments. We have been deepening our compliance and reporting infrastructure in anticipation of India eventually formalising its own VDA framework. The updated FIU-IND crypto guidelines and India’s decision to align with the OECD’s CARF shows that we are moving in the right direction. We wanted to build for a future where compliance is table stakes.
Manashvi Tripathi: How are Indian investors on Mudrex reacting to this mix of domestic tax friction and clearer regimes emerging in the US and EU, are you seeing capital or activity shift offshore?
Edul Patel: The data is difficult to look at and not find concerning. Across the domestic crypto industry, nearly 73% of Indian trading volumes have migrated to offshore platforms. That is a structural consequence of a tax regime that makes active participation on domestic, compliant platforms commercially unviable for many retail investors.
The 1% TDS on every transaction is levied on gross transaction value, not on profit, meaning an investor who makes no money still has capital locked with the government until it is adjusted or refunded at the end of the year. This compounds across multiple transactions into a meaningful liquidity drag. Combined with the 30% flat capital gains tax and the inability to offset losses against gains, the current structure penalises activity rather than outcomes. The predictable result is that users migrate to platforms where these frictions do not exist.
People who would otherwise be operating on regulated domestic exchanges and contributing to tax visibility, are disproportionately moving offshore. This is the paradox the current regime has created. It was designed to track crypto activity and generate tax revenue, but its structure has pushed a large share of that activity to jurisdictions where Indian regulators have no visibility at all. The regulatory contrast with the US and EU is making this worse because they can now clearly see what a well-functioning, investor-protective crypto regime looks like. India deserves one too.
Manashvi Tripathi: For markets like India that are still debating their stance on rupee-linked stablecoins, what lessons should regulators draw from the US GENIUS and CLARITY Act debates before designing their own rules?
Edul Patel: The US arrived at the GENIUS Act or the CLARITY Act by engaging seriously with the technology and the market over several years, understanding what stablecoins actually do, where the risks sit, and where the opportunities lie. India should resist the pressure to either rush a framework or postpone the conversation indefinitely. The window for India to shape its own rules is open, but it is narrowing fast.
The US separated the stablecoin conversation from the broader digital asset classification conversation. The GENIUS Act addresses payment stablecoins specifically, while the CLARITY Act addresses the wider commodity versus security question. India may benefit from a similar sequencing by beginning with cross-border stablecoin flows, where the use case is clearest and the domestic payment infrastructure is already strong, rather than trying to design a comprehensive VDA framework all at once.
While India debates whether stablecoins are necessary given UPI’s success, $320 billion in global stablecoin volume is building user habits, technical standards, and settlement rails that will be very hard to dislodge later. UPI is a remarkable story precisely because India built the rails before foreign payment networks could capture the market and then dictate the terms. The opportunity to do the same with blockchain-based payments is closing fast. India did not wait for Visa or Mastercard to define digital payments in this country. It should not wait for dollar-denominated stablecoin infrastructure to define the next generation either.
Manashvi Tripathi: A parliamentary panel has called the flow of “thousands of crores” into cryptocurrencies “alarming” and wants taxes on such transactions to continue while it studies global models. How do you respond to this concern, and what safeguards or policy changes would you propose?
Edul Patel: The parliamentary panel’s concerns are valid, but the diagnosis must lead to the right prescription. Capital is flowing offshore not because Indians want to evade oversight, but because the current tax regime makes investing and trading on domestic platforms commercially unviable. Punitive taxation does not eliminate crypto activity, it simply pushes it beyond India’s regulatory reach, which is precisely the opposite of what the committee’s stated concerns demand.
The risks the committee has flagged, including capital flight, tax leakage, and investor protection gaps are real. But they are most acute on offshore, unregulated platforms, not on compliant domestic ones.
The solution is to bring users back onshore, not to tighten conditions further on the exchanges that are already operating transparently. The policy prescription should have three components:
First, reducing the TDS from 1% to 0.01% would maintain transaction traceability while dramatically reducing the liquidity drag that is currently pushing users offshore. And allowing loss offsetting against gains would align crypto with how every other investment class is taxed in India.
Second, a comprehensive VDA framework with legal recognition for digital assets as a distinct asset class, clear licensing standards, and market-conduct norms would give compliant platforms a defined operating environment and give regulators real enforcement levers against bad actors.
Third, the absence of a formalised grievance redressal mechanism leaves millions of Indian investors exposed to harm by non-compliant actors. That gap needs to close.
The committee is right to study global models. What those models consistently show is that bringing crypto onshore through proportional regulation generates more tax revenue, more investor protection, and more regulatory visibility than punitive structures that drive activity to offshore platforms. India should draw the same conclusion.
Manashvi Tripathi: You were one of the first to get FIU registration and are now positioning Mudrex as ‘India’s safest crypto app’, what concrete change has that made to user behaviour and institutional partnerships?
Edul Patel: On user behaviour, the most notable shift has been in the composition of who chooses Mudrex and how they invest. We see a high share of long-term, systematic investors running crypto SIPs, building positions through market cycles rather than chasing short-term gains. The type of investor who chooses a regulated, compliant platform tends to be someone who has thought about risk, who values the ability to access tax reports, reconcile transactions accurately, and trust that their funds are in a safe environment.
In 2025, our institutional activity grew roughly 25–30% year-on-year. Institutions will not partner with a platform that is not compliant. FIU compliance and our investment in AML, KYC, and transaction monitoring infrastructure have opened doors that would otherwise have been closed. The ability to show a credible compliance trail matters enormously when you are in conversations with banks, payment partners, or global institutional counterparts.
Manashvi Tripathi: In FY 2024–25, 49 crypto exchanges registered with FIU-IND as reporting entities, while penalties of around INR 28 crore were imposed on non-compliant platforms. As a registered exchange, what has been your biggest learning from this phase of enforcement-led compliance, and what still worries you about regulatory ambiguity?
Edul Patel: The biggest learning from this phase is that compliance is not a ceiling that constrains innovation but a floor that makes sustainable innovation possible. The FIU-IND guidelines, particularly the updated framework around AML, CFT, Travel Rules, and transaction monitoring, have strengthened the industry’s foundations.
For platforms that were already building responsibly, it was largely a formalisation of existing practice. For others, it was a forcing function. The enforcement actions against non-compliant platforms have been important. They signal to users that there is a meaningful distinction between operating on a registered, compliant exchange and operating on a platform that has chosen to sidestep accountability. Over ₹51,000 crore in tracked crypto transactions and over ₹1,000 crore in TDS collected since 2022 tell you that India’s crypto economy is capable of being monitored. Enforcement-led compliance has started to draw that line more clearly.
What still worries me is the gap between what is being enforced and what is actually defined. We know what we are required to report, but we do not yet have legal recognition of VDAs as a distinct asset class, a clear licensing regime for exchanges, or defined market-conduct norms.
The compliance obligations are formalising, but the legal and operational rights of compliant platforms remain ambiguous. There is still no independent grievance redressal mechanism or ombudsman. There are still no clear rules around custody standards or capital adequacy for crypto platforms. And the uneven enforcement between domestic registered exchanges and offshore platforms that continue to serve Indian users creates a competitive imbalance that ultimately hurts the compliant ecosystem.
The enforcement phase has been necessary. But it needs to be paired with a comprehensive VDA policy framework that gives compliant operators the legal clarity to build for the long term, and gives investors the formal protections they deserve.
Manashvi Tripathi: Over the coming years, which combination of regulatory, market, and technology trends do you think will matter most for the crypto exchange business model?
Edul Patel: Three trends stand out, and I think they will define not just who survives in this industry but who leads it.
The first is regulatory convergence. The CLARITY Act, MiCA, the GENIUS Act, and similar frameworks are creating the conditions for a globally interoperable regulatory architecture for crypto for the first time. For exchanges, this means the compliance bar will continue to rise, but the addressable market will also expand as institutional capital gains viable pathways. Exchanges that have invested in compliance infrastructure early will be structurally advantaged. Those that have not will face a difficult and expensive catch-up.
The second is the institutionalisation of crypto as an asset class. We are past the inflection point. Spot Bitcoin ETFs are managing over $100 billion, sovereign funds and pension funds now hold Bitcoin as reserves, and corporate treasuries using stablecoins for cross-border settlements. These are structural shifts. For the exchange business model, this means the product requirements will evolve significantly, requiring institutional grade custody standards, execution quality, reporting depth, risk management tooling. Exchanges that remain primarily retail-focused without building for institutional participation will find themselves left behind as the capital flows in that direction.
The third trend is the convergence of AI and crypto infrastructure. We are already seeing this play out on both the product and the operational side. On the product side, AI-powered contextual intelligence is making crypto more accessible and less intimidating for retail investors. On the operational side, AI-driven fraud detection, anomaly monitoring, and risk management are becoming essential for platforms that want to operate securely at scale. And further out, the emergence of agentic AI systems that can transact autonomously will require crypto infrastructure. Agent services like programmable money, borderless settlement, and frictionless micropayments are things blockchain is architecturally suited for in ways that traditional payment rails are not.
For India specifically, the single biggest variable remains regulatory clarity. All three of these trends create enormous opportunities for Indian exchanges, Indian investors, and Indian entrepreneurs, but only if the policy framework evolves to match the market’s maturity.
