How India's Crypto Covid Relief Fund is cashing out amid the country's legal roadblocks

It's the kind of administrative challenge that seems like it could only be real in 2021: What's the best way to quickly turn hundreds of millions of dollars worth of a meme-based cryptocurrency into something that can be used to help people in India recover from the pandemic?

The question became urgent last month after Ethereum creator Vitalik Buterin donated $1 billion worth of Shiba Inu (SHIBA) coins — a Dogecoin copycat — to a fund created to help India fight Covid-19. (How Buterin came into possession of those coins is a whole different story.) 

The price of SHIBA has fallen dramatically since Buterin's donation, and the fund's current value, which includes other coins and tokens as well, is around $375 million. But that's still enough to make a big difference in India — as long as it can be converted into traditional cash. 

Since crypto remains a legal grey area in the country and local banks remain hesitant to service crypto firms, however, that is much easier said than done.

Detour through Dubai 

The India Crypto Covid Relief Fund was launched in late April — about two weeks before Buterin's donation — by Sandeep Nailwal, co-founder of blockchain firm Polygon (formerly Matic Network).

Given India's legal and business challenges, Nailwal decided not to set up an entity there. The government of India has maintained a skeptical stance toward cryptocurrency and has imposed strict anti-money-laundering rules. And banks have been hesitant to do business with crypto firms. 

Nailwal told The Block that if he were to create an Indian entity for the fund, every donor of the fund would have had to go through the KYC process. That was not a feasible option, said Nailwal, because it would have slowed the process of setting up the fund and collecting the money.

Instead, he formed an entity for the fund based in Dubai. Called IN Covid Support FZE LLC, the company was set up within a day and started operating within a week, said Nailwal.

Crypto to fiat 

The Dubai-based entity converts crypto into fiat and then donates to select Indian charities. 

Specifically, IN Covid Support FZE sends crypto to London-based market maker Wintermute, which then sells that crypto and sends stablecoins such as Tether (USDT) back to the Dubai firm. According to Nailwal, the firm wants to onboard GSR as an additional market maker besides Wintermute.

IN Covid Support FZE converts those stablecoins into U.S. dollars via trading firms such as FalconX and PayGlobal. 

In the final step, the Dubai firm then uses FV Bank to wire the dollars to non-governmental organizations (NGOs) that have been approved by India's Foreign Contribution Regulation Act (FCRA).

So far, the Dubai entity has converted more than $275 million of cryptocurrency into USDT and USDC and $34 million into U.S. dollars. It has donated a total of over $13 million thus far to FCRA-approved charities focused on fighting Covid-19.

As of June 16, India had nearly 30 million active cases of the virus, which has killed almost 400,000 people there.

How to spend it

Although establishing an entity in Dubai saved time, the process of donating has still been slow, in large part because of the time it has taken to perform due diligence on the NGOs. That's why such a small fraction of the money has been paid out so far, said Nailwal.

To speed up the disbursement process, the fund is looking to find bigger NGOs to donate larger amounts, said Nailwal, because donating money to numerous small charities and projects is "very hard to do."

However, if the fund is able to find a way to support the vaccination effort in India, it will aim to use all the funds for that cause, said Nailwal. Currently, the government of India does not allow any private entities or NGOs to procure and provide jabs, he said.

If it can't support vaccinations, the fund will focus on addressing shortages of medical equipment. For example, Nailwal said that a doctor told him that out of every 100 oxygen ventilators in India, only two are pediatric ventilators. So the fund will focus on securing pediatric ventilators, he said.

Another option, Nailwal said, is to give the remaining money to the Prime Minister's National Relief Fund. But since that fund is not specific to the Covid relief, the crypto fund's donors are divided on whether to pursue that avenue, he said.

It is also possible that the fund could become a permanent philanthropic organization. To that end, the fund would like to help set up a genomics research institute in India and a specialty care hospital for Covid-related ailments, Nailwal said.

He said it's even a possibility that the fund could use some of the money for yield farming via decentralized finance (DeFi) protocols.

"Let's say $200 million go into a DeFi protocol, which can give us, say 5 to 10% return, which in itself is $5 to $10 million a year," said Nailwal. "And from there, it can keep growing and can become a perpetual kind of help for the Indian community."