If college dropouts can bloom into tech tsars, ambitious teenagers with their derring-do can also take a shot at redefining entrepreneurial success. A year after he finished school, Sowmay Jain nursed an ambition of becoming a chartered accountant but opted out and so did his brother Samyak Jain, then a first-year computer science student. With a shared passion for finance and a firm belief in the power of the internet, both as their tutor and as a medium to leverage someday, they found themselves in Bengaluru at a hackathon in August 2018. It was ETHIndia which is a leading Ethereum event for developers to develop a product in a couple of days. Ethereum, very loosely, is a blockchain-based software platform with its coin – ether – like bitcoin. Ethereum is also defined as a platform for “smart contracts” where business rules come encapsulated with the software.
A beginning made
The hackathon turned out to be a defining moment for the Jain brothers. They came up with their hack – Instadapp (‘insta’, a commonly used prefix in cyberspace that charmed them and dapp for ‘decentralised’ App). They were talking of the world of Decentralised finance (or DeFi, in quick speak) – a blockchain-based finance platform that allows people to lend and borrow funds from others or even earn interest in savings-like accounts. “For us, it all started just as a hobby but then we pursued it, and at the hackathon emerged winners,” says Sowmay Jain. Thereafter, he says, “we kept on developing Instadapp, adding new features and solving more problems in decentralised financing” and there was the proverbial ‘no looking back’. By September 2019, the Jain brothers jolted many in their field by managing to raise $2.4 million in a funding round (in dollars, Sowmay Jain insists) led by Pantera Capital. And, while speaking to Financial Express Online, Jain, also adds, “we have just closed another round of funding where we are raising a much higher amount, details of which I still cannot share.” The initial round of funds, he says, were used for hiring talent and the latest round of fundraising is also for “expanding the in-house engineering team but also,” he says, “to provide grants to developers building on top of our platform.”
The business model
On their business model and as to how they earn revenue, he says: “Instadapp’s revenue model will be to deduct fees on financial volumes and lending/borrowing happening through the platform.” But then, he is also quick to clarify: “Right now everything is free for users. We have plans to launch our own tokens / DAO in the coming weeks and decide on the fees.” DAO in simple lingo is a Decentralised Autonomous Organisation that avoids the need for an intermediary (human intervention) by encapsulating the rules of transaction in the software and is governed by computer code and programs.
Growth & girth
Ask Jain about their current size and operations and he quotes DeFi Pulse, which tracks and shares details on who is leading in the decentralised finance space: “According to DeFi Pulse, Instadapp is the 7th largest entity in the DeFi space globally with $4.5 billion worth of assets blocked in smart contracts on blockchain” that, he says, allows people to lend, borrow, trade cryptocurrencies or earn interest in savings-like accounts that come with high returns and high risks too.
Regulatory challenges
But then, there are impediments too. The regulatory landscape is still not clear in India on this. Jain says: “Right now, it is hard to convert rupees into crypto due to the prevailing regulations.” Banks, he says, are blocking accounts associated with crypto and therefore feels, “if the government can make it easy to convert rupees to crypto and crypto to rupees, that will be a big relief.”
But then, with the proposed regulations on cryptocurrency – how will an app like Instadapp enable easy swap transactions with fiat currency – converting rupees to crypto & vice-versa?
Jain’s explanation is: “We provide foundational DeFi integration. Other services can plug in without infrastructure and can provide their own system on top of it. For example, exchanges can provide fiat-on-ramp (a platform that allows a person to convert fiat money like say dollars or any other paper money issued by a government) and allow their user to use Instadapp for DeFi operations.”
But then, no regulation is complete without a share in the pie for the government and therefore the question of taxation becomes crucial. So, how do the two brothers see investments in crypto being taxed if it’s decentralized? Is it at the point of withdrawal or converting to fiat? To this, Sowmay Jain says: “As with all other investment options, crypto should also be taxed as an investment (capital gain tax). It can happen at the time profits are booked (that is at the time of selling). Rest, every individual is responsible for declaring their crypto holdings.”
Remote working
At the moment, what also seems to work for the two brothers is that their venture is quite suited for remote working, crucial in these times of the coronavirus pandemic. While, they have incorporated Instadapp in Delaware, USA, after having started out in Hyderabad and today have a team of 25 people – all are operating remotely. Most have been hired over Twitter based on an assessment of “their work, talent and not degrees,” says Sowmay Jain, 23. Ask him about the profile of Instadapp users and he says: “These are mostly high network clients and include funds, high net worth individuals, and even institutes.”
