After WazirX: The Rise of "Made-in-India" Crypto Custody

The Enforcement Directorate’s 2022 freeze of ₹64 crore in WazirX bank balances, followed by months of wallet-outflow scrutiny, jolted India’s exchanges into a new obsession: professional-grade custody and public proof-of-reserve statements. Two years on, a small but growing custody industry—designed, hosted and (crucially) insured inside India—has begun to take shape.

What triggered the pivot

• Regulatory freeze, not a hack. In August 2022 the ED invoked the Prevention of Money Laundering Act against WazirX, immobilising bank accounts worth about US $8 million and citing KYC lapses. Funds were released in December that year, but the episode highlighted single-point banking risk for every Indian exchange.
• Global contagion fears. The FTX collapse in November 2022 wiped out retail balances worldwide. Indian platforms saw a 50–70 % slump in rupee deposits over the next two months, according to CoinGecko’s India Exchange Report Q1 2023. Investors began demanding on-shore storage and real-time solvency proofs, not offshore omnibus wallets.

New home-grown custody rails

CoinDCX Cold+ (launched Oct 2024).
India’s largest exchange by reported volume integrated Fireblocks’ multi-party computation engine into a Mumbai data-centre tier, certified under ISO 27001. The firm publishes a Merkle-tree proof-of-reserve every 30 days and claims 95 % of client assets now sit in segregated cold wallets.

KoineArth “nSmarte Custody” (announced Feb 2025).
Gurugram-based KoineArth—better known for supply-chain NFTs—spun up an institutional-only vault that combines Ledger Enterprise hardware with on-chain policy controls. The product targets CFOs of Web3 start-ups who cannot open accounts with foreign providers because of outbound-remittance caps.

SafeVault by Unocoin (beta Apr 2025).
Unocoin re-architected its long-running multi-sig solution as a white-label custody stack for regional exchanges. A partnership with New India Assurance offers a ₹100-crore crime-bond policy, underwritten only if the exchange streams a live wallet-balance API to the insurer’s risk desk. New India confirmed the first such policy in a May 2025 filing to IRDAI.

Proof-of-reserve dashboards. ZebPay, BitBNS and CoinSwitch now post SHA-256 Merkle roots of asset addresses, attested by a Big Four auditor, every quarter. While not a guarantee against fraudulent liabilities, the disclosures exceed anything seen before 2023.

The insurance angle—an Indian first

In December 2024 the Insurance Regulatory and Development Authority of India (IRDAI) issued a circular permitting crime-bond policies for “digital-asset custodians” if the provider can demonstrate cold-wallet segregation and multi-sig access controls. Two state-run insurers and one private consortium have since written pilot policies; premiums fall by up to 30 % when the exchange supplies real-time reserve feeds.

Remaining pain points

• Banking access. Public-sector banks still decline operating accounts marked “crypto,” citing RBI cautionary letters. Most custodians rely on private lenders or NBFCs, which limits scale.
• Tax friction. Depositors who migrate coins into institutional cold storage trigger 1 % TDS if any token swap occurs during the move; exchanges lobby for a waiver to encourage safer parking.
• Clarity on staking. The Finance Act 2024 left unanswered whether staked coins sitting in a custody vault count as “income.” Custodians currently block staking on client assets to avoid accidental tax events.
  
  

How India compares with global peers

India is still behind Dubai on formal licensing but ahead of many jurisdictions on public reserve proofs, thanks to a market-driven reputational push.

Outlook

The Ministry of Finance has floated, but not yet tabled, a 2026 “Virtual Digital Assets and Token Services Bill.” A leaked February draft proposes tiered custody licences under SEBI for exchanges above ₹1,000-crore asset thresholds. If enacted, local custodians with production track records and insurance lines will be first in line for permits.

Until that rulebook is final, the pragmatic playbook is clear: keep the headquarters in Dubai or Singapore for regulatory certainty, but store the keys—and the code—inside India’s new custody vaults. Two years after the WazirX freeze, “Made-in-India” security has become a selling point, not a compromise.