Koinex

What did it do?

Koinex was a cryptocurrency exchange where Indian users could buy and sell cryptocurrencies such as Bitcoin, Ethereum, Ripple, Bitcoin Cash and Litecoin for rupees on a single platform. The Mumbai-based company was founded by three graduates of IIT and BITS Pilani.

Why did it shut down?

Koinex went live on 25 August 2017 and in December 2017 received an undisclosed investment from Pantera Capital and Beenext. In April 2018 the Reserve Bank of India instructed banks to stop working with crypto businesses; payment providers then cut off service, bank accounts were closed and transactions were blocked. While legal challenges to the ban dragged on, reports in 2019 of a draft law proposing to ban cryptocurrencies and impose heavy prison sentences frightened users. According to The Block, trading volume, which peaked at $265 million in December 2017, fell below $25 million over the final six months. Koinex permanently halted trading on 27 June 2019 and gave users until 15 July to withdraw their assets.

The story

Koinex was founded in Mumbai in 2017 by IIT graduates Rahul Raj and Rakesh Yadav and BITS Pilani graduate Aditya Naik. Going live on 25 August 2017, the platform let Indian investors buy and sell several cryptocurrencies for rupees in one place. The timing coincided with the peak of worldwide interest in cryptocurrencies. In December 2017 the US-based Pantera Capital and Singapore's Beenext invested in the company, and Koinex soon ranked among the country's largest crypto exchanges.

The turning point came in April 2018. The Reserve Bank of India instructed banks to stop serving individuals and companies dealing in cryptocurrencies. The decision severed the artery through which cash flowed in and out of the exchanges. Payment intermediaries refused service, bank accounts were closed and the accounts holding user deposits were frozen. Legal challenges to the ban dragged on in the Supreme Court. Rival Zebpay halted operations in September 2018, and Coindelta and Coinome in spring 2019.

In 2019 press reports of a draft law proposing to ban cryptocurrencies and impose heavy prison sentences further shook users' confidence, and trading volume fell sharply. CEO Rahul Raj said the past 14 months had been very difficult for trading digital assets in India. On 27 June 2019 Koinex permanently halted trading. Users were given until 15 July to withdraw their assets, and the company announced that rupee balances would be refunded from its own resources, because its bank accounts remained frozen.

As it closed, Koinex reported more than a million registered users and total trading volume of more than $3 billion. Its story shows that even the fastest-growing start-up can lose the ground it stands on through a single regulatory decision.

Lessons for founders

• If you depend entirely on infrastructure that a single regulatory decision can cut off, such as access to banking, prepare alternative payment routes early.
• When growing in an uncertain legal environment, plan in advance how you would return user funds if a ban came; Koinex was forced to commit to paying out rupee balances from its own resources.
• Do not mistake peak volume in a speculative market for lasting demand; build your cost structure around volume in a downturn.

Sources

1. Another Indian Crypto Exchange Shuts Down Blaming Banking Ban (CoinDesk, 2019-06-27)
2. Another top Indian crypto exchange, Koinex, is shutting down amidst regulatory uncertainty (The Block, 2019-06-27)
3. Koinex Exchange Shuts Down Ahead of Crypto Regulation (Bitcoin.com News, 2019-06-28)
4. Multi-cryptrocurrency exchange Koinex founded by IITians raises fund (Entrackr, 2017-12-13)

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