Introduction
India has 107 million cryptocurrency users as of 2025 among the world’s largest markets by user count. The WazirX exchange hack of 2024, generating losses exceeding USD 200 million, exposed the scale of Indian retail exposure to digital asset markets and the inadequacy of the prevailing framework. When the Delhi High Court sought regulatory responses from SEBI and the RBI in January 2025 following a public interest petition, the RBI informed the Court that it would not regulate virtual digital asset (VDA) platforms prompting the presiding judge to remark that this was “unfortunate” given the potential systemic risks.[1] This jurisdictional abdication, in the face of a rapidly expanding market and demonstrated consumer harm, is the central legal problem this article addresses.
Stablecoins occupy the most urgent segment of this problem. Unlike volatile crypto-assets, they are designed to maintain a price peg typically to the US dollar through fiat reserves, algorithmic supply adjustment, or crypto-collateralisation. This design makes them attractive as payment instruments and stores of value, but the collapse of TerraUST in 2022 demonstrated their capacity for systemic contagion. India’s absence of stablecoin-specific reserve requirements, disclosure obligations, or redemption standards is, by any comparative standard, an extraordinary omission.
The Current Framework: Taxation Without Regulation
The Finance Act 2022 inserted Sections 115BBH and 194S into the Income Tax Act 1961, introducing a tax framework for Virtual Digital Assets (VDAs). Under Indian law, a VDA broadly refers to a digital representation of value that can be transferred, stored, or traded electronically, including cryptocurrencies, crypto-assets, non-fungible tokens (NFTs), and other specified digital assets, subject to statutory exclusions.
These provisions imposed a flat thirty percent tax on gains arising from the transfer of VDAs without permitting the set-off of losses, along with a one percent Tax Deducted at Source (TDS) on qualifying transfers. Further, the Prevention of Money Laundering Act 2002 was amended in March 2023 to bring VDA service providers within its reporting-entity framework. However, these measures primarily serve fiscal and anti-money laundering objectives rather than investor protection purposes. Stablecoin issuers, for instance, remain outside a dedicated regulatory framework and face no reserve requirements, product disclosure obligations, or client asset segregation standards omissions that would be difficult to imagine for money market funds or deposit products presenting comparable risk profiles to retail investors.
The RBI’s Position and Constitutional Constraints
The RBI has, since 2018, maintained that private cryptocurrencies pose an unacceptable threat to monetary sovereignty. Its April 2018 direction to banks effectively banning the Indian crypto market’s banking access was struck down by the Supreme Court in Internet and Mobile Association of India v Reserve Bank of India (2020) 10 SCC 274 as disproportionate.[2] The Court held that the RBI’s measure failed proportionality because less restrictive alternatives were available; it did not hold that a proportionate regulatory framework would be impermissible.
The constitutional implications are significant. The right to carry on any trade or profession under Article 19(1)(g), read with the proportionality standard articulated in Justice K.S. Puttaswamy v Union of India (2017) 10 SCC 1, forecloses a blanket legislative prohibition unless India’s financial system faces a demonstrable threat that proportionate regulation cannot address.[3] Given that the EU, UK, Singapore, and UAE have all concluded that stablecoins can be regulated rather than prohibited, a blanket Indian ban would face serious constitutional challenge.
The RBI–SEBI Jurisdictional Conflict
From April 2025, SEBI assumed oversight of crypto tokens bearing the characteristics of securities those offering voting rights, dividends, or returns tied to third-party efforts.[4] Bitcoin and Ethereum remained outside SEBI’s remit as digital commodities. Stablecoins occupy an ambiguous position. A fiat-backed stablecoin most closely resembles a commercial bank deposit squarely within the RBI’s purview. An algorithmic stablecoin, whose peg-maintenance mechanism resembles a derivative, plausibly falls within SEBI’s jurisdiction. A crypto-collateralised stablecoin sits between both.
The proposed multi-agency model RBI for monetary instruments, SEBI for security-like tokens, Finance Ministry for taxation has not been formally adopted as of mid-2026. The June 2025 discussion paper proposing a Centralised Authority for Regulated Assets (CARA) remains consultative. In the interim, no regulator has affirmatively asserted comprehensive jurisdiction over stablecoins, no investor protection standards apply, and Indian retail users bear the full risk of market failure without regulatory recourse.
India’s International Obligations
India’s domestic gap must be assessed against its international commitments. The FATF 2021 Guidance on Virtual Assets requires implementing VASPs’ Travel Rule obligations sharing originator and beneficiary information for transfers above USD 1,000.[5] While the 2023 PMLA amendment partially implements FATF standards, the absence of a comprehensive licensing regime means full compliance has not been achieved. More significantly, the IMF–FSB Synthesis Paper of September 2023 explicitly cautions against jurisdictional bans on crypto assets, recommending risk-proportionate regulation.[6] India championed the G20 Global Crypto Roadmap during its 2023 Presidency, advocating coordinated international regulation an advocacy rendered incoherent by its domestic regulatory inaction.
The EU MiCA Framework as Comparative Model
The EU’s Markets in Crypto-Assets Regulation (MiCA) (Regulation (EU) 2023/1114), fully applicable from December 2024, provides the most developed stablecoin framework currently in force.[7] MiCA distinguishes asset-referenced tokens (ARTs), referencing multiple assets, from electronic money tokens (EMTs), referencing a single fiat currency. Both require authorisation, full at-par reserve backing for EMTs, redemption rights, and detailed white paper disclosures. India could adapt this core architecture by requiring fiat-backed stablecoins to register with the RBI, maintain reserves with scheduled commercial banks or in government securities, and publish quarterly reserve attestations. Algorithmic stablecoins whose structural fragility TerraUST demonstrated warrant a higher-risk classification with enhanced capital and disclosure requirements under SEBI oversight.
RECOMMENDATIONS
India requires a three-tier stablecoin regulatory architecture to ensure legal clarity, financial stability, and effective market oversight. The Reserve Bank of India (RBI) should exercise primary jurisdiction over fiat-backed stablecoins through a licensing framework modelled on the European Union’s MiCA Electronic Money Token (EMT) regime. Such a framework should mandate full at-par reserve backing, redemption rights, and compulsory monthly reserve attestations to ensure transparency and consumer protection.
The Securities and Exchange Board of India (SEBI) should assume jurisdiction over crypto-collateralised and algorithmic stablecoins, applying suitably adapted prospectus obligations and disclosure requirements that account for the unique risks associated with such assets. To avoid jurisdictional fragmentation, a statutory inter-regulatory body, such as the proposed Crypto Assets Regulatory Authority (CARA) or an equivalent institution, should be established to resolve regulatory overlaps, maintain a unified registry of issuers, and coordinate India’s implementation of international obligations, including the Financial Action Task Force (FATF) Travel Rule and the G20 Crypto Roadmap.
Further, a dedicated Crypto Assets (Regulation) Bill should provide the statutory basis for this framework. The legislation should also amend the Prevention of Money Laundering Act (PMLA) to bring licensed stablecoin issuers within the complete reporting-entity framework, thereby strengthening compliance and anti-money laundering safeguards.
CONCLUSION
India’s present approach toward stablecoins where they are subject to taxation yet remain outside a comprehensive regulatory framework creates a significant anomaly that generates investor uncertainty, financial stability risks, and inconsistency in international regulatory engagement. The 2020 Supreme Court ruling effectively forecloses extra-statutory prohibitions and underscores the necessity of regulation through a legally established framework rather than executive action alone.
What constitutional principles and regulatory prudence demand is a proportionate and balanced approach that recognises both the legitimate monetary and systemic risks posed by poorly designed stablecoins and the rights of individuals to participate in emerging financial markets and technological innovation. The MiCA framework, suitably adapted to India’s multi-regulator institutional structure, offers a practical and credible model. The principal challenge that remains is not conceptual design but the institutional commitment required for implementation.
Author(s) Name: Chaitanya Jadhav (ILS Law College)
References:
[1] Chambers and Partners, ‘Blockchain 2025 India’ (2025) < https://practiceguides.chambers.com/practice-guides/blockchain-2025/india/trends-and-developments> accessed 5 June 2026.
[2] Internet and Mobile Association of India v Reserve Bank of India (2020) 10 SCC 274.
[3] Justice K S Puttaswamy v Union of India (2017) 10 SCC 1 [310]–[315] (Chandrachud J).
[4] Securities and Exchange Board of India, Discussion Paper on Crypto Regulation and Multi-Agency Framework (2023); from April 2025, SEBI commenced oversight of security-like tokens.
[5] Financial Action Task Force, Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (2021) 78
[6] International Monetary Fund and Financial Stability Board, IMF–FSB Synthesis Paper: Policies for Crypto-Assets (September 2023) 12–17.
[7] Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets [2023] OJ L 150/40 (MiCA), arts 43–55.