In today’s Finshots, we tell you why India is now rooting for its own stablecoin.

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Now, on to today’s story.

The Story

India and the crypto world are like frenemies. The government, the central bank, and the regulators have made it pretty clear that they’re not exactly crypto’s biggest fans. Yet, they don’t want to see the space spiral out of control either. So, they keep it on a tight leash with hefty taxes and strict rules.

But in a sudden plot twist, Polygon, one of the biggest names in the blockchain world and Anq, a homegrown fintech startup, have joined hands to build what could be India’s very own stablecoin. They’re calling it, the Asset Reserve Certificate (ARC), at least for now.

That naturally makes you ask, if Indian regulators have always kept crypto at arm’s length, why this sudden warmth toward something like a stablecoin?

Well, first things first, India’s relationship with the cryptoverse is something it might not want to build but is forced to, given everything happening in this space. And stablecoins are one such relationship.

To understand why, you’ll first need a quick refresher on what stablecoins are. But if you already know what they are and don’t need this, you can skip the italicised bits and jump to the paragraph after it.

So imagine now that you’re really eager to invest in a cryptocurrency. Let’s just assume it’s Bitcoin.

Bitcoin is basically a decentralised digital currency, meaning no regulator or government controls it. It’s a limited pool of digital coins that need to be “mined” by miners who solve complex mathematical puzzles to validate and record transactions on the Bitcoin blockchain.

If that sounded complicated, you can understand it in depth in a series we did here, or just think of it this way. Bitcoin isn’t just a currency, it’s a network that allows people to transfer value securely without relying on a bank or government.

However, Bitcoin prices are highly volatile because they depend purely on market demand and speculation. It can surge today and crash tomorrow, which means if you use Bitcoin for everyday transactions like buying groceries, a kilo of potatoes could cost ₹30 today, ₹300 tomorrow, and ₹20 the next. That’s impractical.

And that’s exactly why the crypto world came up with something else — stablecoins! These are digital tokens that keep all the benefits of crypto (like fast, cost-effective transfers and blockchain-based transparency) but are far more stable in value.

Stablecoins get their value by tying, or “pegging”, themselves to something steady like a government currency (say the rupee or US dollar) or even a commodity like gold.

Take USDT (Tether), for instance. One USDT is meant to always equal one US dollar. It works on the simple premise that for every 1 USDT issued, the company behind it (Tether) keeps $1 in reserve, either in cash or in safe assets like US Treasury bills. So, if you give them $100, you get 100 USDT. Return those 100 USDT, and you get $100 back. That’s how the price stays stable, because it’s backed by real money.

It’s also a great way to transfer money across borders without a traditional intermediary like a bank. It’s faster and cheaper. That’s why a growing share of remittances from Indians working abroad, as well as Indian traders operating overseas, are now moving to stablecoins.

But here’s the thing. The global stablecoin market is worth about $250 billion, and over 98% of it is dollar-based! Two coins, USDT and USDC (issued by Circle), dominate this space, simply because the US dollar is the world’s preferred reserve currency, and these coins are backed by US government securities, which are among the safest assets out there.

But again, over 80% of stablecoin transactions happen outside the US, and a big chunk of that comes from… wait for it… India.

Yup! Unofficial estimates say that India has over 314 million stablecoin users, the most in the world. Plus, nearly 60% of Indians’ foreign exchange conversions are now into stablecoins. And that’s not just because they’re cheap, but also because of something we didn’t tell you earlier — the sweet lure of arbitrage.

See, despite being pegged to something like the dollar, stablecoins are freely tradable on crypto exchanges. Their price can move slightly based on market demand and supply, but not by much, because remember, they’re backed by real assets.

The stability also comes from what happens when the value of one stablecoin goes above $1, say, $1.05. That means people are paying too much for it. So traders step in and think, “Wait, I can make a profit here.” They buy new stablecoins directly from the issuing company at $1, then sell them on exchanges for $1.05. That way, they make five cents per coin. And when more traders do this, supply increases and the price naturally falls back to $1.

Now, because of these trade mechanics, USDT normally trades at a 4–5% premium in India. It’s simply because Indian rules make it tricky to directly deposit or withdraw rupees from crypto exchanges through banks. Which means, less USDT comes into India through legal channels. So, when a lot of people want to buy USDT but only a small supply is available, prices go up. And, during this time, when you want to send money home from abroad, if $1 = ₹88 officially, USDT might sell for ₹91–₹92 here, which means the folks back in India receive more rupees.

This is one reason people love using stablecoins. But since, as we said, most of them are dollar-backed, it means the money essentially flows out of India and strengthens the dollar system more than the rupee system.

And that’s exactly what Polygon and Anq want to change. Their plan is to keep the value tied to India’s own government-backed assets, specifically government securities and Treasury bills (T-bills). That way, they hit two birds with one stone. Indian money stays within the country, boosting liquidity and strengthening India’s government securities market.

But that’s not the only reason behind the move. Across Asia, countries are building their own currency-backed stablecoins. Just recently, Japan launched a pilot for yen-backed stablecoins to reduce its dependence on dollar-based ones. India probably feels the need to do the same because staying on the sidelines could mean falling behind.

Still, there’s a catch. Dollar-backed stablecoins have already earned a reputation for being safer and easier to trade. So, even if India rolls out its own version, how quickly demand will pick up is anyone’s guess.

Then there’s still the regulatory grey area around digital assets. If India greenlights stablecoins, private companies might start issuing their own versions, creating parallel payment systems outside traditional banking rails. This has been tried before, but most of those efforts and stablecoin projects fizzled out due to a lack of clear reserve backing, uncertain redemption guarantees, and, more importantly, the absence of a defined regulatory framework.

But if these guardrails eventually come into place and stablecoins gain wider adoption, there’s a risk they could start challenging the government’s control over the monetary system and financial stability.

In fact, China faced something similar recently. Regulators there stopped firms like Ant Group and JD.com from launching stablecoins, even after passing a new law to regulate them.

India could take a cue from that. Before unlocking the full potential of ARC or any rupee-backed stablecoin, it’ll need clear rules around the broader crypto ecosystem. Because without that, the promise of innovation may just hit a policy roadblock.

Feels like we’re stuck in some kind of loop now, eh?

Until next time…

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