India’s two capital-market regulators already run sandboxes that let fintech firms test products under supervision, but digital-asset-native companies have not been allowed through the door. That gap, raised at TechSparks 2026 by Sharat Chandra of EmpowerEdge Ventures, is the practical answer to how sandboxes would shape crypto products: they would move testing of identity checks, tokenisation and derivatives out of the grey and into a controlled environment with a regulator watching.
Where Indian Crypto Regulation Stands
The current framework is a tax regime first and a licensing regime second. Domestic exchanges must operate inside a 30% tax framework and deduct tax at source on trades, requirements foreign platforms have not faced, argued Rajagopal Menon, vice president at WazirX. He said the asymmetry has placed Indian exchanges at a disadvantage.
The numbers show what was at stake before the tax changes. Menon said WazirX’s spot markets processed close to $48 billion in transactions during the 2021-22 bull run. Trading then shifted: as spot volumes declined, futures and derivatives gained traction, and Menon expects that segment to see significant adoption in India.
On identity, Chandra said exchanges follow KYC norms but gaps remain once assets move on-chain. That is the specific hole a sandbox could help close, he suggested, because a supervised test lets a firm prove a verification method works before it handles real client money at scale.
What a Sandbox Actually Does
A regulatory sandbox is a bounded live test. A firm gets limited permission to run a product with real users or real transactions while the regulator observes, sets conditions and can pull the plug. SEBI and IFSCA already use them to encourage innovation in the capital markets, but digital asset native fintech players have not yet been given the go-ahead to participate.
The catch is that a sandbox is not a licence and not an amnesty. It is a mechanism for producing evidence: what breaks, where the fraud risk sits, which disclosures users actually read. For a sector where the rulebook is still being written, that evidence is the product.
The Case for Letting Web3 Firms In
Chandra pointed to tokenisation as the clearest candidate, citing corporate bonds as an example. Participation in that market is currently limited to institutional players. Opening sandboxes to more web3 fintech companies, he argued, would let them test new ideas, improve existing processes and play a bigger role in the tokenisation journey.
He also framed regulation as a capital question rather than a compliance one. “I think once this space is regulated, that can lead to a lot of capital inflow to the country,” he said. Follow the money: institutional allocators need a supervisory perimeter they can point to before they commit, and a sandbox is a cheaper way to build one than waiting for a full statute.
Infrastructure Built for a Market That Never Closes
Crypto trades 24 hours a day, seven days a week, which changes what a product has to survive before launch. Satish Mishra, CTO of Pi42 and SharkExchange, described activity picking up in the evenings and at weekends, partly tracking moves in US markets. That places continuous demands on observability, alerts and leverage monitoring.
Mishra said production incidents had occurred over weekends when systems could not keep pace with demand. His experience building a spot exchange also showed how quickly demand for derivatives can outpace infrastructure development, which is why Pi42 was built for derivatives from the outset rather than adapted from a spot-trading system.
Compliance has an engineering dimension too. Mishra said KYC can be frustrating when an application fails and users must start over; technology can let them resume where they stopped and explain what needs correcting. Genuine users, he added, are generally less bothered by checks than those trying to get around them.
AI Co-Pilots and the Advice Line
WazirX has introduced what Menon described as India’s first AI-powered crypto agent, a conversational co-pilot handling multi-step requests including technical indicators such as MACD and RSI and offering recommendations for users to consider. Traders must confirm a strategy before the AI places an order with stop-loss and take-profit parameters. Menon said the feature scans more than 300 tokens to spot those showing bearish momentum.
He framed AI as a way to analyse large volumes of market data and spot patterns, while insisting it should support decisions rather than make them. Mishra’s warning was blunter: “If you ask AI to give you a strategy and then run with it, make sure that you are also observing it so as soon as it goes wrong, you can unplug it.” He urged traders to backtest AI-generated strategies and monitor performance before going live.
On closer reading, the regulatory question here is not the model but the use. Chandra said educational tools could be treated differently from systems offering personalised investment advice, which could fall under investment-adviser regulations. He stressed that AI systems need to be trustworthy, explainable, auditable and fair. A sandbox is where that classification gets tested in practice rather than argued in the abstract.
What Comes Next
Asked what represents the sector’s next phase, Menon named futures and derivatives, and Mishra agreed, noting derivatives have continued to grow and address specific needs in the crypto ecosystem. Chandra pointed to compute futures, citing CME’s launch of compute futures in the US as a sign of new asset classes emerging where AI and digital assets meet.
Each of those products lands on the same unanswered question: who supervises the test. Chandra’s proposal is the narrowest available fix, opening existing SEBI and IFSCA sandboxes to digital asset native firms rather than drafting a new regime from scratch. “I think a stable environment or a better environment would be that the same rules apply for everybody, so that Make in India is made for Indian exchanges,” Menon said.
Sources
Photo: Shixart1985 (CC BY 2.0)
