RBI puts 3 options on table for cryptos — regulate, ban or let them implode (GS Paper 3, Economy)
Why in news?
- In the December 2022 edition of its ‘Financial Stability Report’ released by the Reserve Bank of India (RBI), it noted that several incidents in the recent past have underscored the risks of the crypto industry, which have lent the central bank some insights on the industry and the way forward.
- RBI said one of the priorities under India’s G20 presidency is to develop a global framework on crypto assets which could include the possibility of banning unbacked crypto assets, ‘stable coins’ and decentralised finance altogether.
Collapse:
- The collapse and bankruptcy of the crypto exchange FTX and subsequent sell-off in the crypto assets market have highlighted the inherent vulnerabilities in the crypto ecosystem.
- Recently, Binance, the largest crypto exchange, has also prohibited withdrawals of stablecoins on its platform.
- The RBI noted that the “implosion” of FTX was preceded by the failure of TerraUSD/Luna, an algorithmic stablecoin run on Celsius, a crypto lender, and the bankruptcy of Three Arrows Capital, a cryptocurrency hedge fund.
Vulnerabilities:
- First, crypto assets are highly volatile. The price of Bitcoin has decreased by 74 per cent (as on 14 December 2022) from its peak in November 2021. Other crypto assets have also experienced similar falls in prices and heightened volatility.
- The second insight, the collapse of stablecoin Luna was a reminder of how stablecoins that promise to maintain a stable value relative to fiat currency are subject to classic confidence runs.
- A ‘stablecoin’ is so named because it tries to peg its value to another asset class, such as a fiat currency or gold, so as to mitigate the intense volatility often seen in the prices of other, un-pegged crypto assets.
- Thirdly, the fall of crypto exchanges such as FTX and Celcius showed how such trading platforms were carrying out other functions such as lending, brokerage, and clearing and settlement, which complicated their risk profiles.
- This exposed them to credit, market and liquidity risks disproportionate to what was necessary to discharge their essential functions.
Regulation:
- The RBI said that there are a number of options being considered internationally to regulate crypto assets.
- One option was to apply the “same risk-same-regulatory-outcome” principle and subject crypto assets and industry bodies to the same regulations applicable to traditional financial intermediaries and exchanges. Another option, which the RBI has previously favoured, is to ban crypto assets “since their real life use cases are next to negligible”.
- A third option is to let it implode and make it systemically irrelevant as the underlying instability and riskiness will ultimately prevent the sector from growing.
Way Forward:
- It is challenging to regulate new technology and business models after they have grown to a “systemic level” and so it is important for policymakers to design an appropriate policy approach sooner rather than later.
- In this context, under India’s G20 presidency, one of the priorities is to develop a framework for global regulation, including the possibility of prohibition, of unbacked crypto assets, stablecoins and DeFi (decentralised finance).
Study shows butterflies bedazzle predators and escape
(GS Paper 3, Environment)
Why in news?
- In a five-year study, scientists of the National Centre for Biological Sciences (NCBS) in Bengaluru have discovered secrets of a long evolutionary game through which butterflies come to warn, fool, and escape their predators using traits such as wing colour patterns and even flight behaviour.
- The study has investigated the butterfly mimetic communities of the Western Ghats.
Mimicry models:
- The mimicry is an adaptive phenomenon, and in mimicry, a palatable organism resembles an unpalatable organism to deceive predators.
- The unpalatable one is called models (Müllerian co-models) and the palatable one is called mimics (Batesian mimics).
- Interestingly, mimicry in butterflies is not limited to the resemblance in wing colour patterns alone, as some mimics have also evolved to imitate the flight behaviours of model species.
- In nature, multiple model and mimic butterflies could be found in the same habitat at the same time. These similar-looking co-occurring butterflies together form a mimetic community.
- These mimetic communities are generally common in tropical and sub-tropical biodiversity hotspots.
- The NCBS team in order to find out how these two mimetic traits (wing colour patterns and flight morphology) evolve over time, investigated the butterfly mimetic communities of the Western Ghats.
Findings:
- The findings have shed light on how the rate of trait evolution helps butterflies to escape their predators.
- These can be carried forward to investigate whether the rate of trait evolution is similar in young communities, such as in the Western Ghats versus large, old communities in Northeast India, Southeast Asia and the neotropics.
- They suspect that the evolutionary dynamics of functional traits depend heavily on the age, size and complexity of the biological communities.
- In this study, for the first time, evolution of multiple traits was examined in a biological community, especially in a biodiversity hotspot of the Indian subcontinent.
AWS cloud services propel India
startup boom
(GS Paper 3, Science and Tech)
Context:
- Over the last five years, the number of registered startups in India have grown from 452 in 2016 to 84,012.
- While they span a variety of industries from financial tech, gaming and health tech, several are based in the cloud, the servers and data storage accessible via the internet and data-storage companies are offering a slew of incentives to draw and retain them on their platforms.
- AWS, or Amazon Web Services, one of India’s largest providers of cloud-based services, has provided start up credits that allow aspirant startups to use a suite of services from computing, storage and hosting for free.
- India has the world’s third-largest startup ecosystem, and therefore, one of the biggest markets for such cloud services.
Some of the companies supported by AWS included:
- HealthifyME, which developed an app called ‘Vaccinate Me,’ which allowed feature phones to book close to 50 million vaccination-appointments;
- Fittr, which helps track body vitals and meet fitness goals;
- Credit Vidya, which allows workers who have never used a bank account to ‘digitise’ their salaries;
- Arogya.ai, which works on genomics, and relied on the AWS system to store on the cloud data from blood samples in places with limited internet connectivity.
- AWS also powered the Ayushman Bharat Digital mission as well as the Cowin system for COVID-19 vaccinations.
Widespread training:
- While Bengaluru continues to be the country’s startup capital, AWS is increasingly connecting to startups located in cities outside the metropolitan centres of Delhi and Mumbai.
- AWS had several programmes ongoing to train even those with minimal education in cloud computing skills.
- Through nearly 500 free courses and 11 certifications, the company has trained nearly three million across the country so far.
- Betting on the growing demand for cloud services, AWS launched their second data-cluster region in Hyderabad, entailing an investment of $4.4 billion (about ₹36,300 crore) by 2030.
- This would make 48,000 jobs available across a variety of services from the new infrastructure and its services. The first such region was in Mumbai.
Way Forward:
- India’s cloud computing market was expected to grow at 28.1% during the forecast period until 2027.
- The high concentration and increasing number of small and medium-sized businesses in India that are rapidly shifting towards cloud computing is emerging as the major driving factor for the market.
