India’s Enforcement Directorate (ED) conducted searches at three Bengaluru locations associated with CoinDCX and Delta Exchange India on November 4 and 5. The operation is part of an investigation into suspected violations of the Foreign Exchange Management Act (FEMA). The ED alleges that CoinDCX utilized USDT and offshore accounts to execute spot orders and match crypto derivatives positions on international platforms such as Binance, KuCoin, and Bybit. Specifically, the agency claims that customer rupee deposits were converted to stablecoins and routed through a Costa Rica-based entity characterized as a "paper entity" to facilitate these trades.
In response, CoinDCX described the search as a routine inquiry, asserting full compliance with Indian laws and confirming that user services, including deposits and withdrawals, remain operational. Delta Exchange India stated that its INR-settled products do not involve cross-border transfers of virtual digital assets, though the ED links certain derivatives activity to CoinDCX. The investigation also examines potential unauthorized exposure to foreign stocks via Hyperliquid and other offshore venues.
This enforcement action highlights the regulatory scrutiny facing Indian crypto exchanges regarding their backend liquidity mechanisms. While front-end interfaces may display domestic transactions, the ED’s focus on API-driven execution against offshore venues suggests authorities are looking beyond surface-level compliance to trace the actual flow of capital and collateral. The distinction between local settlement and global execution creates a complex legal gray area under FEMA, particularly when intermediaries like CoinDCX act as bridges between Indian users and international order books.
For the broader market, this case underscores the increasing importance of transparency in how exchanges source liquidity. If the allegations hold, it implies that many seemingly domestic trades rely on cross-border funding structures that may contravene current foreign exchange norms. Investors should monitor whether regulators demand stricter segregation of onshore and offshore liquidity pools, which could fundamentally alter the operational models of major Indian exchanges.