Stablecoins and tokenised assets explained: What Indian investors should know

Blockchain technology is being explored for uses beyond cryptocurrency trading, including cross-border payments, financial settlements and the digital representation of assets such as bonds.

Two applications drawing attention are stablecoins, which aim to maintain a relatively stable value, and tokenisation, which represents ownership rights or claims on assets digitally.

For consumers and investors, understanding how these products work, the rights they offer and the risks involved is important before using or investing in them.

What are stablecoins and how are they used?

Stablecoins are digital tokens designed to maintain a relatively stable value against an asset, usually a currency such as the US dollar. They can facilitate transfers between digital-asset platforms and are also being explored for cross-border payments, remittances and business settlements.

A global management consulting firm McKinsey, in an analysis with blockchain analytics firm Artemis Analytics, estimated that stablecoin payment activity reached around $390 billion in 2025, more than double the previous year's level.

However, this remains small compared with conventional payment networks, and blockchain transaction volumes should not automatically be equated with payments for goods and services.

Vikaas M Sachdeva, CEO of BitDelta India, an independent, India-focused virtual digital asset (VDA) and cryptocurrency trading platform, said blockchain could reduce intermediaries and speed up settlement in certain cross-border transactions. However, he noted that India's existing payment systems, including UPI, IMPS and RTGS, already work efficiently, making it important to assess where the technology offers a genuine advantage.

A stablecoin is not the same as money held in a bank account.

Its ability to maintain its value depends on factors such as the assets backing it, the issuer's financial position and redemption arrangements. Risks include inadequate reserves, issuer failure, loss of the intended price peg, cyberattacks and restrictions on withdrawals.

Sachdeva advised investors to examine the issuer, reserve disclosures, custody arrangements and redemption rights rather than relying on the label 'stablecoin'.

For Indian users, a dollar-linked stablecoin is not the Indian rupee and should not be assumed to be an RBI-authorised payment instrument. Its use must be assessed under the applicable legal, tax and anti-money-laundering framework.

What is tokenisation?

Tokenisation involves representing an asset or rights relating to it digitally on a blockchain. For example, a corporate bond could be represented by a digital token, potentially changing how its ownership is recorded, transferred and settled.

India is exploring this area through the Securities and Exchange Board of India's Demat 2.0 pilot for tokenised corporate bonds.

Vikas Gupta, Country Manager - India, Bybit India, a local presence and regulatory-compliant operations of Bybit, a global cryptocurrency exchange, said tokenisation could make financial settlements more efficient, but a digital representation does not automatically guarantee legal ownership, liquidity or investor protection.

Sachdeva similarly noted that tokenisation could improve how financial assets are held, transferred and settled, without changing the quality of the underlying investment. A tokenised corporate bond, for instance, remains exposed to the issuer's credit risk.

Investors should establish what rights a token provides, how it is linked to the underlying asset, who holds it in custody and what recourse is available if the issuer or platform fails.

What should investors check before using these products?

Before buying or using stablecoins or tokenised assets, consumers should consider four factors:

Issuer and backing: Who issues the token, what supports its value, and how transparent are the disclosures?Redemption and ownership rights: Can the token be exchanged for cash or the underlying asset, and under what conditions?Custody and security: Who controls the wallet or holds the asset, and what safeguards exist against cyberattacks or operational failures?Regulatory and tax obligations: What legal framework applies, and what tax liabilities or reporting requirements may arise?

In India, transfers of virtual digital assets may attract tax deducted at source (TDS) under Section 194S of the Income-tax Act. The provision generally prescribes TDS at 1% of the consideration for covered transfers, subject to applicable thresholds and conditions.

Blockchain can change how financial assets are recorded and transferred, but it does not eliminate investment risk. Consumers should understand the asset, the legal rights attached to it and the risks involved before committing money.