WazirX under fire from the Industry over unfair tactics

As a seasoned crypto investor with years of experience in the industry, I have seen my fair share of ups and downs. The recent WazirX security breach, resulting in a loss of approximately $234.9 Million (Rupees 2000 crore), has left me concerned and dismayed.

After a significant security incident at WazirX resulting in an estimated loss of around $234.9 million or approximately Rs 2000 crore, the platform’s management is under scrutiny within the crypto community due to their proposed user compensation plan, which reportedly requires individuals to bear losses up to 45%.

1. Critics, including prominent figures from the global and Indian crypto sector, have voiced concerns about WazirX following the hacking incident that resulted in at least half of users’ funds being compromised. The proposed “55/45” compensation plan by WazirX has garnered significant backlash among investors and Indian crypto leaders, leading them to call for a thorough investigation by India’s Central Bureau of Investigation (CBI), the country’s top investigative agency, into the suspected hack.

What Happened?

18th July saw WazirX acknowledging a significant loss estimated at around $234.9 million (approximately INR 2000 crore), which may be connected to the Lazarus Group, a suspected North Korean hacker collective. ZachXBT, a crypto investigator, outlined the group’s involvement on X, highlighting that the attack commenced on July 10th with intricate transactions involving Tornado Cash and SHIB tokens. Although these transactions have been traced back to the Lazarus Group, the probability of recovering the lost funds for WazirX investors remains uncertain.

What is WazirX’s proposed solution?

1) Strategy for recovering lost funds has been initiated by WazirX following a cyber incident that impacted approximately 45% of user’s holdings. The “55/45” approach enables users to access an immediate 55% of their assets, while the rest (45%) will be stored in Tether (USDT) equivalent tokens.

1. Objective: The goal is to share the loss burden equitably among users and expedite problem resolution. Users will receive guidelines via email and should respond no later than August 3, 2024. According to WazirX owners, the recovery strategy will be influenced by a non-binding survey and continuous inquiries, with asset values determined by market prices as of July 21, 2024.

1. Besides WazirX providing two methods for handling leftover assets, users can opt for either restricted withdrawals or uninterrupted trading without taking out their funds, prioritizing both immediate user requirements and the platform’s future sustainability.

Why did the WazirX compensation plan receive flak?

In the WazirX breach incident, critics, including industry experts, have raised concerns over the company’s approach to recovering losses, questioning its impartiality, legitimacy, and clarity.

Sumit Gupta’s Perspective

Sumit Gupta, the CEO of CoinDCX, has expressed disappointment with WazirX’s handling of a situation, stating, “Unfortunately, I must say that WazirX’s approach in this matter doesn’t prioritize the community, and I believe this may negatively impact them. Consequently, other ecosystem members are also being affected.”

Gupta contends that WazirX’s approach of transferring 45% of their losses onto customers is unjust and harmful to the wider cryptocurrency market. He underscores the importance of the company taking a more active role in bearing the financial consequences from its own resources instead of offloading the responsibility onto its clientele.

Dr. Sathvik Vishwanath’s View

Dr. Sathvik Vishwanath, one of Unocoin’s co-founders, has expressed disapproval towards WazirX’s approach to the security breach. He maintains that it’s unjust for the customers to bear the entire financial burden and considers this perspective myopic. In his opinion, all stakeholders should contribute towards covering losses instead of solely relying on users. Furthermore, he is of the view that WazirX’s proposed recovery methods are insufficient and biased in favor of the company.

Vishwanath additionally remarks that WazirX’s actions demonstrate a lack of responsibility. He underscores, “The two presented alternatives in the survey are biased since over 45% of the funds have been frozen. One option permits restricted withdrawals if trading is declined, while the other permits unhindered trading without any withdrawal. The manner in which the firm is managing this predicament implies that the error was solely that of their clients and not their own.”

Community Reaction

The cryptocurrency community has reacted strongly to WazirX’s proposed recovery solutions.

Kashif Raza, a prominent figure in the crypto community on platform X, has strongly criticized WazirX’s proposed recovery plan. In his opinion, the plan is unfair and lacks transparency. He advocates that WazirX should have taken a record of users’ assets prior to July 18, 2024. As an alternative solution, Raza suggests utilizing WRX token reserves and listing fees for reimbursement.

1. Raza challenges the rationale behind penalizing users who hold unimpacted tokens, and seeks clarity on who will shoulder the resulting tax burdens. Additionally, he queries WazirX for transparency regarding their financial statements, expressing concern over the absence of the company’s willingness to shoulder any financial repercussions from these situations.

Community member Anand Sharma has raised concerns over WazirX’s proposed strategy to utilize funds from other users to reimburse ERC20 token holders, suggesting instead that this move may be legally questionable and morally contentious. He contends that such an approach unfairly impacts users who have not been directly affected by the security incident.

Indian crypto YouTuber Ajay Kashyap raises concerns about possible government intervention in the WazirX crisis. Such an investigation could potentially result in significant legal repercussions for the company and its key figures. Kashyap’s remarks underscore the increasing unease and mistrust among Indian cryptocurrency users.

Involvement of Law Enforcement and Filing Complaints

As a researcher investigating the recent user concerns regarding suspected hacking on the cryptocurrency exchange platform, WazirX, I have come across some compelling demands. Many users are advocating for a Central Bureau of Investigation (CBI) inquiry into the matter due to their suspicion of insider involvement. Furthermore, they are expressing their dissatisfaction with the proposed compensation plan put forth by WazirX before the intervention of authorities such as the Delhi Police becomes necessary.

The FBI has reached out to Indian cryptocurrency exchange WazirX for help in probing the significant cyberattack.

Impact on WazirX’s Reputation and Future

As an analyst, I would express it this way: This crisis has the potential to greatly impact WazirX’s standing in the industry. The company is currently grappling with a major issue that requires swift and competent resolution to regain user trust and allay criticisms. Failure to manage the situation adequately could result in long-lasting consequences, such as a weakened market position and diminished credibility within the cryptocurrency community.

1. “The handling of the security incident by WazirX has drawn severe criticism as being insufficient and unjust. To rebuild trust and tackle the issue efficiently, the company must prioritize transparency, take decisive steps, and possibly collaborate with law enforcement agencies.”

2024-07-30 17:41