Users of WazirX are still unable to access their bitcoin holdings, even though the cryptocurrency trading platform is looking at a number of possibilities to restore operations, following reports that hackers stole over $230 million in cryptocurrency assets from the platform.
WazirX suspended trading and stopped withdrawing both rupees and cryptocurrencies after the reported cybersecurity vulnerability since it could no longer maintain 1:1 collaterals with assets. Liminal, a third-party custody service provider, administered a Multi-Signature (MultiSig) wallet from which over half of the platform’s reserves were diverted.
WazirX is working with law enforcement and forensic specialists to locate and retrieve the pilfered assets. The site has contacted other cryptocurrency exchanges to ban the relevant addresses and promised prizes for anyone who helps freeze or retrieve the cash.
However, because this strategy effectively treats 45% of the customers’ holdings as collateral damage from the hack, many of them are enraged and feel deceived. Who is to blame? WazirX. But who’s footing the bill? Users
What is the 55/45 approach proposed by WazirX?
According to WazirX’s strategy, a user can only trade or withdraw 55% of their cryptocurrency holdings; the remaining 45% will be locked and transformed into tokens equivalent to USDT.
The cryptocurrency company has also started a survey for people who have joined, giving them basically two choices: They can trade the unlocked 55% of cryptocurrency assets in Option A, but they can’t take their money out. Option B gives consumers the ability to trade in addition to withdrawing money, but if that occurs, they will not be given priority in terms of recovering and returning the stolen property.
If all of the SHIB tokens in your portfolio are impacted, we will give you replacement tokens for up to 55% of the total value of your SHIB holdings. The value will be determined as of July 21, 2024, 8:30 PM IST, based on average prices from CoinMarketCap and a few other international exchanges, according to a blog post by WazirX. It also stated that this method will not have any impact on users’ INR balances on the platform.
According to WazirX, consumers having 45–99.9% stolen tokens will have a balanced crypto basket—that is, a variety of different crypto coins—make up the 55% unlocked share. Users will get 55% of their tokens back if they have no stolen tokens at all.
On August 3, at 7 a.m., the poll asking users to choose between Options A and B will close. WazirX stated on Monday, July 29, that the poll is merely a first step and that the results are not definitive. “As we continue on our path to recovery, we will also investigate options, such as airdrops and any other emerging ideas,” the statement read.
Why has this approach been met with criticism?
The strategy “balances quick access for some with potential recovery for others,” according to the business, which defended its intention to socialize losses among customers. WazirX stated that it has reported a police violation on the National Cybercrime Reporting Portal; nevertheless, it also stated that pursuing legal action to recoup losses may be an expensive and protracted process. It further stated that users might not be compensated until the legal proceedings are over.
Customers of WazirX, however, are not persuaded, particularly given the exchange’s backend liquidity was the focus rather than the funds of particular individuals.
“You are providing me with a withdrawal management survey in which you state that I can withdraw up to 55% of my available funds, with the remaining 45% being flexible. Thus, you are essentially placing the user at risk for the liabilities resulting from your negligence. It isn’t just. Why do you only allow customers to socialize their losses rather than allowing them to interact with the business? Afreen enquired and said she doubted she would choose any of the choices on WazirX’s survey.
“I had approximately Rs 1 lakh worth of crypto assets on WazirX. I find both poll options challenging to evaluate, as I’m uncertain how the company might use the funds to their advantage,” another WazirX customer said on the condition of anonymity.
Is this different from when traditional banks collapse?
The truth is that the Indian legal system has never seen a circumstance like this. While financial institutions are subject to specified standards, there are no consumer or user protection regulatory structures in place in India’s VASP [Virtual Asset Service Providers] market, according to lawyer Subha Chugh, who specializes in the Web3 sector.
She said that all clients are required to adhere to a predetermined withdrawal timeline in the event of bank failures, such as the PMC Bank disaster. According to Chugh, “the biggest problem here is that institutions like exchanges or custody solution providers don’t need to maintain any insurance, separate user funds, maintain reserves, or even ensure a certain percentage of user funds do not leave the jurisdiction,” because they are not subject to any regulatory requirements.
She also questioned the rationale behind WazirX keeping about half of its reserves in one location. “However, since hindsight is 20/20, I believe this should serve as a wake-up call for Indian regulators to formalize user protection laws like South Korea’s Virtual Asset User Protection Act and bring VASPs under current regulations,” the speaker continued.
Chugh responded, “I think consumers who can verify that 100% of their assets fall to the “not-stolen” category would definitely have locus standi here,” in response to the question of whether WazirX clients in India have any legal options. However, reassigning assets in a circumstance such as this is never easy. She continued, “There’s always a chance that a court-appointed financier or liquidator may determine that this is actually the most cost-effective course of action.
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