Binance, the world’s largest cryptocurrency exchange by trading volumes, proudly announced it had ‘acquired’ WazirX, in a blog post on November 21, 2019, however Binance CEO Changpeng Zhao has now shocked the Indian crypto exchange and the global crypto community by reneging on the agreement between the two parties.
Amidst an ongoing war of words between WazirX founder Nischal Shetty, and Zhao, investors are searching for defining answers about who controls WazirX and how the move will impact their crypto and fiat holdings.
Connection between Binance and WazirX
With a group photograph that included Changpeng and Nischal profusely smiling, the November 2019 blog post announced WazirX’s acquisition by Binance and detailed how platform users would be able to buy crypto currencies using Indian rupees (INR), invest in stable coins like Tether (USDT) and access the whole range of cryptocurrencies directly through Binance’s trading platforms.
It also explicitly said that the acquisition and integration of WazirX is part of the company’s strategy to enhance its growing list of global partners in an effort to provide the global crypto community with easy access to crypto currencies in a fast and secure manner.
Zhao even went further to elaborate on Binance’s commitment to developing the Indian crypto ecosystem and making India a global blockchain innovation centre. Nischal commented on how the acquisition gives WazirX the opportunity to expand beyond India and cater to audiences in other developing nations by building fiat on-ramps.
Why is Binance distancing itself from WazirX?
WazirX is currently under the Enforcement Directorate (ED) radar, for allegedly assisting instant loan app companies in laundering money. In fact, the agency has frozen the financial assets of the Indian crypto exchange after a search operation, under the Prevention of Money Laundering Act (PMLA), on August 3, 2022.
Understanding India’s vast potential, with more than 100 million crypto investors already, it only seems logical that Binance would not want to risk its reputation or get at loggerheads with the country’s enforcement agencies. This assumes more relevance, considering the charges levelled against WazirX and the fact that the ED has a good record of pursuing investigations.
Not long after the ED released its press release, Zhao released a series of tweets on August 5, 2022, seemingly distancing Binance from all operations at WazirX or its holding company Zanmai Labs. In the tweets, he clarified that Binance doesn’t own any equity in Zanmai Labs and only provides wallet services to WazirX as a technology solution.
Moreover, he states that the recent developments surrounding WazirX have deeply concerned Binance and stressed that the Indian crypto exchange is solely responsible for all operational aspects such as user sign-ups, know-your-customer (KYC), trading, and withdrawals.
The ED has detailed how WazirX failed to provide details of crypto transactions with the suspected loan app companies and has not revealed KYC details of registered wallets or any details of the bank accounts through which funds were transferred to the crypto exchange prior to July 2020.
What may happen to WazirX?
Zhao’s recent clarification elicited responses from Shetty as well, with a war of tweets still going on between the two.
While categorically denying all accusations levelled by the ED and reiterating WazirX’s cooperative stance, Shetty has been putting out multiple tweets detailing how Binance is the true owner of WazirX. He goes further to clarify that Zanmai Labs is a separate entity, while Binance owns the WazirX domain name, has root access to AWS servers, and retains all profits and crypto assets stored on the platform.
Elucidating on how Zanmai Labs is an Indian entity owned by Shetty and the other co-founders, he clarified that Zanmai Labs only has a licence from Binance to operate INR-crypto pairs, while Binance manages crypto-to-crypto pairs and processes withdrawals.
Binance, on the other hand, has clarified that the 2019 'acquisition’ was limited to an agreement to purchase certain assets and intellectual property of WazirX, with WazirX continuing to be operated and managed by Zanmai Labs.
In either case, WazirX could be at the risk of not being able to manage operational costs and/or support transactions, if the fund freeze continues for a prolonged duration
WazirX and its founder have reiterated that all crypto assets and/or fiat money deposited with them are safe and that currently deposits and withdrawals are working as usual.
Although the ED said that the summons was issued to all Indian crypto exchanges, it claims that most of the laundered funds were diverted via WazirX and that the company has actively assisted 16 loan app companies in laundering money using the crypto route.
If this turns out to be true, the asset freeze could extend to all crypto assets held by WazirX and could be a cause of worry for Indian crypto investors who have invested via the platform.To make matters worse, they would lose all rights to their funds if WazirX joins an ever-growing list of crypto firms filing for bankruptcy or facing insolvency proceedings. While the battle of words rages on between both companies, only time will tell what’s in store for India’s top-ranked crypto exchange in the foreseeable future.