Can CoinSwitch’s Rs 600-crore plan help WazirX investors recover their losses?

The objective is to encourage WazirX investors to start deploying funds in crypto assets through CoinSwitch and, in the process, earn rewards against the fresh deposits. These rewards, either in the form of crypto tokens or funds, CoinSwitch claims, are capable of offsetting the losses that investors might have incurred due to the WazirX hack.

The workings

WazirX users will need to register on the CoinSwitch website. To apply, they need to sign up and complete the KYC process, upload the WazirX loss statement to estimate the potential rewards and initiate their recovery process.

To restructure the crypto liabilities of the platform, Singapore’s Zettai Pte, which runs WazirX, is undergoing a moratorium. WazirX has recommended a “Socialised Loss” strategy, where the losses from the cyberattack, it has claimed, would be shared among all crypto portfolio users in a “fair and equitable” way, a proposal that many investors found unpalatable when it was announced.

The losses calculated under the CoinSwitch program are based on the ‘Rebalancing Calculator’ available on the WazirX website, which demonstrates how the ‘Liquid Assets’ will be rebalanced among investors.

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The ‘Liquid Assets’ represent the portion of Zettai’s assets that is liquid and capable of being rebalanced.

As the value of ‘Liquid Assets’ fluctuates due to changes in token prices, the value of each investor's share of Liquid Assets will also change.

To be sure, if the market recovery has offset your losses, then you will not be eligible for any rewards.

Decoding the rewards on offer

To be eligible for any rewards, investors need to deposit crypto or funds on the CoinSwitch platform.

The exchange has clarified that the fresh funds could be in the form of money or crypto that investors have been holding. Also, investors don’t need to invest or trade with these fresh funds to be eligible under the programme.

The first variant is assured ‘Signup Rewards’, under which users can earn up to 10 percent of the funds deposited through this programme over two years.

The second is ‘Referral Rewards’, where users can earn up to 5 percent of the deposited funds through their referral of other affected WazirX users.

Total Signup Rewards are capped at Rs 15,000 per user, while Referral Rewards are capped at Rs 10,000. The overall reward is capped at the investor’s WazirX loss.

Another reward scheme, ‘Revenue Redistribution’, will kick in once WazirX starts disbursing the liquid assets that are stuck on its platform.

“CoinSwitch will pool the trading revenue (commission fees) generated from this program and distribute it to the affected users in proportion to their losses,” said Ashish Singhal, Co-founder, CoinSwitch.

Any revenue that gets generated on the CoinSwitch spot trading for the next two years will be accumulated and distributed to investors.

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“Say, if Person A has incurred a loss of Rs 1 lakh and Person B has booked a Rs 10,000 loss, the first person will get nine times more money than the second person, so that both make up the losses equally,” said Singhal.

However, CoinSwitch is yet to decide on the nature of payout – crypto or rupee. Also, the frequency of the payout is yet to be announced.

Count your losses and potential recoveries

According to CoinSwitch, even though the program is open for 24 months, as per its estimates (based on losses shown on WazirX today) most affected users will be able to recover 100 percent of their losses within six to eight months of WazirX releasing the funds.

The losses indicated will vary every single day because the price of tokens will change every day.

However, investors may recoup a lower proportion of losses if the crypto market sees a bigger fall.

“If crypto prices fall by maybe 20-30 percent from here, only in those cases users may not be able to recover full funds. However, the market is good as today. Also, with the Trump administration set to take charge, we expect good things to happen in the crypto market, and if prices stay stable or slightly correct, most users will still make 100 percent of their recovery,” said Singhal.

How will Rs 600 crore be distributed?

According to CoinSwitch, fresh deposits only make up for the sign-up reward, for which the exchange has earmarked Rs 250-300 crore.

So even if investors don’t trade, they get rewards in lieu of their losses. The rest 50 percent of the CoinSwitch fund pool will come from the revenue amount.

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Up to Rs 300 crore is allocated towards sign-up and referral rewards, which will come directly from CoinSwitch itself. The next Rs 300 crore is an estimate based on the revenue from trading, which may go slightly lower or even higher in a good market.

Note that Tax Deducted at Source (TDS) of 10 percent would be applied on rewards under the programme and the same will be deducted at the time of crediting the rewards.

Too early to rejoice for WazirX users

According to CoinSwitch, the program aims to not only give users an opportunity to recoup losses but also ensure growth of the Indian crypto community.

However, experts feel that investor confidence in the Indian crypto ecosystem remains low.

Sidharth Sogani, Founder of CREBACO, a crypto research firm and CEO of Blue Aster Capital, a crypto hedge fund, feels Indian investors are confident about the global crypto ecosystem because of US President-elect Donald Trump, Elon Musk and institutions like BlackRock exuding positivity about the sector.

“Unfortunately, they are not confident about the Indian crypto ecosystem or Indian crypto regulations. Confidence will only come when the government regulates the sector,” said Sogani.

Tread with caution while signing up

Just like crypto investors, CoinSwitch’s own funds are stuck on WazirX. CoinSwitch cumulatively has Rs 12.4 crore in rupee terms, Rs 28.7 crore in the form of ERC20 tokens and Rs 39.9 crore in other tokens on WazirX.

According to a crypto industry insider, CoinSwitch Cares will be beneficial for the company in terms of getting more users. “Also, the programme may force investors to put more pressure on WazirX to expedite their disbursal process,” the person said.

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If investors have a chance of recouping any of the losses, they can consider signing up for the programme.

However, keep in mind that sign-up rewards depend on fresh money being pumped into cryptos, which are highly risky and are still unregulated in India.

Also, the exchange is yet to announce the nature of rewards payout – in rupees or crypto. Further, most Indian exchanges, including CoinSwitch, do not allow crypto withdrawals. Weigh such uncertainties against potential benefits before taking a call on signing up.