CoinDCX forms Rs 50-cr crypto investor protection fund after WazirX hack

Sumit Gupta, co-founder and CEO, CoinDCX

After the $230-million WazirX hack, rival crypto exchange CoinDCX has set up a Rs 50-crore Cypto Investor Protection Fund (CIPF) to provide cushion to the customers in case of any unprecedented cyberattack on its platform.

On July 18, WazirX lost around 45 percent of its crypto asset holdings in a security breach of one its multisig wallets, after which it had to temporarily suspend withdrawal and trading on its platform. Multisig wallets are crypto wallets that require two or more private keys to unlock and make transactions.

“As a starting point, we have carved out this Rs 50-crore fund… After the WazirX case, a lot of people also have had questions that what are the companies doing. So we have taken aside that fund to make sure and to give the confidence to customers," Sumit Gupta, CEO of CoinDCX, told Moneycontrol.

“Also, it's a good practice for exchanges to take out certain funds, which will be used in case of any unfortunate event. This fund has been taken out of our own balance sheet and reserves. This is given free of cost to all the customers. So, customers are not required to subscribe to anything,” he added.

CoinDCX will also continue to increase this funds pool over time by adding 2 percent of its brokerage income every month - that too exchange plans to revisit every year.

Gupta said that there is a separate governance framework too to take a call on specific cases that will get covered, which will mostly be related to any exchange-level hacks and not individual level issues of the customers. “We will also publish the full SOP and details around the neutralisation of the fund in public,” he said.

Additionally, CoinDCX has existing custody partner insurances for the exchange. Gupta explained that very exchange uses custody partners where they keep their assets. A part of the assets are kept in either on cold or warm wallets (as in hardware or software wallets). And those custody partners essentially have insurance. “So, the custody partners that we have, they have insurance up to $450 million dollars,” he shared.

Views on the WazirX hack

Gupta was shocked to see rival WazirX having held 45 percent of its holdings in one wallet.

“I think the case that happened in WazirX was very unfortunate. And people don't usually do that. People don't like to keep 50 percent (in one wallet) because you don't put all the eggs in one basket,” he said.

According to Gupta, most exchanges have custody provider level insurance, which again is supported by a very few banks globally that can underwrite it. In the case of WazirX, he said, it will depend on whether its custody partner Liminal has taken such insurance or not. WazirX had earlier alleged that the security breach could have happened from Liminal’s end.

At present, WazirX is figuring out the way forward to restart trading on its platform and bailing out the impacted customers. WazirX founder Nischal Shetty is already in talks with several global exchanges for support or a potential buy out.

Moneycontrol had exclusively reported that it had even tapped its former partner and the world’s largest crypto exchange Binance for support, as it continues to control several aspects of WazirX’s business including significant chunk of its revenue and nearly $80 million worth of WRX tokens.

Also read: Sent records to CERT-In, in touch with FIU, regulators: WazirX’s Nischal Shetty