Decentralised exchange, profit sharing, tokenisation – WazirX chalks out fund recovery strategy after $230-million hack

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Hacked crypto exchange WazirX on November 6 announced a slew of initiatives it is exploring to let impacted users recover funds after its recent $230-million cyberattack. The solutions include launching a decentralised exchange, distributing profit share once the platform restarts, and offering tokens.

This comes at a time when the exchange is under a four-month moratorium by a Singapore Court to restructure its business and avoid further legal action. The exchange had also recently formed a Committee of Creditors (COC) selecting representatives among the impacted userbase for feedback and advise on its further course of action.

The exchange lost almost 43 percent of its crypto holdings in security breach in one of its multisig wallets, losing $230 million. WazirX is country’s largest crypto exchange, with almost 33 percent of Indian crypto users either holding balances or having an account with the platform.

Left with about 52 percent or $284 million-worth of net liquid assets, the exchange plans to issue new recovery tokens to all creditors on a pro-rata basis. These tokens will be airdropped to WazirX user balances based on a par value of $1 per token. Users can then trade, hold or even avail buyback on these tokens from WazirX platform.

A presentation showed in a closed-door townhall on Wednesday, said “Recovery Tokens will be repurchased pro-rata using profits to improve recoveries to Scheme Creditors. Buyback pricing of Recovery Tokens will capture market movements on stolen tokens to allow Creditors to capture market upside.”

Nischal Shetty, founder and CEO of WazirX said that these will be new tokens minted by WazirX itself, whether these will get listed on other exchanges for trading will be seen once the platform restarts.

Shetty also shared that he is aiming to restart the crypto exchange platform for trading by February 2025.

In its future course of action, WazirX is currently working on launching a decentralised exchange too wherein all the crypto assets and trades will be entirely under users’ control. WazirX won’t have any involvement in holding any crypto on behalf of the users.

Shetty said, “Globally, only about 13-15 percent of trading volumes come from decentralised exchanges which accounts for less than 5 percent of the crypto users. With our decentralised platform, we want to make the user interface as simple as using the centralised exchanges.”

Apart from the centralised WazirX exchange, Shetty plans to also utilise the earnings from the decentralised exchange to redistribute profit among impacted users.

WazirX’s other recovery plans for additional revenue generation include starting over-the-counter (OTC) desk to for B2B or B2C cryptocurrency transactions. An OTC Desk facilitates large-scale cryptocurrency transactions between institutional investors and high-net-worth individuals. This will help with revenue generation via commission charges or spreads on the value of the trade facilitated.

Futures Trading will also be launched to enable speculation on the future price movements of cryptocurrencies. “Users can enter into contracts to buy or sell a particular asset at a predetermined price on a future date,” the exchange said in its presentation.

In a previous townhall in September, WazirX's legal advisors from Kroll had shared that the exchange will be able to return only around 55-57 percent of the users' crypto funds going by the initial restructuring plan.

WazirX is currently facing several legal actions from impacted users and institutions including a case filed with the National Company Law Tribunal (NCLT) and rival CoinSwitch’s lawsuit to recover 2 percent of its funds that are stuck with the crypto exchange.

CoinSwitch said it cumulatively held Rs 12.4 crore in INR, Rs 28.7 crore in ERC20 tokens, and Rs 39.9 crore in other tokens on WazirX.