WazirX has approached former partner Binance for help in bailing out customers affected by the $230-million cyberattack. Industry sources told Moneycontrol that Binance controls a surplus of WazirX's revenue and its WRX token.
As of the date of hack, that is July 18, Binance had WRX tokens worth around $80 million. This, inadvertently, affected WazirX’s ability to use its own funds to pay back some part of the customer assets that were stolen, according to a source mentioned above.
“Their legal dispute is still ongoing. There are components of WazirX’s business which are still under Binance’s control, including the revenue -- the surplus of it. Even its WRX token is under their control. So they have reached out to Binance and the talks are on but at early stages,” the source said.
The source added, “They are in a sandwich situation right now.”
A WazirX blog post from May 2023, mentioned that “WRX token is controlled by Binance. The IEO (initial exchange offering) for WRX was conducted by Binance, and all the sale proceeds of WRX IEO (i.e. 108,401 BNB tokens worth $2 million) were collected and retained by Binance.”
“Furthermore, the wallets holding locked and released WRX tokens are also managed and controlled by Binance, including the release of such tokens based on the WRX Release Schedule,” it added.
WazirX declined to comment on this development, and Binance is yet to get back on the emailed queries sent by Moneycontrol. Any responses from these exchanges will be updated to reflect in the article.
Legal dispute
The spat between world’s largest crypto exchange Binance and the country’s largest exchange WazirX started back in August 2022, when the Enforcement Directorate (ED) had frozen bank assets of WazirX worth Rs 64.67 crore in relation to allegedly assisting a bunch of accused loan apps in money laundering and fraud through the transfer of virtual crypto assets.
Following this, Binance’s CEO Changpeng Zhao (CZ) took to X (then Twitter) to clarify that his firm didn’t own any equity in WazirX and nor did it control its operations.
This came as a shock to investors while the rift between founders escalated over social media. As of 2019, it was known that WazirX was acquired by Binance through a Binance blog post dated November 21, 2019.
According to a report by Coindesk from January 2023, citing a letter sent out by Shetty to Binance's legal team and CZ, Binance had previously withdrawn over $67 million earned through trading fees on the WazirX platform.
Recovery plan
It’s been 10 days since the hack happened, and WazirX is currently exploring possible ways to reduce the impact of the theft and start the platform again, which temporarily halted withdrawals and trading.
Nearly 33 percent of Indian crypto users’ have accounts and hold balances with WazirX. The exchange lost 45 percent of its assets held in this recent security breach.
One of the proposed solutions has already faced heavy push back from the customers. The exchange had suggested a 55/45 approach or socialising the losses, wherein irrespective of whether the customer’s assets have been stolen, they will be able to access and trade around 55 percent of their portfolio tokens, as the exchange restarted trading on the platform.
Further, the exchange has given two options to the customers to pick from. They will be able to vote for the same till August 3.
Users called this ‘unfair’ as 45 percent of their remaining tokens will be converted to stablecoins (USDT) and locked, from whatever mix of tokens the customers presently held. This could lead to their overall crypto portfolio value going down.
Also read: WazirX’s $230-mn hack will stall the crypto industry’s progress with regulators
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