WazirX recovery plan faces flak from customers, crypto influencers after $230-mn hack

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Crypto exchange WazirX’s proposed strategy to socialise the loss caused by the $230-million hack sees a pushback from customers and crypto influencers as it opened polls to seek votes from them to decide on further plan of action.

In a blog post on Saturday, WazirX said that 45 percent of the exchange’s holding assets were lost in the recent security breach. The exchange has taken a 55/45 approach for now, in which they will be able to access and trade around 55 percent of their portfolio tokens, as the exchange restarted trading briefly on the platform, irrespective of whether the customer’s assets have been stolen.

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.

Many customers found the 55/45 strategy “unfair” as 45 percent of their remaining tokens will be converted to stablecoins (USDT) and locked, from whatever mix of tokens the customers held. This could lead to their overall crypto portfolio value going down.

Indian crypto exchanges, including WazirX and CoinDCX among others don’t allow customers to withdraw in crypto and hold in hardware wallets. The only way to withdraw is to sell off their assets and liquidate into the INR, which cause them to lose their crypto holdings.

Deepak Shenoy, CEO of Capital Mind, a financial research and investment advisory firm took to X, and said: “This should be the end of WazirX. The idea is that the company saw a theft for which they will charge all their users. The legal way is to take all of their own money first and then the rest of the losses can be distributed. Basically, liquidate it through NCLT.”

“The 55/45 solution by WazirX should not be acceptable to people. Why are people even voting for option A or B? Numerous other solutions are also worth considering. I urge Nischal and WazirX not to rush and cause more suffering to the users,” said Kashi Raza, founder of crypto education startup Bitinning.

Responding to a post on X detailing the recovery plan by WazirX founder Nischal Shetty, a customer Dr Priyank S said: “This has to be a joke. The lapses were on your side, yet you're asking users to bear the burden? Do you realise the impact this will have on most of the users, especially considering that their investments are now down by 50 percent? This isn't just about numbers; it's about trust and responsibility. How can you expect customers to support a platform that doesn't own up to its mistakes?”

Another user Zakir Hussain on X said: “WazirX is trying to act smart and play the victim card here. I wish I was wrong, but I just want to tell the WazirX users that your money is stolen, and the chance of you getting it back is very slim. Only way forward will be WazirX sharing the profits.”

Also read: WazirX’s $230-mn hack will stall the crypto industry’s progress with regulators

The two options

Shetty proposed two options which he said is how historically exchanges functioned when faced with a situation like WazirX’s. The exchange lost $230-million worth of assets in a cyberattack after one of its multisig wallets were compromised on July 18. The options include the following:

1. Legal proceedings: It takes years and the outcome is distribute what is left of the assets. Legal fees will add up as well, matter drags for years. No one gets anything until then. Outcome is similar to socialise the loss structure.

2. Socialise loss and rebuild: First socialise the loss. Then rebuild by growing the business where you can distribute any profits and find more solutions like new buyers, new initiatives etc since business will operate. This leads to faster recovery.

“In option 2, WazirX becomes the people’s exchange, working on various recovery methods,” Shetty said on X.

Recovery plan

In the blog post WazirX said: “We are implementing a fair and transparent socialized loss strategy to distribute the impact across all users equitably. In similar situations, users have often faced years of uncertainty and limited access to funds. Our 55/45 approach offers a faster, more flexible solution. This strategy allows immediate access to a significant portion of your assets while maintaining the possibility of further recovery for those who choose to wait.”

WazirX said that 55 percent of user crypto assets will be made available for trading and/or withdrawals (depending upon the option that you select), while the remaining 45 percent will be converted to USDT-equivalent tokens and locked.

The exchange is also exploring other options such as airdrops, new tokens and other emerging ideas, to gain profits and support recovery.

Also read: No evidence of compromised machines, attack originated from Liminal's infrastructure, says WazirX