Following a major security breach at WazirX platform, resulting in a loss of $234.9 Million (approx. Rs 2000 crore), the platform owners are now facing flak from the crypto industry over their alleged compensation plan asking users to face losses up to 45%.\
Major crypto industry leaders in India and world have criticized the WazirX platform for their alleged opaque dealings post the hacking attempt that saw at least half of their investor funds gone. The “55/45” compensation plan proposed by WazirX has not gone down well with both the investors and crypto leaders in India who have now demanded a probe by the Central Bureau of Investigation (CBI)- India’s premier probe agency, into the alleged hack.
What Happened?
On July 18, WazirX reported a $234.9 million (approx. Rupees 2000 crore) loss, potentially linked to the Lazarus Group, allegedly a collective of North Korean hackers. Crypto investigator ZachXBT detailed the group’s involvement on X, noting the attack began on July 10th with complex transactions using Tornado Cash and SHIB tokens. Despite tracing these transactions and linking them to the Lazarus Group, the recovery of the lost funds remains uncertain for WazirX investors.
What is WazirX’s proposed solution?
WazirX has launched a recovery strategy after a cyberattack affecting 45% of user funds. The “55/45” plan grants users immediate access to 55% of their assets, while the remaining 45% will be held in Tether (USDT)-equivalent tokens.
This aims to distribute the loss impact evenly among users and facilitate a quicker resolution. Users will receive instructions via email and must respond by August 3, 2024. As per WazirX owners, the recovery plan will be shaped by a non-binding poll and ongoing investigations, with asset values based on July 21, 2024, market prices.
Additionally, WazirX is offering two options for managing the remaining assets: limited withdrawals or continued trading without withdrawals, balancing immediate user needs with the platform’s long-term stability.
Why did the WazirX compensation plan receive flak?
In the ongoing WazirX breach saga, industry leaders have criticized the company’s recovery strategy for its fairness, legality, and transparency.
Sumit Gupta’s Perspective
Sumit Gupta, CEO of CoinDCX, has criticized WazirX, saying, “Hate to be saying this, but the way WazirX is handling this entire situation isn’t community first and this IMO won’t go down well for them. This sadly is also hurting the other ecosystem participants.”
Gupta argues that WazirX’s strategy of passing 45% of the losses onto customers is both unfair and detrimental to the broader cryptocurrency ecosystem. He emphasizes that the company should have been more proactive in absorbing the financial impact from its own assets and treasury rather than shifting the burden to its users.
Dr. Sathvik Vishwanath’s View
Dr. Sathvik Vishwanath, a co-founer of Unocoin, has criticized WazirX’s handling of the security breach, arguing that shifting the entire financial burden onto customers is unfair and short-sighted. He believes that the responsibility for covering losses should be shared among all stakeholders, not just users, and that the company’s recovery options are inadequate and biased.
Vishwanath also points out that WazirX’s approach reflects a lack of accountability. He highlights, “The two options given in the poll are again totally one-sided as even after 45% of funds being locked, one option allows limited withdrawal if the trading is opted out and the other option allows trading without withdrawal. The way the company is handling the issue is as if the mistake was from their customers and no one else!”
Community Reaction
The cryptocurrency community has reacted strongly to WazirX’s proposed recovery solutions.
A crypto influencer on X, Kashif Raza, has sharply criticized WazirX’s recovery plan, arguing that it is unfair and lacks transparency. He believes WazirX should have taken a snapshot of assets before July 18, 2024, and suggests using WRX token funds and listing fees for compensation.
Raza questions why users with unaffected tokens are being penalized and who will cover the tax implications. He also points out that WazirX has not disclosed its financials and questions why the company itself is not bearing any of the financial impact.
Another community member, Anand Sharma, has questioned the legality and fairness of WazirX’s plan to use funds from other users to compensate ERC20 token holders. Sharma argues that this approach is both legally dubious and ethically problematic, as it penalizes users who are not directly affected by the security breach.
Ajay Kashyap, an Indian crypto YouTuber, has speculated that the Indian government might get involved in the WazirX crisis. He suggests that a governmental investigation could lead to serious legal consequences for the company and its executives. Kashyap’s comments reflect growing skepticism and distrust among Indian cryptocurrency users.
Involvement of Law Enforcement and Filing Complaints
Users of WazirX are demanding a CBI inquiry into hacking suspecting insider involvement. They are also dissatisfied with WazirX’s proposal for customers before compensation, leading them to seek intervention from the Delhi Police.
Additionally, the Federal Bureau of Investigation (FBI) has contacted Indian exchange WazirX to assist in investigating this major cyberattack.
Impact on WazirX’s Reputation and Future
The handling of this crisis is likely to have significant repercussions for WazirX’s reputation. The company faces a critical challenge in restoring user trust and addressing the concerns raised by critics. If the situation is not managed effectively, it could lead to long-term damage to WazirX’s market position and credibility within the cryptocurrency community.
WazirX’s response to the security breach has faced significant criticism for being inadequate and unfair. The company needs to improve transparency, take decisive actions, and consider involving law enforcement to restore trust and address the issue effectively.
