WazirX, one of India’s leading cryptocurrency exchanges, is under intense scrutiny after setting aside ₹100 crore (approximately $12 million USD) of users’ funds to cover legal costs amidst a growing legal battle. This move comes in the wake of a major cyber hack last month, which resulted in the loss of 45% of user funds and has since led to mounting legal challenges and dissatisfaction among its user base.
Legal Troubles and Hack Fallout
WazirX recently revealed that it has received four legal notices related to the July 18 hack, which saw ₹2,000 crore (approximately $230 million USD) in crypto assets stolen from its multi-signature wallet. Among those pursuing legal action is CoinSwitch, another Indian crypto exchange, which announced its intention to sue WazirX for the recovery of ₹80 crore it had invested in the exchange.
These legal challenges are compounded by the fact that WazirX had a significant user base at the time of the hack, with 1.6 crore active users, 44 lakh of whom had crypto holdings. In response to the crisis, WazirX limited INR withdrawals to 66% per user, with a phased approach that also includes a six-month window for 100% crypto withdrawals. However, this has done little to alleviate user frustrations.
Affidavit Details: A Glimpse into WazirX’s Legal Strategy
WazirX’s parent company, Zettai Pte Limited, has filed an affidavit in the Singapore High Court, seeking a moratorium under the country’s Insolvency, Restructuring and Dissolution Act 2018. The 52-page affidavit, which was shared with WazirX’s customers, provides a detailed account of the exchange’s strategy to navigate the legal and financial quagmire it finds itself in.
The affidavit highlights the growing hostility among users, noting that the platform had already received over 9,700 withdrawal-related complaints as of August 24, 2024. It also indicates that the moratorium is a necessary step to protect the exchange from further legal actions that could derail its restructuring efforts.
Financial Recovery and User Compensation
WazirX’s recovery plan includes a 30-day automatic moratorium to shield itself from legal proceedings while it works to stabilize the platform. The plan also involves a pro-rata distribution of the remaining $284 million in assets among users, who are classified as unsecured creditors. The company is exploring various liquidity management options to provide immediate relief to affected users while also engaging with 11 potential investors, dubbed “white knights,” to secure additional capital for recovery efforts.
The Binance Dispute and Its Impact
The affidavit also sheds light on the ongoing dispute between WazirX and Binance, a leading global cryptocurrency exchange, regarding the control and ownership of WazirX. Initially, Binance had entered into a deal to transfer control of WazirX, but the arrangement fell apart, leading to a public conflict over the management of the platform’s digital assets. Binance’s decision to close the wallets holding these assets, contrary to earlier commitments, forced Zettai to take over the tokens to keep WazirX operational. The dispute remains unresolved, with many details still confidential.
Growing User Frustration and Uncertainty
Despite the detailed recovery plan presented by WazirX, many users remain skeptical about the return of their funds. The affidavit’s revelations have done little to quell the rising anger, with users accusing WazirX of dishonesty and demanding the full return of their stolen crypto assets. The exchange’s reduced trading volumes and limited interest from potential investors only add to the uncertainty surrounding its future.
Upcoming Town Hall Session
In an effort to address these concerns, WazirX has scheduled a town hall session for September 2, where the team and its advisors will discuss the latest developments and outline the next steps in the recovery process. This session is seen as a critical opportunity for WazirX to rebuild trust with its users and provide much-needed clarity on the future of the platform.
Read More: WazirX Files for Moratorium in Singapore Court Amid Cyberattack Fallout
