Earlier this month, Indian crypto exchange WazirX experienced a significant security breach that resulted in the loss of user funds and $230 million in withdrawals. In response to this crisis, the company has unveiled a controversial recovery plan aimed at distributing the impact of the loss across its user base.
On Saturday, WazirX announced a "socialized loss strategy" to manage the aftermath of the cyberattack, which resulted in the theft of approximately $230 million—equivalent to 45% of their user funds. The exchange plans to divide this loss equitably among all users to maintain the platform's stability. "In response to the recent cyberattack, we are dedicated to navigating this situation with utmost transparency and fairness. We are implementing a fair and transparent socialized loss strategy to distribute the impact across all users equitably," the company stated in a blog post.
The exchange temporarily suspended INR and crypto withdrawals last week following the breach. WazirX's approach aims to balance fairness across its user base while preserving the exchange's stability. By spreading the loss among all users, WazirX hopes to provide a more efficient resolution compared to traditional recovery methods, which could involve lengthy legal proceedings.
WazirX's recovery plan offers users two options moving forward. **Option A** focuses on recovery efforts, allowing users to trade and hold their crypto assets but restricting withdrawals. **Option B** enables trading and withdrawals but prioritizes recovery efforts for users who choose Option A. Users can switch between these options, though specific conditions apply. "Option B allows trading and withdrawals, but recovery efforts will prioritize those who selected Option A. You can switch to Option A anytime before making any trades or withdrawals," the company explained.
During a community call on Friday, WazirX founder Nischal Shetty confirmed that the company did not insure customer funds due to a lack of viable insurance options. He warned that recovery efforts might take years and may or may not succeed. Shetty highlighted two possible approaches for handling such situations: legal proceedings, which are lengthy and costly, or socializing the loss and rebuilding the business. He emphasized that socializing the loss and focusing on rebuilding could lead to a faster recovery. "Historically, exchanges facing such situations have two options. Legal proceedings take years, and the outcome is to distribute what is left of the assets, often with significant legal fees. Socializing the loss and rebuilding offers a potentially faster recovery by growing the business and distributing any future profits," Shetty stated on X.
WazirX has detailed several key points for users affected by the breach. Following the attack, 55% of user crypto assets will be available for trading or withdrawals based on the chosen option, while the remaining 45% will be converted to USDT-equivalent tokens and locked. Both options will feature a balanced portfolio using available crypto assets on the platform, with adjustments made to replace affected tokens if necessary. The value of the unlocked portfolio will be based on average prices from CoinMarketCap and select global exchanges as of July 21, 2024.
Platform operations are expected to resume shortly after the ongoing poll concludes. Registered users will receive instructions and a link to select their preferred option via email. Users must submit their choice by August 3, 2024, 07:00 AM IST. The poll results will inform the final decision, which will also consider ongoing investigations, platform liquidity, and evolving circumstances.
Founded in 2018, WazirX is an Indian cryptocurrency exchange that facilitates the buying, selling, and trading of various cryptocurrencies, including Bitcoin and Ethereum. The platform supports spot trading, staking, and peer-to-peer transactions, and features its native utility token, WRX. It also integrates with Binance, a leading global cryptocurrency exchange.
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