CoinSwitch, a prominent Indian cryptocurrency exchange, has filed a lawsuit against rival platform WazirX in an attempt to recover funds that were trapped following a cyberattack. The attack on WazirX resulted in the theft of $230 million worth of digital assets, highlighting the significant damage caused by such security breaches.
The security breach at WazirX was reported over a month ago, and the exchange proposed a controversial “socialized loss” strategy in an effort to distribute the losses across all of its users. CoinSwitch, which operates as an exchange aggregator, has approximately ₹810 million ($9.65 million) worth of assets stuck on WazirX’s platform. This includes ₹124 million in fiat currency, ₹287 million in ERC20 tokens, and ₹399 million in other cryptocurrencies.
Despite attempts to reach a solution with WazirX, CoinSwitch has been unable to recover the trapped funds. In a detailed thread on X, CoinSwitch stated that the funds represent about 2% of its total assets, with less than 1% of its assets affected by the cyberattack. The impact of the attack was primarily on ERC20 tokens.
To ensure the security and stability of its own platform, CoinSwitch is utilizing its own treasury to maintain a 1:1 ratio for users’ holdings. The company’s overall assets exceed the user assets invested through its platform by a factor of 1.51x. CoinSwitch also keeps a small portion of its liquidity, approximately 7% of its reserves, on third-party exchanges to facilitate smooth trading for its users.
This lawsuit brought by CoinSwitch sheds light on the challenges faced by India’s cryptocurrency industry, which has been grappling with regulatory uncertainty and security concerns. The WazirX incident, considered India’s largest crypto heist, has further eroded trust among users and investors in the sector.
In an attempt to resume operations after the attack, WazirX proposed returning only 55% of customer holdings while locking the remaining 45% in USDT-equivalent tokens. The founder of WazirX, Nischal Shetty, previously confirmed that the company did not have insurance for customer funds due to a lack of viable options. He also cautioned that the recovery process could take years and success was not guaranteed.
As of now, Nischal Shetty has not responded to requests for comment regarding the lawsuit. The outcome of this legal battle will have significant implications for both CoinSwitch and WazirX, as well as the wider cryptocurrency industry in India. It remains to be seen how the court will rule on the matter and whether CoinSwitch will be successful in recovering its trapped funds.