WazirX, an Indian cryptocurrency exchange, made headlines recently with its controversial plan to distribute the $230 million loss from a security breach among all its customers. This move has caused shockwaves within the local crypto community, sparking debates and concerns about fairness and transparency.
In response to the cyber attack, WazirX suspended all trading activities on its platform and outlined a strategy to resume operations within a week. The company aims to implement a “fair and transparent socialized loss strategy” to distribute the impact equitably among its user base.
Under this strategy, WazirX plans to “rebalance” customer portfolios by returning only 55% of their holdings, while locking the remaining 45% in USDT-equivalent tokens. This means that even customers whose tokens were not directly affected by the breach will also experience losses. WazirX justifies this by stating that users with 100% of their tokens in the “not stolen” category will receive 55% of those tokens back.
The security breach resulted in the theft of over 200 different cryptocurrencies, with the majority of losses concentrated in popular tokens like Shiba Inu, Ethereum, MATIC, and Pepe. This information was provided by Lookchain, a third-party blockchain data analysis provider.
According to WazirX, the cyber attack exploited a discrepancy between the displayed data on multisignature wallet provider Liminal’s interface and the actual contents of transactions. This highlights the need for robust security measures and continuous monitoring in the cryptocurrency industry.
Moving forward, WazirX is offering users two options. Option A allows customers to trade and hold their crypto assets with priority for recovery efforts but restricts withdrawals. Option B permits trading and withdrawals but places users at a lower priority for recovery. Users can switch between these options, but certain conditions apply.
Founder Nishal Shetty addressed the community in a one-way call and revealed that the firm did not insure customer funds because viable options were not available. He cautioned that the recovery effort may or may not work and could take years. This raises concerns about the extent of control WazirX has over users’ crypto assets and its responsibility as an exchange.
Critics, including Nikhil Pahwa, a policy voice and editor of MediaNama, argue that WazirX is not just acting as an exchange but is also reaching into user wallets to take out crypto and distribute it to others. This challenges the notion that WazirX is solely an exchange and raises questions about its role and obligations to its customers.
Many WazirX customers have also questioned why the firm is not tapping into its own profit reserves to compensate customers or at least mitigate the damage. This calls into question the company’s priorities and raises concerns about its financial stability and ability to handle such incidents.
Overall, WazirX’s plan to socialize the losses from the recent security breach has sparked controversy and debate within the crypto community. The move raises important questions about fairness, transparency, and the responsibilities of cryptocurrency exchanges in protecting user assets. As the industry continues to evolve, it is crucial for exchanges to prioritize security and adopt measures that inspire trust and confidence among their user base.