WazirX's 'socialise' plan after $230 million hack sparks row

Crypto exchange WazirX has announced a "socialise" loss strategy after a massive security breach worth $230 million at the Indian platform, much to the shock of its users as well as other crypto enthusiasts. WazirX allegedly faced a cyber attack from a North Korean hacker group, wiping off $230 million (45% of user funds) from the exchange wallets on July 22, 2024. "We are implementing a socialized loss strategy to distribute the impact equitably among all users," says WazirX in a blog post.

The crypto exchange has offered two options to manage the remaining assets, each with specific benefits and conditions. Option A allows customers to trade and hold crypto, with priority for recovery and no withdrawals. Option B allows trade and withdrawals, but low priority on recovery.

WazirX CEO Nischal Shetty says nothing is "impossible" if WazirX can survive this. "It will grow and if it makes profits those can be used for recovery. But, it’s only possible if all our customers support us."

He says that historically there have been two options that exchanges, which faced such a situation, could take:

1. Legal proceedings: It takes years and the outcome is to distribute what is left of the assets. Legal fees will add up as well, the matter drags for years. No one gets anything until then. The outcome is similar to that of socialising the loss structure.

2. Socialise loss & rebuild: First socialise the loss. Then rebuild by growing the business where you can distribute any profits and find more solutions like new buyers, new initiatives etc since the business will operate. This leads to faster recovery.

"In option 2, WazirX becomes the people’s exchange, working on various recovery methods. Only together, we can do this," says the crypto exchange CEO.

WazirX says its 55/45 approach will offer a faster and more flexible solution. "This strategy allows immediate access to a significant portion of your assets while maintaining the possibility of further recovery for those who choose to wait."

WazirX says that by "socialising the loss", it will ensure fairness across the user base and preserve the exchange’s stability because it will balance "quick access" for some with potential recovery for others.

Under WazirX's "socialise" plan, 55% of user crypto assets will be made available for trading and/or withdrawals, depending upon the option that one selects, while the remaining 45% will be converted to USDT-equivalent tokens and locked.

This means, irrespective of whether one's assets are stolen or not, they can only trade in 55%, while 45% of their tokens will be converted into stablecoins and will remain "locked", thereby affecting the overall value of customers' portfolio.

WazirX has asked its registered users to choose either of these options. "...(Users)will receive an email with detailed instructions and a link to WazirX, where they can select their preferred option. Please ensure you complete this poll to have your choice recorded," the company says, adding that the deadline for the same is August 3, 2024.

Meanwhile, the latest decision by Mumbai-based crypto platform has angered the crypto community. "This should be the end of WazirX. The idea is that the company saw a theft for which they will charge all their users. The legal way is to take all of their own money first and then the rest of the losses can be distributed. Basically, liquidate it through nclt," says Deepak Shenoy, CEO, CapitalMind, says on X.

Another user, Arjun Vijay (arjunvijay89) wrote he had deep discussions with fellow entrepreneurs in the crypto ecosystem. "We uncovered a lot of flaws in the proposed plan, in both option A and option B. The solution that has been proposed has not been drafted with the customer in mind. Their priority has been to protect the platform at the expense of the customers."

Another one, Pankaj Tanwar (@pankjtanwar), wrote he can't support the move. "Users are forced to take the left amount after loot because of wazirx fault & you guys are dreaming to start this again. What is your contribution. How much you are paying for the loss from your pocket?"