WazirX to ‘socialise’ $230m loss after security breach

Indian cryptocurrency exchange WazirX has announced a controversial plan to distribute its recent $230 million loss from a security breach among all its customers, sparking outrage in the local crypto community.

The cyberattack, which occurred on July 18, compromised nearly half of WazirX’s reserves, prompting the company to suspend all trading activities. WazirX aims to resume operations within a week and implement a “fair and transparent socialised loss strategy” to equitably distribute the impact among its users.

Under this strategy, WazirX will “rebalance” customer portfolios by returning only 55 per cent of their holdings and locking the remaining 45 per cent in USDT-equivalent tokens.

This approach will affect all customers, including those whose tokens were not directly compromised. The breach resulted in the theft of over 200 cryptocurrencies, with significant losses in popular tokens such as Shiba Inu (SHIB), Ethereum (ETH), Polygon’s MATIC, and the meme cryptocurrency Pepe.

WazirX is offering users two options for recovery. 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 to Option A before making trades or withdrawals, but with certain conditions attached.

The plan has drawn criticism, with many customers questioning why WazirX is not utilising its profit reserves to mitigate the losses.

Nikhil Pahwa, a leading policy analyst and editor of MediaNama, criticised WazirX’s actions, stating that the exchange is exerting control over users’ crypto assets beyond just acting as an exchange.

In a one-way call addressed to the community, WazirX founder Nishal Shetty confirmed that the company did not insure customers’ funds due to a lack of viable options.

He cautioned that the recovery effort may take years and may not succeed. This revelation has further fueled dissatisfaction among users, who are concerned about the exchange’s ability to protect their investments.