Analysing WazirX’s Controversial Approach to Mitigating Financial Impact of Wallet Hack

Over the weekend, the exchange published details on a ‘socialised loss strategy’ that it has hatched to deal with the financial aftermath of this hack.

Written by Radhika Parashar, Edited by Siddharth Suvarna | Updated: 29 July 2024 17:44 IST

Analysing WazirX’s Controversial Approach to Mitigating Financial Impact of Wallet Hack

Photo Credit: WazirX

WazirX has offered $23 million to the hacker in exchange for the remaining stolen funds

Highlights

WazirX wallet was hacked on July 18
Liminal and WazirX, both claim that their systems were not compromised
WazirX faces backlash on X for its 55/45 strategy

WazirX has been trying to resume services on its platform as it continues to investigate the recent hack of one of its wallets under Liminal Custody's oversight leading to a loss of $230 million (roughly Rs. 1,900 crore). Over the weekend, the exchange published details on a ‘socialised loss strategy' that it has hatched to deal with the financial aftermath of this hack. As part of this plan, the exchange has decided to distribute the impact of this loss ‘equitably' among all of its users – regardless of whether or not their funds were directly impacted by this hack. The development has stirred controversy in India's crypto sector.

Explaining its strategy, a blog post by WazirX said, “Users with 100 percent of their tokens in the ‘not stolen' category will receive 55 percent of those tokens back. The remaining 45 percent will be converted to USDT-equivalent tokens and locked.”

According to the Mumbai-headquartered exchange, this 55/45 approach should be able to balance the immediate access to a portion of users' assets while the exchange hopes for a future recovery of lost funds.

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WazirX has essentially laid out two options before its userbase of 16 million, noted Arjun Vijay, Co-Founder of Giottus crypto exchange. Over the weekend, Vijay called WazirX's plan ‘atrocious', alleging that the exchange is 'blackmailing' its users to either voluntarily lock their funds or they will not be prioritised if recovery was to be made.

“There are two options given to customers. Willingly disable their crypto/INR withdrawals and continue with trading and INR deposits or choose the other option where withdrawals will be open, but with daily limit,” Vijay said. “In case there is a recovery of the hacked amount, the people who choose option A will be rewarded with hundred percent of their funds back but people who choose option B will have to compromise with only some percent of the compensation.”

WazirX seems to be facing a backlash from India's crypto circle on this strategy. CoinDCX's Sumit Gupta also chimed in with Vijay opposing WazirX's plan, asking the exchange to reconsider its actions.

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One of our customers has received the mail and I am stunned at the atrocious choices that have been offered. Wazirx is asking users to voluntarily lock their funds and blackmailing them if they don't, they will not get first preference in recovery.

Wazirx is responsible for… pic.twitter.com/EGw4M3MFxK
— Arjun Vijay (@arjunvijay89) July 27, 2024

Hate to be saying this, but the way @WazirXIndia is handling this entire situation isn't community first and this IMO won't go down well for them. This sadly is also hurting the other ecosystem participants.

The first contribution to losses should ALWAYS come from the Company…
— Sumit Gupta (CoinDCX) (@smtgpt) July 29, 2024

The exchange has not addressed the feedbacks from industry stakeholders as of now. As per its blog, this strategy is fair and transparent that distributes the impact equitably. The exchange also cited instances where other crypto exchanges like Bitfinex used this strategy to manage a similar situation.

Meanwhile, the severity of this case has reportedly caught the attention of the FBI. Over the weekend, FBI reportedly reached out to WazirX seeking details of this hack. As per a statement being circulated on Monday, July 29 by cyber security firm Cyfirma, North Korea's infamous Lazarus Group is confirmed to be responsible for this hack attack. WazirX is yet to confirm Cyfirma's finding.

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Further reading: Cryptocurrency, WazirX Hack, Arjun Vijay, Giottus, CoinDCX, Sumit Gupta

Radhika Parashar

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Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More