The Indian cryptocurrency exchange WazirX has been rocked by a $230 million cyberattack, leaving its users in a state of anxiety and uncertainty. After the attack, the platform announced a restructuring plan that has raised more questions than answers, leaving users grappling with the implications of this crisis.

The Cyberattack and its Fallout

On July 18, a multi-signature wallet belonging to WazirX, managed by Liminal, a digital asset custody company, was exploited, leading to the loss of over $230 million in assets. This incident resulted in WazirX losing over 40% of its total holdings, leaving the platform reeling from the impact. Both WazirX and Liminal are pointing fingers at each other, blaming each other for security failures, while insisting that their platforms were not hacked. Despite the ongoing finger-pointing, the perpetrators remain unidentified.

WazirX’s lack of transparency regarding the attack and its aftermath has further heightened user anxiety. There have been significant delays in providing updates about the perpetrators and the live proof-of-reserves, leaving customers in the dark about the future of their funds. The lack of concrete information and timeline has fuelled frustration and distrust among WazirX users.

A Controversial Restructuring Plan

The situation worsened when WazirX announced its plans to pursue a “Singapore Scheme of Arrangement,” a debt restructuring proposal that users would have to vote on and approve, followed by court sanctioning. This announcement created confusion and anger, as users were given little clarity about the restructuring plan’s timeline and their level of influence over the future of their frozen funds. Users questioned the decision to take the matter to a foreign court, especially with their funds tied up in limbo.

Adding insult to injury, WazirX revealed that all eligible users with INR balances would only be able to withdraw 66% of their balances. This was attributed to frozen funds linked to Zanmai, WazirX’s rupee operating entity, currently embroiled in investigations by law enforcement. Though WazirX assured that the funds were safe, it remained unclear when the full release would happen.

A Moratorium and its Implications

WazirX’s crypto operating entity, Zettai, filed for a moratorium under Singapore’s Insolvency, Restructuring and Dissolution Act 2018. This move, which automatically provides a 30-day moratorium and potentially a longer period granted by the court, effectively restricts legal action against the exchange.

The moratorium, according to WazirX, is meant to provide “breathing space” and give them time to work on a restructuring plan. The exchange believes it will need at least six months to finalise the plan, adding to the mounting anxiety of its users. The lack of clear timelines and actions on WazirX’s part has caused considerable distress among its users.

The Search for a “White Knight”

Amidst the turmoil, WazirX has been seeking a rescue financing or a “white knight” partner. This has led the platform to engage with multiple crypto players to explore possibilities of securing necessary funds to potentially mitigate the impact of the hack. The company has received four legal notices as a result of the cyberattack, adding another layer of complexity to the situation.

WazirX is hoping to spread the cyberattack’s impact across users through a planned restructuring, with users receiving a proportionate share of available token assets. The platform has also suggested that new revenue-generating products could benefit users. However, these proposed measures remain unclear and unproven, causing user uncertainty.

The Growing User Anxiety

WazirX’s users are expressing their anxiety and frustration on social media. Their emotions range from prayers and pleas to threats and insults, with many worried that the current period of rising crypto prices will end before they regain access to their funds.

Amidst this atmosphere, scammers are taking advantage of vulnerable users, while those critical of WazirX’s CEO Nischal Shetty claim to be blocked and ignored. So-called crypto lawyers and “experts” are also using the situation to their advantage, further amplifying the tension and anxiety surrounding the issue.

A Series of Revelations and More Questions

The situation has been further complicated by revelations surrounding WazirX’s ownership. Nischal Shetty stated that he does not own WazirX and sold the platform in 2019. This statement sparked a frenzy, as many were unaware of the previous controversy regarding WazirX’s supposed acquisition by Binance, a revelation that further shook user trust. Binance subsequently distanced itself from WazirX, leading to increased uncertainty about the exchange’s ownership structure.

Shetty, while refraining from commenting on the ownership issue, highlighted WazirX’s exploration of options including stolen asset recovery, potential partners, new products, and rescue financing. However, these solutions are still in the planning stage, leaving users in a state of anxious waiting.

Parallels and Precedents

WazirX’s situation echoes that of Vauld, a crypto exchange/lending company that also underwent a restructuring and moratorium process in 2022 following high withdrawals during a market crash. Vauld, like WazirX, used Kroll and Rajah & Tann for legal advice. Despite the parallels, the situation continues to generate further questions.

A Cry for Transparency and Action

WazirX’s users are demanding transparency and clear answers. They want concise action plans, concrete timelines, and proper compensation for the losses they have endured. In response to these demands, WazirX is offering a 52-page-long affidavit and emotional X posts from the CEO. This, however, is not enough to alleviate the mounting user distress. The situation continues to evolve with further legal action by CoinSwitch, a crypto platform with frozen funds on WazirX. The exchange is facing a tide of criticism and frustration from its users.

Take Away Points

• WazirX is struggling to navigate the consequences of a major cyberattack.
• The platform is dealing with a lack of trust from its users due to a lack of transparency, vague communication, and inconsistent action plans.
• The moratorium granted to the exchange is facing heavy scrutiny, leaving its users uncertain about their frozen funds.
• The revelations surrounding ownership of the exchange have further eroded user confidence.
• WazirX is navigating the complexities of restructuring, seeking a “white knight” and exploring rescue financing options.
• The platform is facing mounting legal pressure, further complicating its situation.
• WazirX’s users are demanding concrete answers, clear action plans, and proper compensation.

The crisis facing WazirX has become a stark reminder of the vulnerabilities and complexities of the cryptocurrency landscape. The situation highlights the need for enhanced security measures, improved transparency, and user protection mechanisms within the industry. How WazirX navigates this crisis will determine its future and the level of trust it can regain with its users.