WazirX Faces Criticism Over Loss Recovery Plan Following $230 Million Hack

Indian cryptocurrency exchange WazirX is under fire after proposing a “socialized loss strategy” to manage the aftermath of a July 18 security breach that resulted in a loss of approximately $230 million, or around 45% of its total assets.

Polling Users on Recovery Options

On Saturday, WazirX co-founder Nischal Shetty detailed two potential recovery paths in a post on X (formerly Twitter). The exchange also conducted a poll, asking customers to choose between two options:

1. Access 55% of their funds without the ability to withdraw but receive priority for any potential recovery funds.
2. Access 55% of their funds with the ability to withdraw but have secondary priority for potential recovery funds.

The remaining 45% would be converted to USDT and locked. This approach has led to widespread criticism from the crypto community.

#WazirX's July 27th poll on fund recovery after a major hack faces criticism for being misleading and potentially illegal.#WazirXhack #cryptolinesofficial #WazirXindia #cryptolines pic.twitter.com/ehyESWDtnR

— Crypto Lines (@Cryptolinesteam) July 30, 2024

Community Backlash and Company Response

After facing significant backlash, WazirX and Shetty clarified on Monday that the poll was not legally binding. They stated, “Our team is currently reviewing all your inputs to devise a plan that truly aligns with the community’s best interests. We aim to develop a plan that incorporates your collective voice and ensures a fair and effective outcome.”

Shetty defended the proposed socialized loss strategy in a video, arguing that it would allow the exchange to reopen and continue operations while exploring options to recover the stolen tokens and reimburse affected users.

Criticism from Industry Peers

Many have criticized WazirX’s approach, arguing that it unfairly penalizes users for the breach. CoinDCX co-founder Sumit Gupta commented, “Making customers directly absorb the 45% losses is utter nonsense. The poll options are also framed in a manner to protect the business first and not the customers.”

The hacker reportedly stole over $100 million in Shiba Inu tokens, 20 million Matic tokens ($11 million), 640 billion Pepe tokens ($7.5 million), 5.7 million USDT, and 135 million Gala tokens ($3.5 million). Following the breach, WazirX halted trading. Reports suggest that the North Korean state-sponsored Lazarus Group might be behind the hack, casting doubt on the possibility of fund recovery.

WazirX Faces Criticism Over Proposed Recovery Plan Following $230 Million Hackhttps://t.co/4kx8PSMwvx

— Blockonomi (@blockonomi) July 30, 2024

Conclusion

The WazirX hacking incident highlights the vulnerabilities in cryptocurrency exchanges and the complexities involved in managing significant security breaches.

While WazirX’s proposed solutions aim to balance recovery efforts and operational continuity, they have sparked a heated debate about customer protection and the responsibility of exchanges in such crises. As WazirX navigates this challenging period, the broader crypto community watches closely, emphasizing the need for robust security measures and transparent, customer-centric recovery strategies.