WazirX Struggles with $230 Million Hack Recovery

Indian crypto exchange faces backlash over controversial recovery plans and disputes with custody provider.

Indian cryptocurrency exchange WazirX is in turmoil after a massive security breach on July 18, 2024, resulting in a $230 million loss, equating to 45% of customer funds. Co-founder Nischal Shetty has confirmed the exchange is exploring all recovery options, including reaching out to other exchanges and crypto projects.

A controversial recovery plan proposes distributing the loss impact across all users, including those unaffected by the hack. This plan, termed the “socialized loss strategy,” allows 55% of assets to remain available for trading and withdrawals, while 45% will be locked until recovery efforts progress. The strategy has faced significant criticism for its perceived unfairness to unaffected users.

The hack has also sparked a dispute between WazirX and its custody provider, Liminal. While WazirX’s internal investigation claims the hack involved Liminal’s infrastructure, Liminal denies any compromise, asserting the affected wallet originated from an external source.

A key issue exacerbating the situation is WazirX’s lack of insurance for customer funds. Shetty acknowledged this gap, citing a lack of viable insurance options, which forces the exchange and its users to absorb the losses.

In response to the breach, WazirX has paused trading and withdrawals, filed a police complaint in Mumbai, and reported the incident to the Indian Computer Emergency Response Team (CERT-In). Shetty mentioned that both Indian and international authorities have reached out to assist, although specific names were not disclosed.

WazirX is running two parallel recovery phases: an immediate revival to unlock collateralized assets for customers, and exploring ways to bridge the financial gap caused by the hack. The exchange has launched a bounty program and is seeking potential assistance from project teams and their emergency funds.

Decisions regarding the recovery plan will be made based on community consensus, as shown by a user opinion poll. WazirX emphasized that no unilateral decisions will be taken without proper user consent.

As of July 31, 2024, there is no definitive timeline for resuming operations or implementing the recovery plan, leaving users uncertain about the future of their assets on the platform.

photo source / Blockonome