Indian cryptocurrency exchange WazirX has announced plans to distribute the $230 million loss from its recent security breach across its customer base. The strategy involves redistributing the breach equitably among all users, a move that has been criticised widely.
The exchange, which halted all trading activities last week in response to the cyber attack, outlined a “fair and transparent socialised loss strategy” to resume operations in a week.
The tragically funny “socialised loss strategy” means that the cyber attack-affected company shares the assets among all users “instead of placing the burden of the loss on a single individual”.
Essentially, every crypto trader on the app loses money.
“Our approach involves a partial lock on the crypto portfolio balance while your INR wallet balance remains unaffected. This phased strategy allows us to provide access to a portion of your crypto assets while working on recovery, to reopen the platform as swiftly as possible,” said the company.
WazirX’s plan includes rebalancing customer portfolios on its platform, allowing users to recover only 55% of their holdings. The remaining 45% will be locked in USDT-equivalent tokens. This measure affects all customers, including those whose tokens were not directly compromised by the breach.
“45% of the value of your SHIB holdings as of 21st July 2024, 8:30 PM IST, will be converted to USDT-equivalent tokens and locked. The remaining 55% will be used to create a balanced portfolio with available crypto assets on the platform,” explained the company.
The breach occurred on July 18 and resulted in the theft of over 200 different cryptocurrencies, including popular tokens like Ethereum, Maic, Pepe, USDT, and Gala.
WazirX offers two options: Option A allows customers to trade and hold their crypto assets with priority in recovery efforts but restricted withdrawals. Option B permits trading and withdrawals but places users at a lower priority for recovery.
Users can switch between these options under certain conditions.
Journalist Nikhil Pahwa criticised WazirX’s policy, saying, “WazirX is actually exercising control over crypto assets that it holds for users. This means that it is not just acting as an interchange and a depositary but actually reaching into user wallets, taking out crypto, and giving it to others. It can’t claim to be an exchange only.”
Concerns also arise on whether this action by WazirX can be treated as theft in India and abroad.
“So if it is stored with an Indian entity, this so-called ‘socialisation’ could be seen as theft. If it’s with a foreign entity and WazirX does what it wants, it could violate FEMA,” explains Pahwa.
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