On July 18, around 4.2 million of WazirX’s 16 million users suffered a massive attack on the cryptocurrency exchange, which wiped out 40-50% of their cryptocurrency balances. The majority of the affected users were Indian. However, in the month and a half since the $230 million attack, no legal or regulatory action has been taken in India against the exchange or its owners.
India has chosen to tax cryptocurrencies without actually regulating them or creating safeguards for consumers. It has also exposed the complex holding structures and interconnections of cryptocurrency exchanges in India.
WazirX has offered a $23 million reward to recover digital assets stolen from one of its wallets, but has turned to the High Court of Singapore, where its parent company Zetai Pte is based, to request a moratorium on all legal claims against it while it works out a restructuring plan.
CoinSwitch, another Indian cryptocurrency exchange, has turned to the Singapore courts to recover its own cryptocurrency balances held on WazirX. Most other victims of the WazirX hack would not have that luxury.
“I had invested approximately ₹1.4 lakh on WazirX about 3-4 years ago, which grew to ₹“2 lakh over time… I think I will get back about half of my money, I don’t know whether in a year or ten,” said Ravi Handa, a Jaipur-based investor.
WazirX declined to comment for this report.
Criminal litigation an option for users
WazirX, which had around $570 million in customer balances before the hackers struck, canceled transactions made after July 18 and halted withdrawals. It then allowed the withdrawal of two-thirds of the cash balances it held on the exchange in a phased manner. It decided to retain the remaining one-third of the balances to comply with legal requirements.
This amount may be related to previous seizures by law enforcement agencies of cryptocurrencies held in trust at WazirX or regulatory actions against the exchange itself. In 2022, the Enforcement Directorate had sent a notice under the Foreign Exchange Management Act to WazirX to allow remittance of foreign currency abroad. ₹2.79 billion rupees to unknown wallets.
Nitin Sethi, who has been using WazirX for over six years, shared his concerns about the platform’s governance and security issues. “It’s strange that you have so much money in a single wallet that got hacked,” he said, adding that WazirX’s centralized approach rather than maintaining multiple wallets to spread the risk has put millions of users’ funds at risk.
WazirX has stated that its security measures require 5-6 signatories, including a custodian, for its wallets.
Read also | The $230 million WazirX hack: How safe are your cryptocurrencies?
WazirX’s Singapore-based presence has also left many users feeling abandoned by both the platform and local regulators, such as India’s Financial Intelligence Unit (FIU), which has yet to issue any clear statements or actions in response to the hack.
“Indian clients have the option to initiate criminal proceedings against WazirX in India, which could help recover funds and hold responsible parties accountable. Criminal proceedings can be more effective in compelling action and ensuring restitution, especially in cases involving such potential fraud or misconduct,” said Sumit Agrawal, founder of Regstreet Law Advisors and former Securities and Exchange Board of India official.
“However, investors should also be mindful of the evolving nature of legislation and regulation in the cryptocurrency sector in India. Without a comprehensive and established regulatory framework, investors are currently operating at their own risk,” he added.
Without regulations, the responsibility falls on the… users
Nikhil Kumar, co-founder of a Bengaluru-based startup, shared his frustrations at not being able to sell his cryptocurrency holdings on WazirX due to the platform’s decision to halt trading following the July 18 hack.
“I need some money to withdraw from the profits as I also don’t know how the markets would change because it is a volatile market anyway,” he explained.
Kumar had invested inCryptocurrenciesin 2021 with the intention of using the savings as part of his long-term investment strategy. Now he finds himself stuck and unable to liquidate his crypto assets when he needs them most. “It would have been a big help if I could use some of my savings there, because I had invested my money so that it would be of some use to me in the future.”
Kumar added that unlike banks and financial institutions, which take responsibility when something goes wrong, WazirX has let its users bear the brunt of their losses. “WazirX should take some responsibility and not let users suffer.”
Ajeet Khurana, founder of Reflexical Pte Ltd, a Singapore-based consultancy for startups in the Web3 space, said WazirX’s decision to use “client funds for legal expenses is unprecedented.”
“There needs to be much more transparency about how much money is held in each entity, Indian or Singaporean. While the moratorium request in Singapore has revealed a lot of information, there should be similar transparency about the Indian entity as well,” Khurana said. “WazirX should consider making significant reparations to offset the client’s loss from its own treasury and from the sale of its equity and other assets.”
However, in the long term, Agrawal of Regstreet Law Advisors said Sebi and the Reserve Bank of India must jointly intervene and regulate the cryptocurrency market to prevent such incidents.
“Until such regulations are implemented, the risks associated with digital assets will remain high, so it is imperative that investors remain cautious and well-informed.”
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