WazirX announces phased Indian Rupee withdrawals plan after major $230 million security breach

Embattled Indian exchange WazirX has announced the reopening of Indian Rupee (INR) withdrawals a few weeks after it lost $230 million in a cyberattack.

The crypto exchange plans to allow users with INR balances to withdraw 66% of their assets for now, but 34% remain frozen due to ongoing disputes and investigations by law enforcement agencies.

The exchange disclosed that users can withdraw half of the available 66% from August 26, 2024, to September 8, 2024. The other half would be available for withdrawal between September 9 and September 22, 2024. It did not specify when or whether the 34% balance would be available.

WazirX crypto holders get the short end of the stick

The exchange can distribute Indian rupees because its operating entity, Zanmai Labs, held the INR balance and was unaffected by the hack. However, customers with cryptocurrency balances are in a worse position due to the cyberattack, as the exchange lost most of its ERC-20 tokens.

This means the exchange balance is insufficient to cover the customer’s assets, making it impossible to resume crypto withdrawals.

It said:

“Due to the cyberattack and loss of a significant balance of ERC-20 tokens as a result of the theft, there are insufficient token assets available to meet the liabilities arising from the token balances owing to users of the platform.”

The exchange now plans to distribute the remaining crypto assets to users equitably under the Singapore Scheme of Arrangement system. Under this arrangement, users will have to vote on a restructuring proposal to divide the remaining assets among themselves. However, the exchange has not stated the percentage of users’ assets they will likely receive.

It explained the arrangement as follows:

“We have decided to pursue a Singapore Scheme of Arrangement to facilitate an equitable and user-approved distribution of cryptocurrency assets pursuant to a Scheme. A Scheme is a necessary step to ensure that users of the platform are treated fairly and in line with user preferences so that the outcome remains legally binding on all relevant parties.”

Meanwhile, WazirX has reduced its transaction fees from 25 INR to 10 INR to enable people to withdraw their INR. It also noted that Zanmai Labs is not under any investigation, and the 34% frozen funds are just a precautionary measure. The exchange has promised to expedite the process so INR users can withdraw all their funds.

WazirX to apply for restructuring in Singapore

As part of its restructuring plans, the exchange plans to apply to the High Court of Singapore to start the process. It said this would give it enough time and breathing space to work on its plan. The restructuring would involve getting the affected customers to agree on a proposal.

While WazirX did not specify the process, it promised to keep users involved and updated:

“This legal process will be driven by us and our advisors, ultimately users will be able to vote on and approve a restructuring proposal before the Scheme is effective – this means that users will be kept updated on all material developments and your opinions understood via polls and town halls.”

Any restructuring plan will likely take years, based on the timeline of previous incidents. The Mt. Gox theft victims only got their assets back after ten years. On the other hand, victims of more recent failed crypto ventures, such as FTX, Celsius, BlockFi, and Gemini Trust, have not recovered their assets after almost two years. It is unlikely that WazirX would be any different.

Several users have already complained about the proposal, describing it as compounding customers’ woes. They claim that the exchange exploits the situation by refusing to return all their INR. Others note that WazirX is socializing losses by forcing users to bear the brunt of the cyberattack without contributing anything.