WazirX $235M Hack: Indian Regulators Probe Founders Months After Exploit
Key Takeaways
- WazirX founders quizzed by Indin financial watchdogs amid growing demand from hack victims.
- The crypto exchange’s post-hack dealing has raised questions and suspicions about insider jobs.
- A Singapore court granted WazirX a four-month conditional mortarium.
As WazirX proceeds with its restructuring plans in Singapore, Indian financial regulators have belatedly taken notice of a $235 million hack that targeted the exchange several months ago.
Indian Agencies Meet WazirX Founders
According to local media reports , A team of 10 officials from India’s top financial regulatory agencies met with the founders of WazirX over the past two weeks to discuss the company’s involvement in a massive hacking incident.
The officials, representing the Financial Intelligence Unit, Intelligence Bureau, and the Indian Computer Emergency Response Team, converged on WazirX’s Mumbai office to gather information on the hack, which resulted in the loss of $235 million.
The regulators reportedly investigated server and laptop logs, transaction trails, and the blockchain addresses linked to the hacking.
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While no physical electronics were confiscated during the meeting, the officials did collect crucial data as part of their preliminary investigation. People familiar with the inquiry said the government is deeply concerned about the hack’s impact on India’s retail market.
Government agencies have contacted WazirX to better understand the company’s internal workings, including its transaction processes and liquidity management.
The hacking incident has highlighted the risks associated with the largely unregulated cryptocurrency sector. According to a person aware of the investigation, “Grey areas” in the sector’s regulatory framework allegedly contributed to the hack.
Customers who claim the exchange kept them in the dark about the hacking incident have welcomed the Indian government’s involvement in the WazirX case.
An online campaign had been calling for action against the exchange, and the authorities’ probe marks a new development in the case.
What’s Next For WazirX Hack Victims?
WazirX is currently in the middle of a restructuring process in Singapore after a court- approved conditional four-month moratorium for the exchange.
The court ordered WazirX to reveal its current funds and publicize its hacked wallets.
While the crypto exchange has promised to reimburse 55% of the user’s funds after the restructuring process, it was heavily criticized for going to Singapore for the restructuring process.
WazirX, on the other hand, claimed that since Zettai, the private company behind WazirX, is incorporated in Singapore, any legal remedy will be done via Singapore.
However, the crypto exchange’s handling of the customer’s plea made it difficult for hack victims to trust it.
Now, with the Indian government agencies involved, WazirX hack victims hope the Nischal Shetty-led business doesn’t cheat its customers.
WazirX Hacker Launder Stolen ETH
By the final week of September, hackers behind the WazirX hack had laundered nearly all of the stolen funds, just as the crypto exchange entered its restructuring process.
The laundering process began on Sept. 3, with the hacker moving batches of 5,000 Ether (ETH) to Tornado Cash, a crypto mixing service.
The hacker used a very simple two-step method to launder the funds. They first transferred 5,000 ETH to a new address and then funneled the same amount through Tornado Cash in smaller batches.
According to Arkham data, most of the stolen funds were laundered within 22 days.
Arkham charts show a sharp rise in the hacker’s ETH balance on July 18, the day of the hack, followed by a gradual decline as the funds were moved to Tornado Cash.
By Sept. 29, the wallet’s ETH balance had returned to pre-hack levels.
WazirX hacker wallet. Source: ArkhamAs legal experts from the exchange assert that a full recovery is extremely unlikely, the hackers’ decision to move the stolen funds to Tornado Cash could potentially complicate matters further.
WazirX Users Might Never Recover Their Hacked Crypto
The revelation came just a week after WazirX canceled all outstanding orders on its platform and announced a restructuring plan, citing its ongoing dispute with Binance.
During the meeting, the exchange’s co-founder, Nischal Shetty, addressed the community’s concerns and provided updates on the restructuring process.
One of the most contentious issues raised was WazirX’s decision to seek restructuring in Singapore rather than India.
Panelists attributed the move to the protracted legal battle with Binance, adding that Singapore was the preferred choice due to Zettai’s presence in the country, which holds users’ crypto assets.
While addressing questions on potential chances of recovery, the legal expert on the panel noted that it’s implausible that the customers who have lost funds due to the hack will be made whole in crypto terms.
According to estimates, users who lost funds in the hack can expect to recover only 52-57% of their crypto portfolio.
To illustrate, a user who lost 100 Ether (ETH) before the hack might recover only 52-57 ETH.
While the expert offered a glimmer of hope, suggesting that the exchange might recover the US dollar value if crypto markets surge in the future, the news was a bitter pill for many users who had pinned their hopes on a full recovery.
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WazirX Cancels Open Orders Amid Ongoing Issues
“Please note that all open orders currently placed on WazirX will be canceled. Any INR and crypto assets blocked in these open orders will be added to your respective balances. This step is part of our ongoing efforts to resolve the issue surrounding INR and crypto balances on the platform.”
WazirX Promises Full Restoration
Initially, WazirX reported it would send emails to users affected by the hack detailing the impacted trades, how much of their funds would be returned, and more.
The exchange promised to refund Tax Deducted at Source (TDS) related to the affected trades.
WazirX also noted that trades involving INR or crypto executed after 1 PM IST on July 18, 2024, will be restored.
The beleaguered exchange asserted that the decision to restore users’ balance to what they were was not made lightly. WazirX shared that it aims to protect the integrity of its platform and facilitate an equitable outcome for users following the hack.
Seemingly, this is a major shift from its previous proposal, where it aimed to share the losses with its users.
Backlash Over Socialized Losses
Before the restoration announcement , WazirX proposed a controversial “socialized losses” plan, dubbed the “55/45 approach.”
The proposal was met with significant backlash from users, as it allowed only 55% of their assets to be traded on the exchange, while the remaining 45% would be converted into Tether (USDT) or other tokens and locked on the platform.
This plan would have affected all users, not just those impacted by the recent hack.
However, given the widespread frustration seen in the polls, with users criticizing the plan as unfair and questioning the exchange’s transparency, the plan didn’t go through.
WazirX’s CEO, Nischal Shetty, clarified that the poll was meant to gather feedback, not make a binding decision.
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The substantial loss has compromised WazirX’s ability to maintain the crucial 1:1 collateral ratio with its assets, raising serious concerns about the sufficiency of the exchange’s reserves and its capacity to reimburse customers fully.
North Korean Hackers Suspected in Massive WazirX Crypto Heist
Based on their on-chain analysis, Blockchain analytics firm Elliptic identified North Korean hackers as the prime suspects in the $235 million WazirX exploit on July 18.
At the time of writing, the hackers had pocketed over 45% of the exchange’s total funds and were reportedly on the run.
The hackers siphoned nearly $235 million worth of crypto assets, spanning over 200 unique tokens. This included approximately $96.7 million in Shiba Inu (SHIB), $52.6 million in Ether (ETH), $11 million in Polygon (MATIC), and $7.6 million in Pepe (PEPE).
Credit: EllipticHackers Move Over $234.9M from WazirX in Suspected Crypto Heist
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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