WazirX plan to ‘socialise’ $230-million security breach losses draws user ire

“We are implementing a fair and transparent socialised loss strategy to distribute the impact across all users equitably… By socialising the loss, we ensure fairness across our user base and preserve the exchange’s stability. This approach balances quick access for some with potential recovery for others, aiming to resolve the situation more efficiently than traditional proceedings,” WazirX said in a blog post.

Essentially, WazirX will “rebalance” customer portfolios on its platform, returning only 55 per cent of their holdings while locking the remaining 45 per cent in USDT-equivalent tokens. This will also impact customers whose tokens were not directly affected by the breach, with the company stating that “users with 100 per cent of their tokens in the ‘not stolen’ category will receive 55 per cent of those tokens back.”

The decision has not gone down well, however. Ragul Goel, former CEO of financial services firm Equitymaster Research, called it “weird”. “Is there any legal or regulatory sanctity to all this? Is anyone in the management liable for negligence that allowed the hack in the first place? Why is it that whenever something goes wrong, it’s almost always only the little guy that takes the hit?” he said on social media platform X.

Sumit Gupta, founder of crypto investment platform CoinDCX said that WazirX’s move was “hurting other ecosystem participants”.

“The first contribution to losses should always come from the company and the treasury and assets the company holds. I have not seen any such commitment around this from the company side, instead making customers directly absorb the 45 per cent losses is utter nonsense,” Gupta said in a post on X.

After the criticism, WazirX clarified that it was a “preliminary step” to understand users’ opinions and “is not legally binding upon the users”.

WazirX is offering users two options moving forward. The first option allows customers to trade and hold their assets with priority for recovery efforts but restricts withdrawals. The second one permits trading and withdrawals but places users at a lower priority for recovery. “55 per cent of user crypto assets will be made available for trading and/or withdrawals (depending upon the option that you select), while the remaining 45 per cent will be converted to USDT-equivalent tokens and locked,” WazirX said in a blog post. “For both options, we’ll create a balanced portfolio for your unlocked portion (55 per cent) using a basket of crypto assets derived from available crypto assets on the platform.” In an email to users, WazirX said that it has filed an online police complaint on the National Cyber Crime Reporting Portal and is processing a physical complaint. It has also reported the incident to the Financial Intelligence Unit (FIU) India and the Computer Emergency Response Team (CERT-In).