Unraveling the WazirX Controversy: An Inside Job or a Cover-Up?
The WazirX hack, which occurred in July 2024, has left the crypto community stunned, with a staggering $235 million (₹2,000 crore) siphoned from a single wallet. Initially attributed to the notorious Lazarus Group from North Korea, the narrative has taken an unexpected twist with new allegations suggesting an inside job. In this analysis, we will delve into the facts, examining the web of allegations, discrepancies, and unanswered questions surrounding the WazirX controversy.
A Timeline of Events Leading up to the Hack
The WazirX troubles began in February 2022, when the Indian government imposed a 30% tax on crypto profits. This policy led to a collapse in overnight revenue, with reduced user activity and shrinking profits. The once-thriving exchange was grappling with financial strain, regulatory scrutiny, and operational chaos.
In April 2022, WazirX’s founders, Nischal Shetty and Siddharth Menon, permanently relocated to Dubai. This move sparked uncomfortable questions: was this a strategic attempt to shield themselves from regulatory pressures, or simply a routine move that the public misunderstood?
The situation took a turn for the worse in August 2022, when India’s Enforcement Directorate froze $8 million worth of WazirX’s assets, alleging involvement in money laundering. Although WazirX denied these allegations, the raid tarnished the exchange’s reputation and added immense operational strain.
In January 2023, Binance, the global crypto giant and WazirX’s former partner, cut all ties with the exchange. Citing governance disputes, Binance demanded the transfer of funds, effectively severing a crucial support system.
A Web of Allegations and Discrepancies
The fallout from the WazirX hack has only grown messier with each passing day as new allegations and financial discrepancies continue to emerge.
One major revelation from WazirX’s affidavit is its moratorium application in Singapore, which aimed to restructure its obligations after the hack. Initially, the platform reported that the total value of funds during the hack was $570 million, with $234 million stolen — a theft rate of 42%. This figure was later revised to $546 million, now suggesting that 45% of the funds were stolen.
The discrepancy arises from WazirX initially including INR balances managed by Zanmai Labs, its Indian entity, in the books of Zettai, its Singapore-based arm, highlighting weak internal controls, further eroding user confidence.
Moreover, out of 4.2 million users, only 431 expressed support for the moratorium, representing just 0.01% of the total user base. Financially, these supporting users account for liabilities of $9.2 million — far below the $410 million threshold needed for the moratorium’s approval.
WazirX’s Plan to Refund Users
Amid growing pressure and unresolved questions following the July hack, WazirX has introduced a structured plan to compensate its creditors. While the plan promises eventual repayment, it comes with conditions that require users to absorb an immediate loss.
Central to this effort is the launch of a “rebalancing calculator,” now live on the platform, which calculates the exact amount owed to each creditor. However, users are facing a 48% haircut on their funds — a loss that WazirX claims will be addressed gradually over time.
Arrests, Allegations, and Unanswered Questions
In October, the Delhi High Court heard a petition filed by investor Jaivir Bains, alleging that WazirX merged funds from hacked and unhacked accounts to mitigate losses — an approach that reportedly affected unaffected investors.
The petitioner’s counsel argued that these actions violated the exchange’s user agreement and regulatory standards, urging an investigation by the Financial Intelligence Unit (FIU) and the ED.
The petition also raised concerns about the adequacy of oversight mechanisms, highlighting that stolen funds had been transferred to Singapore, potentially complicating recovery efforts.
A System Failing Its People
The WazirX hack case remains shrouded in ambiguity. Whether it was a sophisticated external attack or an inside job disguised as one, the truth has yet to emerge.
However, the incident has not only exposed vulnerabilities in crypto platforms but also highlighted the inadequacies of India’s regulatory and legal systems in managing such crises effectively.
Since the hack in July 2024, millions of users have been left in distress, with many facing financial ruin. Social media is now filled with heart-wrenching stories of investors grappling with the loss of their life savings.
Reports have surfaced of victims resorting to extreme measures, including falling into severe debt to cover their losses, selling personal assets such as homes and vehicles, and, in tragic cases, even contemplating suicide.
Nearly five months after the hack, India’s regulatory and enforcement bodies have been slow to act. The FIU and the ED, tasked with financial compliance and investigating money laundering, have largely stayed on the sidelines.
Conclusion
The WazirX controversy has raised more questions than answers. Was the hack an inside job or a cover-up? The truth remains elusive, and it may take months — or even years — to determine.
For now, the distress of the users serves as a sobering reminder of the consequences of systemic failures. The Indian government’s inaction and the regulatory bodies’ lack of transparency have only added to the growing distrust in the crypto ecosystem.
As the situation unfolds, it is essential to remain vigilant and demand accountability from the parties involved. The WazirX hack case has exposed the vulnerabilities of the crypto industry, and it is up to the regulators, exchanges, and users to work together to prevent such incidents in the future.
Prediction
Based on the analysis, we predict that:
- The WazirX hack case will take a long time to resolve, with multiple investigations and lawsuits filed by affected users.
- The Indian government will eventually take action to regulate the crypto industry, introducing stricter laws and regulations to prevent such incidents in the future.
- The WazirX controversy will lead to a significant shift in the Indian crypto market, with many users opting for more secure and transparent exchanges.
- The crypto industry as a whole will emerge stronger and more resilient, with a renewed focus on security, transparency, and accountability.
Recommendations
Based on the analysis, we recommend that:
- WazirX and other affected exchanges take immediate action to compensate their users and address the financial discrepancies.
- The Indian government and regulatory bodies conduct a thorough investigation into the WazirX hack and provide transparency into their findings.
- The crypto industry as a whole prioritizes security, transparency, and accountability, implementing stricter measures to prevent such incidents in the future.
- Users and investors exercise caution when dealing with crypto exchanges and platforms, prioritizing security and transparency above all else.
