WazirX customers stand to lose at least 43% their money even as the cryptocurrency exchange, reeling from a nearly Rs 2,000-crore hack, plans to restructure its crypto balances.
Around 4 million Indian investors in cryptocurrencies will be adversely impacted due to a cyberattack on the exchange.
In a virtual press conference on Monday, WazirX co-founder Nischal Shetty, alongside Jason Kardachi, managing director at Kroll, and George Gwee, director of restructuring at Kroll, said that customers are unlikely to recover more than 57% of their funds, incurring a potential loss of around Rs 850 crore.
As part of the six-month restructuring plan, the company’s parent, Zettai, is in a dialogue with white knights to pursue strategic partnerships and capital support.
The situation is further complicated by an ongoing ownership dispute with Binance, the world’s largest crypto exchange, which prevents the company from raising capital against equity. While Shetty and the legal advisers did not comment on the dispute citing confidentiality agreements, they said that 55% funds could be made available to customers before this dispute is resolved.
Talking about the cyberattack, Shetty said, “We followed industry-best practices, maintained a cold wallet, kept hot wallets small and made sure those were secure. But this was a new kind of attack. We had a third-party (Liminal) that was also compromised,” Shetty said.
On July 18, WazirX faced a cyberattack from a discrepancy between the data displayed on Liminal’s interface and the transaction’s actual contents. WazirX has suspended withdrawals and is working to restore user funds following the attack.
When asked about taking legal action against Binance and Liminal, whose system was allegedly compromised, WazirX representatives did not provide a clear answer.
“In crypto terms, it’s extremely unlikely that we can make people whole,” Jason Kardachi, managing director at Kroll, said. “So, whatever profits we generate or contributions from white knights or third parties can help improve the recovery in crypto terms.” He said that while it is unrealistic to expect that WazirX can make people whole, in dollar terms, customers may retrieve more of their investments if the market improves.
A restructuring is a plan to distribute assets to users in a pro-rata, equitable way and in crypto (not fiat), with the aim to improve token recoveries to users through various measures.
“Around 55-57% is the net of cost that will be required to undertake this restructure. In crypto terms, this is what can be returned to users with the benefit of this restructuring,” Kardachi said.
The Singapore High Court is set to hear on Tuesday the crypto exchange’s request for six months of protection while it restructures its liabilities in the aftermath of the cyberattack that wiped out 45% of its users’ assets.
Restructuring measures include engaging a suitable white knight for capital support, implementing revenue-generating products to share profit with users, tracing and recovering stolen crypto assets, and/or allowing users who need liquidity urgently to withdraw crypto more quickly and exit the restructuring, the company said.
