WazirX faces backlash on ‘socialized loss strategy’ after $230 million exploit
Quick Take
- WazirX faced severe backlash after announcing plans to socialize losses incurred from a hack earlier in July.
- The breach saw roughly $230 million in funds drained from the exchange.
Indian cryptocurrency exchange WazirX is facing backlash after announcing a plan for a “socialized loss strategy” on Saturday, following the July 18 security breach that resulted in the loss of approximately $230 million, or roughly 45% of its assets.
In a Saturday post to X, WazirX co-founder Nischal Shetty outlined what he claims are two paths forward for the exchange following the breach:
- "Legal proceedings: It takes years and the outcome is distribute what is left of the assets. Legal fees will add up as well, matter drags for years. No one gets anything until then. Outcome is similar to socialise the loss structure.
- "Socialise loss & rebuild: First socialise the loss. Then rebuild by growing the business where you can distribute any profits and find more solutions like new buyers, new initiatives etc since business will operate. This leads to faster recovery."
WazirX also initiated a poll in which customers were reportedly asked to vote on two options: access 55% of their funds without the ability to withdraw but get priority for any potential recovery funds, or access 55% of their funds with the ability to withdraw, but have second priority for potential funds. The remaining 45% would be converted to USDT and locked.
After receiving significant backlash, both WazirX and Shetty released posts on X on Monday, saying the poll was not “legally binding” and was intended to gauge their users' opinions on how best to proceed.
“Our team is currently reviewing all your inputs to devise a plan that truly aligns with the community's best interests. We aim to develop a plan that incorporates your collective voice and ensures a fair and effective outcome,” the exchange wrote.
Shetty then released a video to X on Monday, reiterating that the poll was not binding but also defending the option of socializing the losses as it would allow the exchange to re-open and continue operations for its users while still exploring other options for recuperating the lost tokens and reimbursing affected users.
Many have criticised the approach, however, as penalizing the users of the platform for the breach. CoinDCX co-founder Sumit Gupta said the first contribution to losses should come from the company.
“Making customers directly absorb the 45% losses is utter nonsense. The poll options are also framed in a manner to protect the business first and not the customers,” Gupta added.
The hacker stole over $100 million in Shiba Inu, along with 20 million Matic tokens ($11 million), 640 billion Pepe tokens ($7.5 million), 5.7 million USDT, and 135 million Gala ($3.5 million). The exchange halted trading as a result. Other reports indicate that the North Korean state-sponsored Lazarus Group may be behind the hack, pointing to recovery of the funds as unlikely.
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