In a move to navigate the turbulent aftermath of a major cybersecurity breach, Indian cryptocurrency exchange WazirX has approached the Singapore High Court for a six-month moratorium to restructure its liabilities. This comes on the heels of a devastating hack in July that resulted in the loss of $234 million, prompting rival exchange CoinSwitch to weigh legal action to recover its deposits.
Seeking Legal Breathing Room
The filing by Zettai Pte, the Singapore-based entity overseeing WazirX, requests a pause on legal proceedings to devise a plan to fairly distribute the losses from the hack. According to a blog post by WazirX, this restructuring is seen as the most effective way to address the cryptocurrency balances of users and facilitate recovery. The moratorium, effective from the filing date of August 27, automatically grants WazirX 30 days of protection. The exchange hopes this window will allow it to formulate a viable strategy without the immediate threat of lawsuits, particularly from CoinSwitch, which is seeking to recover $9.6 million in frozen deposits.
CoinSwitch Weighs In
In a public statement, CoinSwitch expressed frustration over the lack of progress in recovering its funds from WazirX. “From the day of the incident, we have tried to be in constant touch with the WazirX team, seeking recovery of the funds that are stuck on their exchange,” the statement read. “However, our efforts have not come to fruition, leaving us with no choice but to pursue legal action to recover the funds.” CoinSwitch’s potential lawsuit could complicate WazirX’s attempts to stabilize and reassure its user base, which has been shaken by the breach and subsequent handling of the incident.
The Path to Recovery
WazirX co-founder Nischal Shetty, speaking through an affidavit submitted by Zettai, outlined the company’s intention to allocate the impact of the cyberattack pro-rata across its users. This means the losses will be distributed proportionally among users who are classified as unsecured creditors. The goal is to provide users with a share of the available token assets relative to their account balances on the platform.
In a bid to secure its future, WazirX is also exploring the possibility of a ‘white knight’ rescue. Discussions are ongoing with 11 potential companies, some of which have shown interest in providing financial support or forming partnerships. However, the looming threat of legal action poses a significant hurdle, with potential partners expressing concerns over the legal uncertainties.
The Panic Aftermath
The July hack triggered a wave of panic among WazirX’s substantial user base, which numbers around 16 million, with approximately 4.4 million actively maintaining cryptocurrency balances. Since the incident, the exchange has been inundated with over 9,700 withdrawal-related inquiries and four legal notices. This has placed immense pressure on WazirX, prompting fears of a bank run that could deplete its remaining reserves.
As of late August, WazirX still holds about $284 million in assets. To manage the situation and cover potential legal expenses, the exchange has set aside $12 million in cryptocurrency tokens.
Looking Ahead
The court’s decision on whether to grant a longer moratorium will be crucial for WazirX’s survival and ability to reassure its users. In the meantime, the exchange’s future hangs in the balance, dependent on the outcome of its legal maneuverings and the success of its restructuring efforts. The situation also serves as a stark reminder of the vulnerabilities and complexities facing cryptocurrency platforms in an era of increasing cyber threats.
While WazirX seeks a lifeline, the broader crypto community watches closely, aware that the handling of this crisis could set a precedent for how similar incidents are managed in the future.
