Key Takeaways

• Due to the significant depletion of ERC-20 token reserves following the cyberattack, WazirX announced that it is unable to resume cryptocurrency withdrawals.
• The exchange plans to pursue a Singapore Scheme of Arrangement to facilitate an equitable distribution of remaining assets, though this process will involve user voting and court oversight, potentially delaying access to funds.
• Starting August 26, 2024, WazirX users will be able to withdraw up to 66% of their INR balances in phases. The remaining 34% of INR balances are currently frozen due to ongoing law enforcement investigations.

In the wake of a devastating cyberattack that resulted in the theft of over $230 million in cryptocurrency, WazirX, one of India’s leading cryptocurrency exchanges, is navigating turbulent waters as it attempts to rebuild trust with its users. On July 18, 2024, attackers exploited a vulnerability in one of the platform’s multisig wallets, exposing a significant discrepancy between the wallet interface and the actual transaction details. The breach not only dealt a severe blow to the exchange’s operations but also highlighted the ongoing risks associated with digital assets and the platforms that manage them.

Cryptocurrency Withdrawal Freeze and Legal Maneuvers

Since the attack, WazirX has faced mounting pressure from its user base, who have been unable to access their funds. WazirX today made an announcement on INR Withdrawals and ‘next steps’ the company will pursue for crypto withdrawals.

Today’s announcement revealed that while INR withdrawals will resume in phases starting on August 26, 2024, cryptocurrency withdrawals remain indefinitely suspended. The company stated that the theft had depleted its reserves of ERC-20 tokens to the point where it could no longer meet user obligations.

In an effort to address this shortfall, WazirX has announced plans to seek a Singapore Scheme of Arrangement—a legal framework that allows companies to restructure debt and obligations with the approval of a majority of creditors or stakeholders. This move suggests that the exchange is not just aiming to resolve the immediate liquidity crisis but also to ensure that any future distribution of assets is legally binding and equitable across its user base.

WazirX founder Nischal Shetty mentioned on X that complete details about crypto withdrawals will be provided next week.

However, this decision may be a double-edged sword. While it offers a path to resolution, it also prolongs uncertainty for users who are eager to regain access to their funds. The Scheme of Arrangement will require a formal approval process, including user voting and court oversight, which could extend the timeline for any potential recovery.

INR Withdrawals and Regulatory Headwinds

The situation regarding INR balances presents a slightly more optimistic picture, albeit with caveats. WazirX’s operating entity for INR-related activities, Zanmai Labs Pvt Ltd, was not directly affected by the cyberattack. However, regulatory challenges have complicated the withdrawal process. Approximately 34% of INR balances are currently frozen due to ongoing investigations by Indian law enforcement agencies, a precautionary measure taken as part of broader probes into third parties associated with the platform.

WazirX has assured users that these funds are secure and that Zanmai is not the target of these investigations. Starting August 26, users will be allowed to withdraw up to 66% of their INR balances in phases, with the remaining frozen assets becoming available once the investigations conclude. This phased withdrawal plan, coupled with a reduction in withdrawal fees, appears to be an attempt to mollify users who have grown increasingly frustrated by the lack of access to their funds.

A Long Road to Recovery

The cyberattack on WazirX has underscored the vulnerabilities that even established cryptocurrency exchanges face. As the company moves forward with its proposed legal and operational strategies, it must also grapple with the broader implications for the trust and security of digital asset platforms. The decision to pursue a Singapore Scheme of Arrangement signals that WazirX is aware of the delicate balance it must strike between legal compliance, user satisfaction, and financial solvency.

For WazirX, the coming months will be crucial. The exchange’s ability to navigate this complex landscape will not only determine its survival but also serve as a litmus test for the broader cryptocurrency industry in India. As regulatory scrutiny intensifies and user trust remains fragile, WazirX’s response to this crisis could set a precedent for how digital asset platforms handle large-scale breaches in the future.

WazirX Cyberattack, INR and Cryptocurrency Withdrawals FAQ

Read Also: India Edges Closer to Cryptocurrency Regulation Amid WazirX $230M Hack