- WazirX’s socialized loss strategy post-hack faces significant backlash from users and industry leaders.
- Legal and tax challenges arise from WazirX’s asset conversion compensation plan.
- WazirX engages the community with a bounty program to track and recover hacked assets.
WazirX, an Indian cryptocurrency exchange, is experiencing backlash after disclosing a plan for a “socialized loss strategy on the hack on July 18, which resulted in a loss of around $230 million, or nearly 45% of the exchange’s total assets, including a significant amount of Shiba Inu tokens.
The compensation plan proposed by WazirX includes two main options for affected users. The first allows users to access 55% of their funds without the ability to withdraw immediately, ensuring priority in recovering the stolen assets.
The second option allows users to access and withdraw the same percentage of funds but prioritizes them less for recovering any additional lost assets. The remaining 45% of user assets would be converted to USDT or other available tokens, effectively locking them until further notice.
Industry Response to the Compensation Proposal
CoinDCX’s CEO, Sumit Gupta, has strongly objected to WazirX’s post-hack compensation handling. Gupta criticizes the approach as not being customer-centric and accuses WazirX of prioritizing business continuity over user welfare. His comments reflect a broader dissatisfaction within the cryptocurrency community regarding how exchanges manage security breaches and the aftermath.
Gupta’s perspective is that losses should be primarily absorbed by the company and not passed directly onto the customers. This view is shared by other industry leaders who believe that imposing a direct financial burden on users undermines trust in the crypto ecosystem. Furthermore, how the poll was presented to users has been described as manipulative, framing options in a way that seemingly protects the company’s interests first.
Legal and Financial Repercussions
The method of compensating users has legal and financial ramifications. Converting assets into a basket of different tokens affects the users’ immediate liquidity and subjects them to potential tax liabilities. The Indian regulatory framework imposes a 1% tax Deduction at Source (TDS) and a 30% tax on capital gains, which could significantly impact the already strained financial situation of the affected users.
Additionally, the timing and methodology of the snapshot used to determine the value of users’ portfolios, taken three days post-hack, have further fueled the discontent. Critics argue that this timing may not accurately reflect the true losses experienced by users, particularly as the exchange continued to permit trading activities while withdrawals were halted.
As the poll’s deadline approaches, August 3, 2024, WazirX continues to gather user feedback, emphasizing that the poll is non-binding and only a preliminary step to gauge user sentiment. Co-founder Nischal Shetty and the WazirX team have promised to consider community feedback for a more acceptable resolution.
The exchange has also initiated a bounty program to incentivize the tracking and recovery of the stolen funds. The program is divided into two initiatives: a “track and freeze” option offering rewards for information leading to the freezing of stolen assets and a “white hat recovery” bounty that compensates ethical hackers who assist in recovering the lost assets
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