Author: Nancy, PANews
Two years ago, WazirX attracted market attention due to its months-long acquisition dispute with Binance. Now, the Indian crypto exchange has once again become a hot topic of public discussion due to the stolen assets of up to $230 million, which has also attracted much attention to the development of the Indian crypto market.
Nearly half of the reserve funds were stolen, launching a white hat bounty program
On July 18, WazirX suffered a security breach in its multi-signature wallet, resulting in the theft of crypto assets worth $230 million, nearly half of which were SHIB. According to WazirX’s transparency report for June, its asset holdings amounted to $503 million, which means that the exchange lost more than 45% of its reserve amount.
The next day, WazirX released preliminary findings on the attack, saying that since February 2023, WazirX wallets have been operating using Liminal's digital asset custody and wallet infrastructure services. The cyberattack stemmed from the difference between the data displayed on the Liminal interface and the actual content of the transaction. During the cyberattack, the information displayed on the Liminal interface did not match the actual signed content. WazirX therefore suspected that the payload was replaced to transfer control of the wallet to the attacker.
Liminal Custody is not willing to take the blame for WazirX's "accusations". Liminal Custody said in a statement that its infrastructure was not damaged and all wallets (including WazirX's wallets) are safe. Unfortunately, three victim machines injected malicious code into the transaction, indicating that this was a complex and planned attack on a Gnosis smart contract multi-signature wallet. According to blockchain analysis company Elliptic, hackers related to North Korea may be behind the hack.
At present, the WazirX hacker has sold all the stolen assets for ETH. The attacker's ETH holdings have exceeded 59,000, with a value of more than $200 million. In order to track and recover the stolen funds, WazirX has reported the incident to the Financial Intelligence Unit (FIU) and the Indian Computer Emergency Response Team (CERT-In), and contacted more than 500 exchanges to block the identified addresses.
At the same time, WazirX has also launched a 10% white hat bounty program to recover funds, inviting white hat hackers, blockchain forensics experts and cybersecurity professionals from all over the world to join this mission. The action plan includes tracking stolen funds, recovering customer assets and conducting a deeper analysis of cyber attacks.
In addition, since the cyber attack and theft affected WazirX's ability to maintain 1:1 asset collateral, the exchange has temporarily suspended trading to conduct a thorough data inspection and security audit procedure, and strive to enable withdrawals as soon as possible.
As the leading crypto exchange in India, WazirX's trading volume has also dropped significantly. According to data previously disclosed by WazirX officials, the exchange's trading volume in 2023 has dropped to about $1 billion, down more than 90% from the same period of the previous year and 97% from 2022. Of course, this is also closely related to India's increasing regulatory pressure and heavy crypto taxation system.
WazirX’s annual trading volume drops by more than 90% due to ownership dispute with Binance
WazirX first became known to the outside world because it was a partner of Binance in its entry into the Indian market and was once the latter's acquisition target. However, after WazirX was accused of money laundering by Indian regulators, Binance "disturbed" it, which also triggered an ownership dispute. The outcome of this dispute also sowed the seeds for this theft.
In 2022, WazirX claimed that it moved its base from India to Dubai due to India's implementation of a new tax system for crypto transactions. But soon after, WazirX was accused by Indian law enforcement agencies of being investigated for two cases of money laundering and violation of foreign exchange regulations, claiming that the platform was involved in money laundering of 27.9 billion rupees (over 350 million US dollars), and also froze tens of millions of dollars of assets of some executives of the exchange.
Binance announced in 2019 that it had "acquired" the exchange. However, after WazirX was accused of money laundering by Indian authorities, Binance founder CZ immediately responded by stating that the acquisition deal had never been completed, Zanmai Labs was the entity that operated WazirX and was established by the original founder, and Binance never owned any shares in Zanmai Labs, the entity that operated WazirX. Binance only provided wallet services to WazirX as a technical solution, and also integrated off-chain transactions to save network fees. WazirX was responsible for all other aspects of the WazirX exchange, including user registration, KYC, transactions, and initiating withdrawals.
CZ's clarification was immediately refuted by WazirX CEO Nischal Shetty, who said that WazirX was acquired by Binance and Zanmai Labs is an Indian entity owned by Nischal Shetty and his co-founders. Zanmai Labs has obtained Binance's license to operate trading pairs of Indian rupees and cryptocurrencies in WazirX. Binance operates cryptocurrency trading pairs and processes cryptocurrency withdrawals. Users can verify this fact by visiting WazirX's TOS (Terms of Service). In addition, Binance owns the WazirX domain name, root access to AWS servers, all cryptocurrency assets, and all cryptocurrency profits. Do not confuse Zanmai and WazirX.
Subsequently, the two sides engaged in a months-long war of words, each holding their own opinions. Binance believed that WazirX shirked responsibility for its misconduct. CZ advocated that users should transfer their funds on WazirX to Binance, and said that Binance requested the transfer of WazirX system source code, deployment, and operation in February 2022, but was rejected by WazirX, and Binance could not control their system. Binance also stopped supporting the off-chain transfer function between WazirX and Binance shortly afterwards. On the other hand, Zanmai Labs was exposed to seek legal means to deal with the ownership dispute with Binance.
And this ownership dispute further escalated in 2023. In January 2023, Binance issued an "ultimatum" requiring WazirX to issue a clarification statement on the misleading relationship between the two parties, retract Nischal Shetty's previous statement that Binance owns WazirX and delete all Binance-related content in the terms of service, otherwise Binance may terminate WazirX's service agreement before February 3. However, this request was rejected by WazirX, and it stated that the so-called "clarification statement" was "unethical" and that Binance tried to use "media pressure and threats to force Zanmai to issue false and misleading statements as "clarifications." Not only that, WazirX also stated that Binance's allegations were false and unproven, and that it had made huge profits from its control of the exchange, which was also emphasized in WazirX's tweet in May 2023 that Binance controls WRX tokens (Binance Launchpad project) and holds all IE0 proceeds, and has not carried out quarterly destruction in the past 5 quarters (that is, since January 2022).
In the end, Binance announced that it would stop providing wallets and related technical services to WazirX in response, and the latter's users could no longer use Binance wallet services. Since then, the two partners have completely parted ways.
India's high adoption rate attracts crypto companies to invest, and the regulatory environment is changing
However, after ending cooperation with WazirX, Binance did not slow down its pace of layout in the Indian market. It now accounts for nearly 90% of the country's $4 billion in crypto holdings. The lucrative Indian market is an important reason for the layout of crypto companies such as Binance.
According to the "2023 Global Cryptocurrency Adoption Index" released by the blockchain analysis platform Chainalysis, India ranks first in cryptocurrency adoption, which is enough to show that India still occupies an important share in the crypto market. In order to attract investors, the Securities and Exchange Board of India even announced this year that it plans to officially introduce T+0 in 2025 to compete with cryptocurrencies.
Not only that, India's unfriendly regulatory policies towards the crypto market are also loosening up. In January this year, Binance, Kraken and other exchange apps were blocked by the Indian Financial Intelligence Agency for not complying with India's anti-money laundering rules and were removed from the Indian Apple App Store. But in May this year, Binance and KuCoin became the first offshore crypto-related entities approved by the Indian Financial Intelligence Unit (FIU) on the condition that they paid a fine after a hearing with the FIU.
In addition, India's onerous cryptocurrency tax system is also likely to be adjusted. As we all know, the huge 30% income tax has hit the development of cryptocurrency transactions in the country. For example, since Indonesia introduced a partial collection period for the cryptocurrency tax system, its cryptocurrency tax revenue in 2023 has dropped by 63% to US$31.7 million. However, Indonesia also plans to reassess the income tax and value-added tax levied on cryptocurrency transactions this year. The reason behind this is that cryptocurrency is expected to become an integral part of Indonesia's overall economy in the near future.
However, it should be noted that the Indian market still faces regulatory uncertainty. India’s finance minister recently said that cryptocurrency regulation requires global consensus, and the Reserve Bank of India has also submitted its views on cryptocurrencies, emphasizing the macroeconomic risks associated with cryptocurrencies, as well as issues related to tax evasion and fiscal stability.
In general, the high adoption rate and the relaxation of strict regulatory attitudes may drive the further development of the Indian market, and the theft of WazirX may also provide more market space for other crypto exchanges.
