India’s largest cryptocurrency exchange finds itself in a WazirX controversy, one of its biggest crises after it was exposed last month to have been hacked and exposed critical security flaws. It also worried the investors about digital asset security and gave rise to fears of insider manipulation.

Was this an inside job that was well planned or part of a bigger coverup? The controversy over WazirX can be read more here.

Key-Takeaways:

• WazirX is in a crisis after a $235 million breach, with digital asset security and insider manipulation questions.
• Poor profitability, weak internal governance, and poor financial transparency in its actions worsened WazirX’s battle.
• WazirX has put a repayment proposal on the table, but it is being questioned as investigations continue over possible internal malpractice and shady asset transfers.

How the Financial Instability Started

Shaking out serious flaws in digital asset management, India’s cryptocurrency market is reeling from the WazirX controversy. One of the exchange’s wallets spilled some $235 million in a breach that happened on 18 July 2024.

So far, the discussion has been huge, and they’re investigating insiders.

That was never an issue until India announced its 30 percent crypto tax in February 2022. Suddenly, trading volumes were being driven down sharply, and profitability ended.

Things then got much, much worse soon after when founders Nischal Shetty and Siddharth Menon moved to Dubai. It raised many questions around the stability of WazirX and also the fate of the Indian market.

In August, too, the Enforcement Directorate had frozen $8 million worth of assets, all of which was in the wake of the WazirX controversy. Things turned to the wayside last year, when Binance walked away when things didn’t quite go as smoothly as they had with one of their former partners, leaving behind a governance hole and absent some of the necessary support systems.

Was it a calculated move or just negligence?

In July 2024, the WazirX controversy reached a peak. But was it negligence or was it an intentional setup of it all, the critics urged, to store $235 million in just one wallet?

The Ethereum had also been in diverse accounts of scared tell all accounts of robbed funds, now resting with $570 million in the deposiary as opposed to $546 million. The funds lost in the breach were brought out to be 45%.

🚨 WazirX’s New Misleading Tricks Exposed!

• Hacked on: 18th July ’24

• Initial Report: 42% of funds hacked

• Latest Report: 45% hacked

• Remaining 3% still being hidden!

🔹Users are left hoping for solutions, while WazirX seems more focused on grabbing the remaining… pic.twitter.com/eDzQZn8zSN

— Mystery of Crypto (@Mysteryofcrypt) September 25, 2024

Troubling financial practices, a WazirX forensic investigation found. Last year, the exchange spent $79m on marketing—79 percent of its revenue without any outs.

$15 million of other questioning expenses were administrative costs and ‘Others’ liabilities of $23 million. Another is to give to the exchange’s finances as to the exchange and its management in terms of transparency.

As things began to spin out of hand, the WazirX controversy hit a crossroads when the exchange put forward a repayment plan for those that were affected. That means recovery tokens take 48% from the loss.

Depending on future revenue, compensation is being considered, and the plan is being met with widespread skepticism. Yet many users also wonder if this plan will ever live up to its claims.

Since the hack, however, there have been several legal challenges, including a class action lawsuit by CoinSwitch, who are trying to sue for returned funds.

🚨Must read affidavit filed by CoinSwitch against #WazirX

They claimed Zettai is attempting to conceal misconduct and potentially fraudulent expenditures by its promoters. pic.twitter.com/Y4RW2k79DT

— Justice for WazirX Users (@IndiasCrypto) September 23, 2024

Investigations into improper fund merging, violations of user agreements, and suspicious asset transfers to Singapore are underway with the Delhi High Court and local police too.

This is a painful incident for the cryptocurrency ecosystem. Consequently, trust is down, and billions at risk of financial collapse, so strong security, open governance, and proper supervision are all the more urgent.

Conclusion

This isn’t just an incident of a breach in financial dealings; the infrastructure of the cryptocurrency exchange is collapsing with such an incident. Those in industry wait for accountability and reform; investigators are still in progress.

Can WazirX Controversy spark crypto regulators to push harder? Please leave your comment.