The story so far: On August 26—more than a month after a cyberattack that cost Indian cryptocurrency exchange WazirX over $230 million in assets—CEO Nischal Shetty posted a screenshot of the Maha Mrityunjaya prayer on X, exhorting frustrated and fearful customers, “I’ve been reading this every morning which has helped me keep my mind focused on solving the problem”.

The platform, once claimed to be India’s largest cryptocurrency exchange by volume, is reeling from the ramifications of a cyberattack that has nearly wiped out half the value of its exchange holdings.

What happened to WazirX?

On July 18, a multi-signature wallet belonging to WazirX, and managed with the services of a digital asset custody company called Liminal, was exploited. This led to the loss of more than $230 million in assets. For reference, WazirX reported in early June that its total holdings was at USDT 503.64 million (₹4,203.88 crores). Going by that number (updated ones are yet to be released), the company lost over 40% of its holdings.

Both WazirX and Liminal are blaming each other for security failures, while claiming that their actual platforms were not hacked. WazirX has been slow in providing updates about the perpetrators (who are still unknown) and its live proof-of-reserves, much to its customers’ distress.

Have fund withdrawals resumed?

After days of making users wait without any specific updates, WazirX said it would be pursuing a “Singapore Scheme of Arrangement.” In other words, WazirX’s leadership will put forward a debt restructuring proposal that users should be able to vote on and approve, which will then be court-sanctioned.

This announcement triggered confusion and anger, as users were not given a clear timeline on the restructuring plan and how much say they will have over the future of their locked-up funds. Many were perplexed about why the Indian exchange was taking the matter to a foreign court.

Apart from this, WazirX said all trades conducted after the exchange’s withdrawal freeze would be undone.

Regarding rupee funds, WazirX said it was resuming INR withdrawals in phases from August 26 and reducing withdrawal fees. However, there was another shock in store for customers. WazirX revealed that all eligible users with INR balances would be able to withdraw only up to 66% of their INR balances, as WazirX’s rupee operating entity Zanmai was dealing with frozen funds.

“While the operating entity for INR-related activities, Zanmai Labs Pvt Ltd (“Zanmai”), on the WazirX platform was not affected by the cyberattack and has sufficient INR reserves to cover all INR user balances, not all of these balances are currently available for withdrawal,” WazirX said in a note, adding that about 34% of INR balances were frozen and not available for withdrawal.

Zanmai’s ongoing involvement in disputes and investigations by law enforcement authorities were cited as reasons for the frozen funds. However, WazirX said Zanmai was not a target of said probes. It claimed that INR balances were secure but that the timeline for the full release was unclear.

What is the Singapore resolution plan?

WazirX announced that its crypto operating entity, Zettai, filed on 27 August an application with the High Court of Singapore for a moratorium under section 64 of the Insolvency, Restructuring and Dissolution Act 2018. In order words, users may not be able to effectively take legal action against the exchange while the moratorium is in place.

WazirX confirmed the moratorium would provide some “breathing space” and said this would automatically apply for 30 days from August 27, apart from the longer moratorium it hopes the Singapore court will grant.

“It is envisioned that Zettai will need at least 6 months to consider the terms of the restructuring plan and work with the relevant stakeholders,” WazirX said in a blog post.

In order to help distraught users understand the legal situation, Shetty announced that WazirX was emailing them a 52-page-long affidavit. The Hindu reviewed the document, which noted that WazirX received more than 9,700 withdrawal requests.

Per the affidavit, WazirX is further looking at rescue financing or a “white knight.” It is engaging with multiple crypto players to see if this is possible. The exchange has also reportedly received four legal notices already.

WazirX’s leadership hopes that under a planned restructuring, the cyberattack’s impact will be spread out across users of similar ranks, so they can receive a “proportionate” share of available token assets, according to an official blog post. The exchange also suggested that new “revenue-generating products” would benefit users.

In other words, WazirX is trying to encourage millions of its users to support the moratorium and the planned restructuring, as well as stay with the exchange in the future and invest in new products. The company warned that “resolving crypto balances through alternative routes could involve undefined risks and timelines.”

How are customers reacting?

WazirX customers on the social media platform X have bombarded CEO Shetty with everything from prayers and pleas to threats and insults. Many believe the current period of rising crypto prices​ will be over by the time crypto withdrawals are enabled again. Others need their money for day-to-day expenses.

Scammers on X are targeting the helpless customers while those critical of Shetty have claimed that they are being blocked and ignored. Others who support the CEO are urging aggrieved customers to consent to the moratorium, scaring them away from taking legal action of their own. So-called crypto lawyers and “experts” are leveraging the opportunity for attention. Other Indian crypto exchanges are setting up safety funds or distancing themselves from WazirX.

WazirX is also seeing mounting legal pressure in India. The CoinSwitch crypto platform, for example, revealed its exposure to WazirX and said its funds were stuck on the platform.

“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. However, our efforts have not come to fruition, leaving us with no choice but to pursue legal action to recover the funds,” CoinSwitch posted on X on August 28.

CoinSwitch claimed it utilised its own treasury to make sure that it had at least a 1:1 ratio for every user’s crypto holding on its platform.

Why isn’t WazirX compensating users with its own profits?

This is the question many furious traders are asking Shetty. But the CEO has said such a move is not possible because he does not own WazirX and, what’s more, he sold the platform back in 2019.

This revelation further panicked users, as many were not aware of the older controversy during which WazirX claimed it had been acquired by the international cryptocurrency exchange Binance. However, Binance later distanced itself from WazirX and has since undergone a change in leadership. In fact, Binance’s co-founder and former CEO Changpeng Zhao pleaded guilty to failing to maintain an “effective” anti-money laundering (AML) programme on his own platform, per the U.S. government.

Shetty said he could not comment on the WazirX ownership issue due to confidentiality requirements. However, he posted that WazirX was exploring options such as the recovery of stolen assets, potential partners, new product ideas with allocation for users, and other rescue financing options.

Have other crypto companies experienced similar troubles?

Crypto exchanges that control their users’ deposited assets have the power to halt trading activities whenever they want.

Vauld, a crypto exchange/lending company with its headquarters in Singapore but close links to India, suspended most trading activities in 2022 due to high withdrawals during a market crash. It took a similar path to WazirX: restructuring, and a plan to apply for a moratorium in Singapore, per TechCrunch. Indian regulators soon cracked down on Vauld over lax KYC protocols. The exchange does not appear to be functioning any longer.

Interestingly, Vauld also used the term “breathing space” to refer to its moratorium application in 2022.

Both WazirX’s Zettai and Vauld used Kroll as well as Rajah & Tann for legal advice.

What is next for traders?

After the hack, WaxirX customers demanded clear answers, concise action plans, and compensation. Instead, they are being met with emotional X posts from the WazirX CEO, evasive announcements, and elusive legal timelines.

In response to one desperate X user who begged for their locked-up funds to be released for medical treatment, Shetty said he had to treat all his platform users the same.

“If someone can take the responsibility of starting a medical emergency fund for victims of WazirX cyberattack, then it will help immensely. Given the legal situation, we’re not in a position to do this,” the CEO posted on X, adding he would do his best to publicise the campaign and provide tech support.

So, WazirX’s customers must continue to anxiously wait—or p​ray, as suggested by the CEO.