Indian cryptocurrency exchange WazirX, which recently suffered the huge hack leading to the loss of $234 million, has filed an application before the Singapore High Court requesting a six-month moratorium. That will make them safe from possible legal actions while they work out a debt restructuring and also come up with a recovery plan for the users.
On July 18, 2024, WazirX was attacked by a cyberattack that managed to compromise its multi-signature wallet, from which hackers siphoned off crypto assets worth $234 million. The attack plunged the 16 million WazirX users into a tumultuous situation, with 4.4 million users having active cryptocurrency balances on the platform. A withdrawal frenzy followed the incident, which has clearly raised several questions over the ability of the platform to respond to these requests.
Following the hack, WazirX mooted a restructuring scheme that would distribute the burden of the cyberattack pro-rata among its users since they were classified as unsecured creditors. This, according to WazirX on their blog post, is the most efficient way to deal with users’ crypto balances and would help them recover.
Legal
Legal Actions and CoinSwitch’s Response
In this ongoing crisis, WazirX has faced other legal hassles thrown its way by the competition, Indian crypto platform CoinSwitch, which says it has $9.6 million in deposits that are stuck on WazirX. CoinSwitch has expressed frustration over the response of WazirX; in a post, the company told X that despite reaching out repeatedly, it was “left with no other option but to consider legal recourse” to recover its money.
The petition by WazirX’s parent entity, Singapore-domiciled Zettai Pte Limited, bears a supporting affidavit from WazirX cofounder Nischal Shetty. The affidavit underscores the determination of the fact that the moratorium so prayed for shall provide adequate time to WazirX in formulating a full-fledged restructuring plan while preventing potential litigation attacks, one of them being made by CoinSwitch.
The automatic 30-day moratorium, which kicked in with the filing on August 27, will temporarily protect WazirX from any litigation. A hearing to determine whether to extend the moratorium for the full six months has yet to be scheduled.
The Road to Rehabilitation
In the revival plan, WazirX envisages distributing the remaining assets on the platform among the users in proportion to their claims, with the fair value of the remaining assets around $284 million. The users will get a portion in relation to their account balance in a process that will be carried out with fairness in the distribution of the available token assets.
The management of WazirX is trying to shore up its recovery plan and is on the lookout for an active “white knight” investor for rescue financing or strategic partnership. Shetty, in his affidavit, stated that discussions were in progress with 11 potential investors, some showing interest but also apprehension about the uncertainty caused by possible legal actions against the platform.
The hack has sent WazirX into a huge tailspin, one that has panicked users and may lead to an uncontrollable “bank run” of withdrawals. By August 24, it had fielded more than 9,700 inquiries about withdrawals, as well as four legal notices—a situation that continued to get worse.
Financial breakdown and legal preparations
WazirX has disclosed some information regarding user balances on its platform, effective July 18, the date on which the company froze withdrawals. The exchange held $570,068,358 million in assets for 4,353,299 users. Of those users, 94% were based in India. After the hack, WazirX still holds about $284 million in assets.
Anticipating further litigation and continuing investigation costs, WazirX has already set aside $12 million in cryptocurrency tokens to cover legal expenses. This itself shows the severity of the situation and how critical the situation has become for the platform.
Conclusion
That request for a six-month moratorium was key to WazirX’s efforts to stabilize operations and work out the fallout from the July cyberattack. Management of the platform is working to develop a restructuring plan that will balance user recovery with the need to protect the company against possible legal actions. But with CoinSwitch likely to pursue legal action and ongoing disputes over who owns the platform with Binance, WazirX still has so much farther to go in the wrong direction.
