The aftermath of a major cyberattack that led to a staggering loss of approximately $230 million in July 2024, has been a mountain to climb for WazirX. While catastrophic in nature, in response, the exchange suspended trading and withdrawals, prioritizing platform security and user fund recovery. To mitigate the impact, WazirX sought legal protection, securing a four-month moratorium from the Singapore High Court in September 2024, allowing time to restructure its operations without immediate creditor action.

The story so far has been no less than a blockbuster, edge-of-the-seat thriller. While, authorities in India and worldwide, including the FBI, continue to investigate the attack, WazirX has been actively taking steps to recover the funds, apart from cooperating with them. In fact, the company has been successful in freezing the first tranche of assets that were stolen during the cyberattack worth $3 million USDT.  It has also offered a bounty to cybersecurity experts to aid in fund recovery. In January this year, the US, South Korea, and Japan issued a joint statement implicating North Korea’s Lazarus Group in the theft from WazirX.  

So what’s really happening now? What is in store for the stakeholders?  Wait a bit, for we need to deep dive a bit.

WazirX’s Restructuring: A Strategic Approach to Rebuild Trust and Crypto Recovery

The cryptocurrency industry is evolving at a breakneck speed. The crests and troughs are marked by rapid innovation, market fluctuations, and an opaque but evolving regulatory landscape. Periods of turbulence often test the resilience of platforms and their commitment to users. WazirX, which was a leading cryptocurrency exchange in India, has been in the eye of the proverbial storm. Has it come out unscathed? No. Has it gone under? No. Has it course-corrected? Yes, and that is important as it almost crashed and burned a few months back.  

It is attempting to be back having undergone a complete restructuring process aimed at addressing operational challenges, enhancing transparency, and reinforcing user trust. With this metamorphosis, WazirX is looking for long-term sustainability, and also provide a model for responsible crisis management within the industry. 

The Crisis: Challenges and Response

WazirX found itself navigating stormy waters, grappling with rumor-mongering, liquidity crunches, and relentless turbulence from the larger market.-These challenges loomed large, casting shadows of uncertainty over operations and testing user trust.  The exchange launched a dynamic counteroffensive—fortifying user funds, reinforcing platform stability, and cutting through the chaos with continuous communication with its creditors. 

The Rationale for Restructuring Scheme

The proposed scheme is designed to provide a swift and legally binding resolution for crypto balances, ensuring the highest possible recoveries for users. This approach focuses on three key objectives: restoring liquidity, maximizing recoveries, and ensuring long-term platform stability.

It aims to provide liquidity and improve recoveries by distributing Unstolen Assets which will be about 85% of user funds at the time of the hack. These assets will be distributed in tokens, offering market-driven upside to users by April 2025. Additionally, WazirX will distribute Recovery Tokens (“RTs”), issued to all users on a pro-rata basis. This step aims to ensure fair participation in recoveries while aligning user interests with the future growth of the platform. WazirX will actively pursue these recoveries, and part of the net profits from potential new businesses and future profits from WazirX – will be shared with users. These profits, along with recoveries of stolen assets, will be distributed through pro-rata purchases of RTs, ensuring sustained value for users. WazirX claims that this is the fastest and most effective resolution in the crypto industry. As per an infographic they have shared on public platforms, alternatives could delay distributions for 2–3 years, making the Scheme the best path forward for all users.

A Democratic Voting Process

Central to WazirX’s restructuring strategy were its efforts to keep creditors informed at every step of the way.  A notable aspect of this process was the inclusion of a democratic user participation in decision-making, with users given the opportunity to vote on the proposed restructuring scheme. 

Strategic Partnerships

The first priority was to enhance fund security and WazirX took steps to establish partnerships with leading custodians. Zodia Custody (a subsidiary of Standard Chartered) has been engaged to act as custodian ahead of the creditor voting process, ensuring greater security for user assets. BitGo Trust Company was signed up to provide institutional-grade custody solutions, further strengthening protection against potential threats. One may ask, why this was not done at the very inception, but let us remember that the aftermath of any great battle is a time of rebuilding, a chance to rise stronger than before. These trust enhancing collaborations go a long way in WazirX’s commitment to safeguarding user funds and restoring confidence in its platform.

Comparative Analysis: Lessons from Global Exchanges

A comparative analysis of WazirX’s restructuring approach against past incidents involving other crypto exchanges provides valuable insights.

In 2016, Bitfinex faced a significant hack resulting in the loss of $850 million in user funds. While users were eventually reimbursed, the process was prolonged and met with criticism. The QuadrigaCX episode was another horror story when the sudden demise of its CEO left users unable to access $190 million in funds, highlighting vulnerabilities in operational security and fund management.

Unlike these cases, WazirX has emphasized return of user funds in the fastest and the most efficient manner, while restarting operations keeping compliance at its core.  

Present Day Status

A proposal was tabled that proposed a debt settlement plan aimed at stabilizing its operations while ensuring creditor compensation. By offering an immediate 85%% repayment and deferring the remaining 15% to future profits and asset recoveries, the exchange attempts to balance liquidity preservation with stakeholder commitments. This approach prevents an outright collapse, as liquidation could delay fund recovery until 2030, leaving 4.4 million creditors at a significant disadvantage.

A critical element of the plan is the issuance of “Recovery Tokens”, which function as a structured mechanism for gradual repayment. These tokens could be tradable, offering creditors an option to liquidate early or hold for potential appreciation tied to WazirX’s revival. Their long-term value, however, hinges on their ability to rebuild trading volumes and user trust.

Now, the proposal’s success depends on creditor approval (75% minimum) and WazirX’s execution capacity. If approved, operations could resume by April 2025, with payouts starting within ten business days. However, skepticism remains regarding WazirX’s ability to generate sufficient future profits with other exchanges putting together user acquisition strategies. Regulatory scrutiny, competitive pressures, and market volatility could hinder its recovery trajectory. While the plan is pragmatic, its effectiveness ultimately rests on execution, market response, and WazirX’s commitment to financial transparency.

WazirX, wants its creditors to exercise their democratic right, and is urging its creditors to participate in the voting process, emphasising the broader industry benefits of a stable and transparent crypto exchange ecosystem. 

A Forward-Looking Perspective

As WazirX navigates the transition and multiple roadblocks in the way to rebuilding trust and setting a precedent for crisis management in the history of the Indian crypto market, it will be interesting to see how the rest of this story unfolds. Does the company deserve a second chance?  

The solution offered by WazirX, is no silver bullet, and the pain and shock will probably linger long. Given this was the largest ever crypto heist in the country, the process and the proposed solution under the circumstances is an option worth considering. Remember, when you give someone a second chance, it’s like handing them a blank canvas. What they paint on it will tell you if they deserve it. Every storm leaves a lesson in its aftermath. It’s up to us to learn from it.

Voting for WazirX’s restructuring is now ongoing and will be live till March 28th.