WazirX, a leading cryptocurrency exchange, has approached its former partner Binance for assistance following a devastating $230-million cyberattack. Industry sources reveal that Binance holds significant control over WazirX’s revenue and WRX tokens, which has complicated WazirX’s ability to reimburse affected customers.

As of July 18, the date of the hack, Binance held WRX tokens worth approximately $80 million. This control has inadvertently restricted WazirX’s access to its own funds, making it challenging to cover the stolen customer assets. According to a source, “Their legal dispute is still ongoing. There are components of WazirX’s business which are still under Binance’s control, including the revenue and the surplus of it. Even its WRX token is under their control. So they have reached out to Binance, and the talks are on but at early stages.”

A May 2023 blog post by WazirX highlighted that “WRX token is controlled by Binance. The IEO (initial exchange offering) for WRX was conducted by Binance, and all the sale proceeds of WRX IEO (i.e., 108,401 BNB tokens worth $2 million) were collected and retained by Binance. Furthermore, the wallets holding locked and released WRX tokens are also managed and controlled by Binance, including the release of such tokens based on the WRX Release Schedule.”

Both WazirX and Binance have declined to comment on this development.

Ongoing Legal Dispute

The conflict between Binance, the world’s largest crypto exchange, and WazirX, India’s largest exchange, began in August 2022. The Enforcement Directorate (ED) froze WazirX’s bank assets worth Rs 64.67 crore, alleging involvement in money laundering and fraud through virtual crypto assets. Following this, Binance CEO Changpeng Zhao (CZ) clarified on Twitter that Binance did not own any equity in WazirX nor controlled its operations. This statement contradicted a November 2019 Binance blog post that announced the acquisition of WazirX. 

A January 2023 Coindesk report, citing a letter from WazirX founder Nischal Shetty to Binance’s legal team, stated that Binance had withdrawn over $67 million earned through trading fees on the WazirX platform.

Recovery Plan

Ten days post-hack, WazirX is exploring ways to mitigate the theft’s impact and restart its platform, which had temporarily halted withdrawals and trading. Nearly 33 percent of Indian crypto users hold accounts and balances with WazirX, which lost 45 percent of its assets in the breach.

One proposed recovery plan faced significant backlash from customers. WazirX suggested a 55/45 approach, allowing customers to access and trade 55 percent of their portfolio tokens, regardless of whether their assets were stolen. Customers labeled this approach as unfair, as it involves converting 45 percent of their remaining tokens to stablecoins (USDT) and locking them, potentially reducing the overall value of their crypto portfolios.

WazirX has provided two recovery options for customers to vote on until August 3. The exchange is under pressure to find a resolution that balances customer satisfaction with financial feasibility.

As WazirX dials Binance for a lifeline, the resolution of this crisis remains uncertain. The ongoing legal disputes and the complex financial interdependencies between the two exchanges have added layers of difficulty to the situation. Investors, industry professionals, and stakeholders are closely watching how WazirX navigates this turbulent period and the potential outcomes of its negotiations with Binance.