Indian cryptocurrency exchange WazirX has explained why it plans to share the $230 million loss from a recent security breach with all its customers. The company claims it studied how other major exchanges from other parts of the globe handled similar situations to make its decision.
According to WazirX VP, Rajagopal Menon, the exchange looked at two major hacks in the crypto world: Mt. Gox and Bitfinex.
Mt. Gox In 2014, Mt. Gox was hacked, losing 850,000 BTC worth $450 million. This affected all users, no matter what cryptocurrency they held. Mt. Gox went bankrupt, and it took years of legal work to start repaying users. As of 2024, users have received about 20 per cent of their original holdings. Menon claims this case shows how complicated and slow recovery can be.
Bitfinex: Creative solution Bitfinex was hacked in 2016, losing 119,756 BTC worth about $72 million. They handled it differently by spreading the loss across all users, reducing balances by 36 per cent. Bitfinex also gave users BFX tokens to represent their losses. These tokens could be traded, used as collateral, or converted into shares of Bitfinex’s parent company. Within eight months, Bitfinex managed to repay or convert all BFX tokens, helping the exchange recover while giving users options.
WazirX's Approach WazirX plans to use a "socialized loss strategy." Here’s what they plan to do:
-Return 55% of users' crypto holdings. -Lock the remaining 45% in USDT-equivalent tokens. This plan affects all users, even those whose tokens were not stolen.
WazirX offers two options for users:
Option A: Users can trade and hold their crypto with priority for recovery but cannot withdraw it. Option B: Users can trade and withdraw their crypto but will have lower priority for recovery. Users can switch to Option A before making trades or withdrawals. Menon explained that the company is still looking at different approaches and listening to user feedback before finalising their plan. "We are assessing all aspects before deciding whether socialising losses would be the way forward," Menon said.
This strategy aims to balance immediate user needs with the long-term health of the exchange. The crypto community is watching closely to see how this plan will affect WazirX and its users.