'Utter nonsense': CoinDCX co-founder criticises WazirX's recovery plan for recent $230 million security breach

Sumit Gupta, co-founder of CoinDCX, has openly criticised WazirX's plan to recover the $230 million loss from a recent security breach. Gupta's comments highlight growing concerns within the cryptocurrency community about WazirX’s approach.

In a tweet, Gupta expressed his dissatisfaction with how WazirX is handling the situation. "Hate to be saying this, but the way @WazirXIndia is handling this entire situation isn't community first and this IMO won't go down well for them. This sadly is also hurting the other ecosystem participants," he tweeted.

WazirX announced a "socialized loss strategy" to manage the impact of the breach. The company plans to return only 55 per cent of users' crypto holdings and lock the remaining 45 per cent in USDT-equivalent tokens. This strategy affects all users, even those whose tokens were not stolen.

WazirX is offering users two options:
* Option A: Allows users to trade and hold their crypto assets with priority for recovery efforts but restricts withdrawals.
* Option B: Permits trading and withdrawals but places users at a lower priority for recovery. Users can switch between these options under certain conditions.

Gupta criticized WazirX for not taking the first hit on the losses. "The first contribution to losses should ALWAYS come from the Company (i.e. WazirX in this case) and the treasury and assets the company holds. I have not seen any such commitment around this from the company side, instead making customers directly absorb the 45% losses is utter nonsense," he stated.

Gupta also took issue with how WazirX framed its recovery options, suggesting they were designed to protect the business over customers. "The poll options are also framed in a manner to protect the business first and not the customers," he tweeted.

Call for reconsideration
Gupta hopes WazirX will reconsider its approach and prioritize its customers. "Hopefully they will reconsider their approach and do what's right by the customers," he concluded.

WazirX told Business Today that strategy was influenced by how other exchanges handled similar situations. The company studied two major exchange hacks:

Mt. Gox
In 2014, Mt. Gox was hacked, losing 850,000 BTC worth $450 million. This led to a lengthy bankruptcy process, with users only beginning to receive partial repayments years later, amounting to about 20% of their original holdings.

Bitfinex
Bitfinex faced a hack in 2016, losing 119,756 BTC worth about $72 million. They spread the loss across all users, reducing balances by 36%, and issued BFX tokens representing the loss. These tokens could be traded or converted into shares of Bitfinex's parent company, iFinex. Within eight months, Bitfinex managed to redeem all BFX tokens through direct repayment or equity conversion, allowing the exchange to recover while offering users multiple options.

WazirX's Current Approach
Rajagopal Menon, VP of WazirX, explained that the company is still evaluating different approaches and gathering user feedback before finalizing their plan. "We are assessing all aspects before deciding whether socialising losses would be the way forward," Menon stated.

Community Reaction
The crypto community is closely watching how WazirX will implement its plan and its impact on users and the exchange's future. Gupta’s criticism underscores a broader concern that WazirX’s current strategy may not be in the best interest of its users and could harm the overall trust in the cryptocurrency ecosystem in India.