Crypto Quill

The WazirX hack of July 2024, initially attributed to a foreign cyberattack, has come under renewed scrutiny with fresh allegations suggesting it might have been an inside job. Users and analysts alike are questioning the official narrative, citing inconsistencies and pointing to a possible cover-up.

WazirX Under Fire—Yet Again

On July 18, WazirX, India’s largest cryptocurrency exchange, announced a hack that resulted in the theft of approximately $235 million (₹2,000 crore) from a centralized wallet. Initially, the exchange blamed the notorious North Korean Lazarus Group. However, doubts have since emerged, fueled by a group of vocal users and whistleblowers rallying under the banner “Justice for WazirX Users.”

Their accusations revolve around suspicious events leading up to the hack, including financial struggles, regulatory battles, and governance issues that some claim made WazirX vulnerable—or perhaps even complicit.

The Domino Effect Leading to the Hack

The events that allegedly set the stage for the hack began in February 2022, when India introduced a 30% tax on cryptocurrency profits. This policy caused a sharp decline in WazirX’s revenue, shrinking user activity and impacting the platform’s profitability.

In April 2022, co-founders Nischal Shetty and Siddharth Menon relocated to Dubai, raising questions about whether they were seeking to evade regulatory scrutiny. By August 2022, WazirX faced further setbacks when the Enforcement Directorate froze $8 million worth of its assets over money laundering allegations—a claim WazirX has consistently denied.

The situation escalated in January 2023, when Binance severed ties with WazirX, citing governance disputes. By early 2024, WazirX saw an influx of funds after Binance was banned in India, forcing many Indian users to move their holdings back to WazirX.

The hack itself struck in July 2024, targeting a wallet containing $235 million—a move that critics argue was facilitated by the risky centralization of funds.

Was It Negligence or Malice?

WazirX’s decision to consolidate a vast sum in a single wallet has been described as a “ticking time bomb.” While some attribute this to poor risk management, others suggest it may have been a deliberate move to stage a hack.

This theory is supported by discrepancies in WazirX’s financial reporting. For example, the initial affidavit filed in Singapore reported a total of $570 million in funds at the time of the hack, with $234 million stolen—amounting to a theft rate of 42%. Later, this figure was revised to reflect $546 million in total funds, raising the theft rate to 45%.

These inconsistencies, combined with the platform’s lack of transparency, have only deepened mistrust among users.

WazirX’s Recovery Plan and User Backlash

Following the hack, WazirX proposed a moratorium application in Singapore to restructure its financial obligations. While the platform promised to refund affected users, the timeline and specifics of this process remain unclear, further aggravating frustrations.

Adding to the chaos, independent auditors and analysts have flagged potential mismanagement of reserves and questioned WazirX’s commitment to user safety.

A Web of Allegations and Arrests

The controversy surrounding WazirX is not limited to the hack itself. Reports of strained relationships with regulatory authorities, governance disputes with Binance, and mismanagement of user funds paint a troubling picture.

Indian law enforcement has also reportedly arrested several individuals linked to the exchange, though details remain sparse. Meanwhile, industry watchdogs are calling for a deeper investigation into whether the hack was truly an external breach or an elaborate cover-up.

A System Failing Its Users

For many, the WazirX debacle highlights broader issues within India’s cryptocurrency ecosystem. Critics argue that regulatory uncertainty, coupled with inadequate security measures, has left platforms like WazirX vulnerable to both internal and external threats.

As the investigation continues, the crypto community is left grappling with unanswered questions:

• Was the hack a result of systemic failures, or a calculated act of sabotage?
• Can users trust WazirX to uphold its promises of transparency and restitution?
• What implications does this have for the future of crypto regulation in India?