WazirX Faces Backlash Over ‘Social Loss Strategy’

Following a $230 million hack on WazirX, which accounted for 45% of all client funds, the exchange team proposed a ‘fair and transparent social loss strategy.’

The initiative offers immediate access to the majority of assets (55%), while maintaining the possibility of further recovery for ‘those who prefer to wait.’

‘By pooling losses, we ensure fairness within our user base and maintain the stability of the exchange. This approach balances quick access for some with potential recovery for others, aiming to resolve the situation more effectively than traditional procedures,’ the platform’s statement read.

WazirX co-founder Nischal Shetty outlined, in his words, two paths for the exchange’s development post-hack:

Nothing is impossible if WazirX can survive this. It will grow and if it makes profits those can be used for recovery.

But, it’s only possible if all our customers support us at this time.

Historically there have been two options that exchanges which faced such situation…

— Nischal (Shardeum) ? (@NischalShetty) July 27, 2024

He suggested pursuing legal action, which would take years and incur legal costs. The ‘social loss’ option is more advantageous, as it would help ‘grow the business and find more new solutions,’ he added.

WazirX also initiated a survey, as reported by CoinDesk, offering clients a choice between two options: access to 55% of funds without withdrawal capability but with priority for any potential recovery funds, or access to 55% of funds with withdrawal capability but with lower priority for recovery.

The remaining 45% will be converted into USDT and locked.

Following negative community feedback, WazirX and Shetty issued statements clarifying that the survey was not ‘legally binding.’

‘Our team is currently reviewing all proposals to develop a plan that truly aligns with the best interests of our clients. We are committed to crafting a plan that considers your collective voice and ensures a fair and effective outcome,’ wrote representatives of the trading platform.

In the CEO’s address, he advocated for the ‘social loss’ option, as it would allow the exchange to resume operations while exploring compensation opportunities.

Many criticized this approach, arguing it penalizes users for the exchange’s mistake. CoinDCX co-founder Sumit Gupta stated that the company should bear the initial loss.

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.

The first contribution to losses should ALWAYS come from the Company…

— Sumit Gupta (CoinDCX) (@smtgpt) July 29, 2024

‘Forcing clients to directly absorb 45% of the losses is utter nonsense. The survey options are also framed to protect the business first, not the clients,’ he noted.

In the aftermath of the attack, WazirX announced a reward for assistance in recovering the funds and reported the incident to law enforcement.