Indian crypto exchange WazirX has introduced a plan to mitigate the impact of a recent hack that resulted in the loss of approximately $235 million. The breach affected 45% of user funds, prompting the exchange to launch a “socialized loss strategy” aimed at ensuring a fair resolution for its users and maintaining platform stability.

WazirX’s July 27 announcement reveals a 55/45 approach, where users can access 55% of their assets immediately, while the remaining 45% will be locked in Tether-equivalent tokens. This strategy aims to distribute losses evenly among all users, preventing disproportionate impacts on any single group.

In correspondence sent to affected users, WazirX presented a poll with two options to recover stolen funds. “Option A” allows users to access 55% of their funds for trading and deposits, without withdrawal rights, but gives them priority in potential recovery proceeds. “Option B” permits users to withdraw 55% of their assets in a staggered manner, albeit with lower priority in the recovery queue. In both cases, the remaining 45% of user assets will be locked on the exchange as USDT-equivalent tokens, to be returned if the firm successfully recovers the stolen funds.

The exchange requested that affected users vote for their preferred option by Aug. 3, 2024. According to poll results, approximately 62% of the impacted users have selected Option B, allowing them to make withdrawals. The other 38% chose to forego immediate withdrawals in favor of securing first priority for any potential recovery proceeds.

The breach at WazirX led to a substantial loss of around $235 million, ranking it as the second most significant hack of a centralized exchange recently, only outdone by the DMM exploit on May 31, where the losses amounted to $308 million.

Nischal Shetty, the exchange’s co-founder, assured users of the exchange’s potential for recovery and growth following the significant hack. Shetty outlined two historical responses to such crises: lengthy legal proceedings or adopting a socialized loss model coupled with rebuilding efforts. He advocated for the latter, emphasizing quicker recovery through operational growth and profit distribution.

“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.”

Shetty also stressed the importance of community support, adding, “Only together, we can do this,” as he rallied for a unified approach to overcoming the platform’s challenges.

Meanwhile, there has been significant discontent among crypto users regarding WazirX and its co-founder, particularly concerning the socialized loss strategy. Many have labeled the approach a scam and questioned why the burden of the exchange’s challenges should fall on the users.

“This is an outright scam by WazirX. Stupidity to ask users share the loss when the platform security was sub-par. Just pay it from the funding and from the fat paychecks that you pay to your core team.”

Additionally, some affected users have voiced their preference not to have the 45% of their affected assets locked in USDT, but rather to keep them in the original cryptocurrencies. In response, Shetty acknowledged these concerns, arguing that maintaining a stable value in USDT is crucial for planning recovery strategies effectively.

“I hear you but this is not feasible or sustainable as cost fluctuates every minute. In a bear market the price will be low and in bull price will be high. In order to be able to devise plans for recovery, a stable value helps as that’s the final amount that need to be solved.”

In 2023, crypto industry participants lost over $1 billion in various hacks.

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