In the chaotic aftermath of WazirX’s $230 million hack, the proposed "Withdrawal Management Programme" feels more like a desperate bid to save the ship than a lifeboat for its users.
As a passionate advocate for blockchain and community-first approaches, I must voice my concern: this isn’t the way to treat your users, WazirX.
According to WazirX’s ‘Withdrawal Management Programme’, it’s asking customers to absorb a staggering 45% of the losses through a socialized loss model, which can be best described as throwing its users under the bus while the company shields its reserves.
WazirX's Plan Detailed
Post-hack, WazirX presented its "Withdrawal Management Programme," designed as a bifurcated approach to managing the crisis. The options laid out in their opinion poll are framed to cushion the company first, leaving users out in the cold. Here’s a breakdown for you.
- Option A - Users who choose this cannot withdraw funds but are promised priority in the asset recovery process. They are allowed to trade and hold assets on the platform.
- Option B - This option allows for trading and withdrawal of assets but places users at a lower recovery priority.
Either way, to stabilize the recovery efforts, 45% of all user crypto holdings will be converted into USDT-equivalent tokens and locked, distributing the financial impact across all users. According to them, this initiative aims to create a reserve fund to manage liquidity and facilitate recovery without a complete operational halt. Here’s why I feel it sucks.
Key Issues with the Plan
- Snapshot Timing: The snapshot should have been taken on or before July 18, 2024, to prevent further discrepancies. Not July 21 when the trading was halted.
- Unfair Penalties: Users with non-stolen tokens should not be penalized to compensate for stolen tokens.
- Tax and TDS Issues: Users should not bear the additional tax burden on top of their losses. India has a flat 1% TDS and 30% Capital Gains Tax.
- Financial Transparency: WazirX should disclose its financials, including profit, loss, and balance sheet, to justify compensation.
- Leadership Accountability: The WazirX team should also take a financial hit instead of placing the entire burden on users.
What WazirX Could Have Done
Other exchanges like Bitfinex and Coincheck have faced similar losses but chose paths that prioritized their communities. Bitfinex issued BFX tokens and allowed users to convert these into company equity, effectively making them partners in recovery. Coincheck used its own funds to reimburse the 260,000 affected users.
In both cases, these responses helped maintain user trust and stabilize the exchange. Reflecting on the proactive measures taken by other exchanges in similar crises could have guided WazirX to more community-favorable decisions.
- Immediate Financial Contribution: Instead of imposing a 45% loss on users, WazirX could have utilized its own reserves first, showing a commitment to its user base.
- Use of Foundation Funds: The WRX foundation holds a significant amount of WRX tokens, part of which could have been liquidated to cover some of the losses.
- Fair Loss Distribution: Applying a loss distribution only to those affected by the hack rather than a blanket approach across all users would have been more equitable.
- Clear Financial Disclosure: Releasing detailed financial statements could help build trust and transparency, showing the users where the platform stands financially.
- Leveraging Altcoin Listing Fees: Funds accumulated from altcoin listings could serve as an additional buffer to assist in compensating affected users.
- Leadership Accountability: The leadership team could take a visible pay cut or similar financial hit to show solidarity with their user community.
The Bottom Line
What WazirX is doing is a tale of misplaced priorities. For a platform that has carried the banner of the crypto revolution in India, it’s a sad pivot to see its potential insolvency and irrelevance. For a community that thrives on trust and transparency, WazirX’s approach feels less like a strategy and more like a tragedy.
By prioritizing its financial preservation over equitable treatment of its users, WazirX not only risks its reputation but also its operational future. A more balanced, transparent, and user-focused approach, demonstrating genuine leadership commitment to financial restitution, would likely bring greater trust and loyalty from the crypto community, ultimately keeping the platform's resilience and sustainability alive.