US$230 million was stolen from WazirX, India's leading exchange: it was cut off from cooperation by Binance due to suspicion of money laundering, and its annual trading volume fell by 90%

Two years ago, WazirX attracted the attention of the market due to its months-long acquisition dispute with Binance. Now, this Indian crypto exchange has once again become a hot topic of public discussion due to the stolen assets of up to 230 million US dollars, which has also attracted much attention on the development of India's crypto market.

Nearly half of the reserve funds were stolen, white hat bounty program launched

On July 18, WazirX suffered a security breach in its multi-signature wallet, resulting in the theft of $230 million worth of crypto assets, nearly half of which were SHIB. According to the June transparency report disclosed by WazirX, its asset holdings reached $503 million, which also means that the exchange lost more than 45% of its reserves.

The next day, WazirX released preliminary investigation results on the attack, stating that since February 2023, the WazirX wallet has been operated using Liminal’s digital asset custody and wallet infrastructure services. The cyberattack stems from the discrepancy between the data displayed on the Liminal interface and the actual content of the transaction. During a cyber attack, the information displayed on the Liminal interface did not match the actual signed content. WazirX suspects that the payload was replaced to transfer wallet control to the attacker.

Regarding WazirX’s “accusation”, Liminal Custody is not willing to “take the blame”. Liminal Custody issued a statement stating that its infrastructure has not been damaged and all wallets (including WazirX’s wallet) are safe. Unfortunately, three victim machines had malicious code injected into transactions, indicating a sophisticated and planned attack against a certain Gnosis smart contract multi-signature wallet. According to analysis by blockchain analysis company Elliptic, North Korea-related hackers may be behind the hacking incident.

Currently, the WazirX hacker has sold all the stolen assets into ETH. The attacker’s ETH holdings have exceeded 59,000, and their value has now exceeded US$200 million. To trace and recover the stolen funds, WazirX has reported the incident to the Financial Intelligence Unit (FIU) and Computer Emergency Response Team of India (CERT-In) and contacted over 500 exchanges to block the identified addresses.

At the same time, WazirX has also launched a 10% white hat bounty program to recover funds. White hat hackers, blockchain forensic experts and network security professionals from all over the world will be invited to join this task. The action plan includes tracking down Steal funds, recover customer assets, and conduct deeper analysis of cyberattacks.

In addition, due to cyberattack theft affecting WazirX’s ability to maintain 1:1 asset collateral, the exchange has temporarily suspended trading to conduct thorough data inspection and security audit procedures, and strives to enable withdrawals as soon as possible.

As India’s leading crypto exchange, WazirX’s trading volume has also seen a sharp decline. According to data previously disclosed by WazirX officials, the exchange's trading volume has dropped to approximately US$1 billion in 2023, a drop of more than 90% from the same period of the previous year, and a 97% drop from 2022. Of course, this also has an important relationship with India’s increasing regulatory pressure and onerous crypto taxation system.

Due to the “breakup” between ownership and Binance, WazirX’s annual trading volume fell by more than 90%

WazirX was first known to the outside world because it was a partner of Binance in entering the Indian market and was the latter’s acquisition object. However, after WazirX was accused of money laundering by Indian regulators, Binance “drawn a line” with it, which also triggered an ownership dispute. The outcome of this dispute also planted the seeds for this theft.

In 2022, WazirX claimed to move its base from India to Dubai due to India’s implementation of a new tax system on crypto transactions. But not long after, WazirX was accused by Indian law enforcement agencies and was under investigation for two cases of money laundering and violation of foreign exchange rules. It was claimed that 27.9 billion rupees (over 350 million US dollars) were laundered on the platform, and the personal information of some executives of the exchange was also frozen. Tens of millions of dollars in assets.

Binance issued a document in 2019 announcing that it had "acquired" the exchange. However, after WazirX was accused of money laundering by the Indian authorities, Binance founder CZ immediately issued a document stating that the acquisition transaction had never been completed and Zanmai Labs was the operator. An entity established by WazirX and by the original founders, Binance has never at any time owned any shares in Zanmai Labs, the entity that operates WazirX. Binance only provides wallet services to WazirX as a technical solution, as well as integration using off-chain transactions to save on network fees. WazirX is responsible for all other aspects of the WazirX exchange, including user registration, KYC, trading and initiating withdrawals.

CZ’s clarifying remarks were immediately refuted by WazirX CEO Nischal Shetty, who stated that WazirX was acquired by Binance and Zanmai Labs is an Indian entity owned by Nischal Shetty and its co-founders. Zanmai Labs received a license from Binance to operate trading pairs of Indian rupees and cryptocurrencies in WazirX. Binance operates cryptocurrency trading pairs and handles cryptocurrency withdrawals. Users can verify this fact by visiting WazirX’s TOS (Terms of Service). Additionally, Binance owns the WazirX domain, root access to AWS servers, all crypto assets, all crypto profits, don’t confuse Zanmai with WazirX.

Subsequently, the two sides broke out into a war of words that lasted for several months, each insisting on their own opinions. Binance believes that WazirX shirks responsibility for its misconduct. CZ advocates that users should transfer their funds on WazirX to Binance, and said that Binance requested the transfer of WazirX system source code, deployment, and operations in February 2022, but was rejected by WazirX. Denied, Binance has no control over their system. And Binance will soon stop supporting the off-chain transfer function between WazirX and Binance. Zanmai Labs, on the other hand, was revealed to be seeking to resolve its ownership dispute with Binance through legal means.

And this ownership dispute will further escalate in 2023. In January 2023, Binance issued an "ultimatum", requiring WazirX to issue a clarification statement on the misleading relationship between the two parties, withdraw Nischal Shetty's previous statement that Binance owns WazirX, and delete all Binance-related content in the terms of service, otherwise Binance may WazirX’s service agreement will be terminated before February 3. But this request was rejected by WazirX, saying that the so-called "clarification statement" was "unethical" and that Binance was trying to use "media pressure and threats to force Zanmai to issue a false and misleading statement as a "clarification." Not only that, WazirX also stated that Binance’s accusations are false and unsubstantiated, and that it has made huge profits from its control of the exchange, which WazirX also emphasized in a tweet in May 2023 that Binance controls WRX Token (Binance Launchpad project) and holds all IE0 proceeds, there has been no quarterly burn in the past 5 quarters (i.e. since January 2022)

Finally, Binance announced that it will stop providing wallets and related technology to WazirX. Services to fight back, the latter users can no longer use the Binance wallet service. Since then, the two partners have completely parted ways

India’s high adoption rate has attracted the layout of crypto companies, and the regulatory environment has changed

But they stopped cooperating with WazirX. Since then, Binance has not slowed down its expansion into the Indian market, and now accounts for nearly 90% of the country’s US$4 billion in crypto holdings. The huge profits in the Indian market are an important reason for the expansion of crypto companies such as Binance

According to the district. The "Global Cryptocurrency Adoption Index 2023" released by the blockchain analysis platform Chainalysis shows that India ranks first in cryptocurrency adoption, which is enough to show that India still occupies an important share in the encryption market. Even the Securities and Exchange Commission of India, in order to attract investors, It also announced this year that it plans to officially introduce T+0 in 2025 to compete with cryptocurrencies

Not only that, India’s unfriendly regulatory policies towards the encryption market are also being relaxed in January this year. Due to non-compliance with India’s anti-money laundering rules, it was blocked by India’s Financial Intelligence Unit and removed from the Indian Apple App Store. However, in May this year, Binance became the first to be approved by India’s Financial Intelligence Unit (FIU). Offshore crypto-related entities are subject to the payment of fines after a hearing with the FIU.

In addition, there is also the possibility of adjustments to India’s onerous crypto tax system. As we all know, the huge 30% income tax is hitting the development of crypto transactions in the country, such as Indonesia’s cryptocurrency tax revenue in 2023 will drop by 63% to $31.7 million due to the introduction of a partial collection period for cryptocurrency taxation. However, Indonesia also plans to reassess the income tax and value-added tax levied on crypto transactions this year. The reason is that cryptocurrencies are expected to become an integral part of Indonesia's overall economy in the near future.

But it is important to note that the Indian market still faces regulatory uncertainty. The Indian Finance Minister stated not long ago that cryptocurrency regulation needs to be global. Consensus, and the Reserve Bank of India also submitted its views on cryptocurrencies and highlighted the macroeconomic risks associated with cryptocurrencies, as well as issues related to tax evasion and fiscal stability

Overall, high adoption rates coupled with tight regulation. The loosening of attitudes may lead to further development of the Indian market, and the theft of WazirX may also provide more market space for other crypto exchanges.

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