In a significant development for India’s cryptocurrency landscape, the Delhi High Court has mandated a fresh investigation into WazirX, one of the country’s leading crypto exchanges. This decision comes in the wake of a substantial security breach and subsequent asset restructuring efforts by the platform.
Background: The July 2024 Breach
WazirX faced a major setback in July 2024 when a cyberattack led to the loss of approximately ₹2,000 crore (around $235 million) in digital assets. The breach, allegedly orchestrated by a North Korean hacking group, compromised the exchange’s multi-signature wallet server. Despite partial recovery efforts, about 43% of customer funds remain unrecovered.
Legal Proceedings and Court’s Directive
Advocate Jaivir Bains filed a petition seeking criminal proceedings against WazirX, highlighting concerns over the exchange’s handling of the breach and subsequent fund management. Initial investigations by Delhi Police did not substantiate criminal charges; however, Justice Sanjeev Narula of the Delhi High Court rejected these findings. The court has now ordered a renewed probe and requested an updated status report by February 2025.
Asset Restructuring and User Response
In response to the breach, WazirX initiated an asset restructuring plan. The exchange proposed redistributing assets in the form of tokens, contingent upon user approval. This scheme aims to represent about 85% of investor balances as of July 18, 2024. Future distributions are planned over the next three years, derived from illiquid assets and profits from ongoing operations.
However, the decision to merge affected and unaffected user funds has sparked criticism. Some users argue that this approach unfairly distributes losses across all investors, leading to legal challenges and further scrutiny from regulatory bodies .
Regulatory Implications and Future Outlook
The court has issued notices to the Enforcement Directorate and the Financial Intelligence Unit, seeking clarity on potential investigations into the breach. This move underscores the growing need for robust regulatory frameworks in India’s crypto sector.
As WazirX navigates these challenges, the outcomes of the court-ordered investigation and user responses to the restructuring plan will play pivotal roles in shaping the platform’s future and the broader Indian cryptocurrency ecosystem.
The next hearing is scheduled for April 29.
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