WazirX’s socialized loss strategy following a major hack has sparked significant backlash from users and industry leaders, raising legal and tax concerns about the compensation plan.
Points
- WazirX’s compensation plan involves a socialized loss strategy post-hack.
- Users can access 55% of their assets, with the remaining 45% locked in Tether-equivalent tokens.
- The plan has led to widespread criticism and concerns over its fairness and legality.
WazirX, an Indian cryptocurrency exchange, is experiencing backlash after disclosing a plan for a “socialized loss strategy” following a hack on July 18, which resulted in a loss of around $230 million, or nearly 45% of the exchange’s total assets, including a significant amount of Shiba Inu tokens.
Compensation Plan and User Reactions
WazirX announced two options for users affected by the hack. The first option permits users to access 55% of their funds for trading and deposits but restricts withdrawals. This option also gives users priority in potential recovery proceeds. The second option allows users to access and withdraw the same percentage of funds but prioritizes them less for recovering any additional lost assets. The remaining 45% of user assets would be converted to USDT or other available tokens, effectively locking them until further notice.
Dear WazirX Tribe,
We appreciate your active participation in our recent poll from 27 July 2024. We want to clarify that this poll is a preliminary step to understand your opinions and is not legally binding upon the users or the WazirX platform.
https://twitter.com/WazirXIndia/status/1817885074421149982
The plan has stirred stark backlash across social media, with many users feeling betrayed by what they perceive as a blatant disregard for their assets’ security and integrity. Sumit Gupta, co-founder and CEO of CoinDCX, criticized the approach, stating that losses should primarily be absorbed by the company and not passed directly onto customers. Other industry leaders share this sentiment, believing that imposing a direct financial burden on users undermines trust in the crypto ecosystem.
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…
https://twitter.com/smtgpt/status/1817844272064012304
The method of compensating users has significant legal and financial ramifications. Converting assets into a
basket of different tokens affects the users’ immediate liquidity and subjects them to potential tax liabilities. The Indian regulatory framework imposes a 1% Tax Deduction at Source （TDS） and a 30% tax on capital gains, which could significantly impact the already strained financial situation of the affected users.
Legal and Financial Repercussions （continued）
Moreover, the timing and methodology of the snapshot used to determine the value of users’ portfolios have also been criticized. Some argue that the snapshot should have been taken before the hack to reflect the accurate value of the assets. This approach to asset conversion raises concerns about transparency and fairness in the compensation process.
Industry Leaders’ Critique
Sumit Gupta, the co-founder and CEO of CoinDCX, was among the first prominent figures to criticize the exchange’s handling of the situation. He pointed out that the burden of losses should primarily fall on WazirX itself, using its own treasury and assets, rather than making customers bear a 45% 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…
Community Outrage and Demands for Justice
The public backlash has been swift and severe. Many users perceive this strategy as a way for WazirX to avoid full responsibility for the losses. The restriction on withdrawals, coupled with the non-binding nature of the poll, leaves users feeling that their assets are still at critical risk.
One user shared a letter addressed to a DCP officer, insisting on a CBI inquiry to determine whether the incident was a hack or an insider job.
CBI inquiry is imperative to determine whether this #Wazirx incident was a hack or an insider job. If it turns out to be a hack, I may offer my support in the future. However, uncovering the truth is my priority. and I am committed to pursuing justice relentlessly, even if
https://twitter.com/IndiasCrypto/status/1817595772101161066
hack and criticized the allocation and profit usage of WRX tokens. He questioned the fairness of penalizing users with non-stolen tokens and raised concerns about tax liabilities on top of user losses.
WazirX Solution is Not Acceptable?
1） The snapshot should have been taken on or before 18th July 2024.
2） WRX foundations were allocated 30% of WRX tokens. The team and Foundation made some money on WRX tokens that can be paid off.
https://twitter.com/simplykashif/status/1817885749234028776
The overarching sentiment among the affected users and industry leaders is one of betrayal and frustration. The lack of transparency, coupled with the financial and legal implications of WazirX’s compensation plan, has led to widespread skepticism and demands for more equitable solutions.
解説
- The backlash against WazirX’s compensation strategy highlights the importance of transparency and fairness in handling user assets post-hack.
- Legal and tax implications are critical factors that need to be carefully considered when devising compensation plans for affected users.
- Industry leaders advocate for companies to absorb the financial burden rather than passing it on to users, reinforcing trust in the crypto ecosystem.
- The community’s demand for a thorough investigation into the hack underscores the need for accountability and stringent security measures in cryptocurrency exchanges.
- As the crypto market matures, regulatory frameworks and industry best practices must evolve to protect users and ensure the stability of the ecosystem.