Millions of users bear the consequences together? WazirX exchange hacked: Users left with only "cruel two choices"

This article is reproduced from Crypto City, written by Sean, originally titled "Surrender and lose half? WazirX exchange hacked with compensation plan, users forced to choose between two cruel options".

After being attacked by hackers, WazirX proposed a recovery plan called "social loss strategy" on July 27, but regardless of the choice, it means that users have to face the losses of the hacker attack themselves.

Indian exchange WazirX reported hacked for $200 million

WazirX Exchange Hacked

On July 18, India's largest cryptocurrency exchange, WazirX, fell victim to a hack in which hackers stole various cryptocurrencies including Shiba Inu ($SHIB), Ethereum ($ETH), Polygon ($MATIC), among others, totaling over $235 million, nearly 50% of the total holdings of the exchange.

Following the incident, WazirX immediately announced the suspension and freezing of all cryptocurrency and fiat (Indian Rupee) withdrawals, leaving users unable to access their assets immediately. This event impacted up to 45% of user funds. For more details on the incident, refer to the following report.

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Socialized Loss Strategy: Users Forced to Choose One of Two Cruel Options

To address this crisis, WazirX Exchange proposed a recovery plan called the "socialized loss strategy" on July 27, aiming to distribute the losses among users to maintain platform stability.

According to the plan, users must choose one of two options, both of which place the burden of facing the losses from the hack on the users rather than the platform, making it the most controversial aspect of the incident:

• Option A: Freeze 45% of assets, allowing users to continue trading and depositing with the remaining 55% of assets on the platform but with "withdrawal restrictions." Users who choose this option will have priority for compensation once the exchange's assets recover.
• Option B: Freeze 45% of assets, allowing users to withdraw the remaining 55% of assets in an "alternating manner," but with lower priority in compensation once the exchange's assets recover.

Regardless of the option chosen, users are directly locked out of 45% of their assets, and compensation will only be provided once the stolen funds are successfully recovered by the company. The compensation will also be based on the price of the assets on the evening of July 21, a move mocked by netizens as "surrendering and losing half."

Community Reactions and Criticism

Unsurprisingly, WazirX's announcement sparked strong backlash from the community, with many users believing it showed a great disregard for the security of their assets and expressing dissatisfaction with WazirX's decision to make users bear responsibility. Sumit Gupta, Co-founder and CEO of CoinDCX, criticized WazirX on X:

The burden of the loss should primarily be borne by WazirX itself, using its own treasury and assets, rather than making customers bear 45% of the loss.

At the same time, some users questioned the authenticity of the attack and called for a legal investigation into WazirX and its CEO Nischal Shetty to determine whether the incident was the result of hackers or internal planning.

Facing this pressure, Nischal Shetty, CEO of WazirX, emphasized in a statement on X on July 29 that the community poll was only an initial step to gather user feedback and did not have legal binding. He also stated that the team would decide on the next action plan based on the feedback received.