After cyber attack on WazirX, rival CoinDCX forms Rs 500 M investors protection fund

CoinDCX, India’s largest crypto exchange has announced the establishment of a Crypto Investors Protection Fund (CIPF) to compensate users for losses in rare scenarios like a security breach or other such adverse events.

The homegrown crypto exchange has initially allocated Rs 500 million to the fund.

The development, the first for any Indian crypto exchange, comes on the heels of WazirX- another leading Indian crypto exchange- getting hit by a cyber attack last month, leading to a loss of $230 million or nearly 45% of its customer funds from one of its wallets.

WazirX has yet to recover the stolen funds. Cybersecurity firms have identified Lazarus, a North Korean hacker group to be behind the heist.

A move to boost trust within the crypto ecosystem: CoinDCX

According to CoinDCX, the decision this fund underscores CoinDCX’s “commitment to upholding trust within the crypto ecosystem”.

The WazirX incident is likely to have spooked crypto investors at a time when players in the ecosystem are working towards mainstreaming the asset class and gaining an equity-like legitimacy for it in the country, not least from the point of view of government regulation.

Commenting on the motivation behind the formation of the fund, Sumit Gupta, co-founder of CoinDCX, said,

In an extremely rare event of a security breach or an adverse event, this dedicated fund will provide an additional layer of protection, ensuring that our customers’ assets remain secure and intact.  We commit to adding 2% of brokerage income to the corpus and increasing the pool size over time. We will continue to monitor the fund’s size, maintaining the balance at a level adequate to safeguard our users’ assets. The CIPF will be one of its kind and a significant step towards building long-term trust in the Indian crypto ecosystem.

Gupta said the assets under management at CoinDCX are currently diversified across multiple vaults that ensure an added layer of security.

In an interview with Invezz earlier this month, on a question about whether the WazirX incident had impacted other Indian exchanges or would be used as a cue to revisit security measures, Gupta had said it was business as usual at CoinDCX as crypto assets operate in a global context, and any single event is unlikely to significantly impact the market as a whole.

WazirX struggles to bring back stolen funds

The attack has thrown WazirX out of gear.

In the latest move, on Tuesday, nearly 20 days after the attack took place, the exchange filed a first information report (FIR) regarding the theft.

Since the attack, the exchange has tried to come up with various new ways to work towards getting back the funds, while keeping investor confidence intact.

It announced a bounty program under which the company said it would reward anybody with “actionable intelligence” that leads to the freezing of the funds with a $23 million reward, as well as a 5% incentive of the recovered amount as a white hat reward.

However, some of its desperate moves have attracted much criticism.

Later last month, the exchange announced a plan to “socialise” the losses. Under the proposed plan which it ultimately shelved after a poll voted against it, WazirX would allow customers to access and trade only 55% of their assets on the exchange, with the remaining being converted to stablecoins (USDT) and locked by the exchange.

The plan applied to a customer even if his assets did not get stolen.

Gupta had slammed the proposed plan on ‘X’. He said the plan was not community first and the way WazirX was handling the crisis was “hurting ecosystem participants”, urging the exchange to reconsider it.

Edul Patel, CEO of Mudrex, another Indian crypto exchange also criticised the company’s crisis management as being “deeply flawed”.

He said WazirX also continued to operate for three days after the hack in a decision that not only compromised user security but also “eroded trust”.

Meanwhile, WazirX CEO Nischal Shetty has said that he is in talks with most major global exchanges for support, and to even look for a potential buyer.

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