CoinSwitch sues WazirX to recover trapped funds

CoinSwitch, a prominent Indian cryptocurrency exchange, is suing rival platform WazirX to recover trapped funds, revealing the scope of the damage wrought by a cyberattack at WazirX that resulted in $230 million worth of digital assets being stolen.

The move comes more than a month after WazirX, one of India’s largest crypto exchanges, reported the security breach and proposed a controversial “socialized loss” strategy, aiming to distribute the loss across its entire user base.

CoinSwitch, which operates an exchange aggregator, said it has around ₹810 million ($9.65 million) worth of assets stuck on WazirX’s platform. This includes ₹124 million in fiat currency, ₹287 million in ERC20 tokens, and ₹399 million in other cryptocurrencies.

“We have attempted to be in regular touch with WazirX since the day of the incident, but have not been able to reach a solution to recover the funds that are stuck on their platform,” CoinSwitch stated in a detailed thread on X.

On Wednesday, WazirX said it had filed for a moratorium in Singapore’s High Court to facilitate restructuring. The company plans to implement a scheme of arrangement, allocating available assets proportionally among users as unsecured creditors. The firm, whose customers include “various” Indian law enforcement agencies, estimates the process will take at least six months, during which it will explore options to increase token recoveries.

CoinSwitch said the funds trapped on WazirX represent about 2% of CoinSwitch’s total assets. Less than 1% of its assets are affected by the alleged cyber attack, which primarily impacted ERC20 tokens.

CoinSwitch, backed by investors including a16z, Coinbase and Peak XV, said it is tapping its own treasury to maintain at least a 1:1 ratio for users’ holdings on its platform. The company said that its overall assets are 1.51x the user assets invested through its platform.

CoinSwitch said it maintains a small amount of its liquidity, about 7% of its reserves, on third-party exchanges to ensure smooth trading for its users.

CoinSwitch’s lawsuit highlights the ongoing challenges faced by India’s cryptocurrency industry, which has been grappling with regulatory uncertainty and security concerns. The WazirX incident, described as India’s largest crypto heist, has further eroded trust in the sector.

Last month, WazirX said it planned to resume operations within a week of the attack, proposing to return only 55% of customer holdings while locking the remaining 45% in USDT-equivalent tokens.

WazirX founder Nischal Shetty had previously confirmed that the company did not insure customer funds, citing a lack of viable options. He cautioned that recovery efforts might take years and success was not guaranteed.

Shetty didn’t immediately respond to a request for comment.