Over half-a-year after the hacking attack on India’s cryptocurrency exchange, WazirX Founder Nischal Shetty spoke to businessline about the need for theft insurance in the crypto industry, and company’s plans to recover the loss of $234.9 million (around ₹2,000 crore) for its users.
Looking at the general crypto sector, since the WazirX incident happened, a lot of people seem to have lost faith in the idea of crypto. What is your take on this?
Something to understand is we are at the cusp of a new technology. There’s maybe 50 or 100 million people globally who are completely into crypto and understand it. Eventually, it’ll reach all 8 billion people, but it is in these early days of rapid growth that an industry learns how to deal with things. Theft is one of the biggest attack vectors for this sector. When a breach of crypto happens, the impact is 100 times that of data theft because real value is also involved. So it becomes very important that as an industry, everyone works on securing it, and the industry will learn over time.
How would you want the security aspect to improve?
There are two broad ways in which to deal with thefts: self-custody of the asset or working with third-party custodians that have insurance. I would say insurance is the ultimate solution. Now, this industry is new and insurance is not easy to come by. However, insurance will evolve and maybe in three to five years, it will be easier to get insurance. For now, we are going with custodians who are large multi-billion dollar companies and have insurance. We’ve been able to identify a few of them, and are in the last stages of integrating with them. Still, I think insurance is going to be one of the last lines of defence for people who put their funds on centralised exchanges.
Is the insurance sector warming up to the crypto space?
I think so, but not at a great pace because of regulations. It’s far easier for insurance to work in a regulated environment. As regulations heat up, the insurance players will also start getting involved. In the next 3-5 years, it might become commonplace for insurance providers to provide the same for funds, and then it will be safer to deal with crypto exchanges.
What is your opinion about the state of crypto regulation in India?
If you look at it piece-by-piece there’s been progress. Holistically, we don’t have regulations. The TDS part, 1 per cent TDS makes it difficult for people to get involved in terms of trade, but maybe it helps the government with tracing transactions. With the Trump administration in the US going forward with crypto and the Markets in Crypto-Assets regulation in Europe, I think India will start working towards regulation in the next few years. For example, we need clarity on how to run exchanges in India. The US calls for licensing of exchanges. A complete regulatory framework won’t work right now because there is no play-book.
Other than insurance, is there any other solution in terms of security?
Find the best custody providers. Maybe some people could also work on in-house solutions. See, things can go wrong in this sector. This might demotivate some people, but if that is your concern, you should not get involved in cryptocurrency and you should wait for this space to evolve. Theft is an actual risk, so is volatility of the value. So, this is something people need to be aware of before participating in the sector.
Has all of the stolen valuation been retrieved, all the tokens and the money?
About $230 million was stolen, of which $3 million was frozen in the beginning. We are still tracing the funds, where they’re moving. The good thing about blockchain is you can see where the funds go. On the flip side, you can also mix funds and that makes the job of tracing harder. It’s not that easy to recover the funds when they’re purely on chain. I think a lot of those funds are still in the mixing phase right now.
The latest thing that people are now working on is the recovery token. How are you working on the recoveries?
About 45 per cent of the USD value was stolen leaving behind $250-260 million. Markets have gone up so the remaining funds have grown in size. What we’re able to return from the remaining existing liquid funds is about 85 per cent by value. For the remaining 15 per cent, we’ve provided a recovery token that represents the pending value to be fulfilled. We will allocate those recovery tokens in everyone’s portfolio. We are also going to work on profit generation. The profit that the business generates will be distributed to the recovery token holders. It starts from 100 per cent profits up to the first $30 million that we make. After that, 50 per cent of the profit. Whoever’s holding the recovery token, they get these profit shares for the next three years. We’ve also announced a decentralised exchange DEX that will have its own tokens. A percentage of those would be distributed to the recovery token holders to use on the decentralised exchange as fees or for staking.
Published on March 10, 2025
