In a move to promote transparency within the volatile world of cryptocurrency, Indian exchange WazirX has published a comprehensive proof-of-reserves (PoR) report. This announcement, made on October 25, revealed that a staggering 40% of customer assets are held in third-party exchanges, raising questions about asset security and accessibility. According to the report, as of October 24, WazirX manages approximately $298.17 million across 242,000 wallets. The assets are divided, with $157.01 million stored on-chain, while $126.91 million is held externally on unidentified exchanges. Notably, there are no assets in third-party custody, and WazirX also retains around $14.25 million in less liquid assets.
In the wake of cybersecurity challenges, WazirX’s current asset management strategy is under scrutiny. Among the funds, $98 million is reported to be placed with an unnamed entity referred to as “Exchange 1,” which has sparked speculation within the crypto community about which platforms are involved—potentially Bybit, KuCoin, or Huobi. The co-founder of WazirX, Nischal Shetty, stated that efforts are underway to obtain permission from these exchanges to publicly disclose their identities. This step is crucial as it emphasizes the exchange’s commitment to openness while recognizing the importance of respecting the exchanges’ confidentiality.
The urgency for improved security protocols is evident, given WazirX’s previous encounters with a major cyberattack in July that resulted in the loss of $235 million in client funds. Following this incident, the exchange made the decision to end its relationship with its previous third-party custody provider, Liminal. In a bid to mitigate future risks, WazirX is actively seeking a new custodian that can provide fund insurance. This prospective partnership would not only reassure users but also fortify WazirX’s risk management strategy.
While the exchange has managed to resume withdrawals in Indian rupees (INR), crypto withdrawals remain suspended as WazirX consolidates its reserves and works toward restoring full user access. Efforts to recover lost assets and prevent further breaches are ongoing, with WazirX cooperating with the Financial Intelligence Unit and other regulatory bodies. This signals a commitment both to compliance and to rebuilding its reputation in a landscape that is becoming increasingly competitive and scrutinized.
As WazirX works diligently to rebound from these tumultuous events, the focus on fund insurance as a form of customer protection cannot be overstated. With the crypto market exhibiting unpredictable behavior, by securing a custody provider equipped with insurance offerings, WazirX aims to minimize losses, ensuring that user funds are safeguarded against potential theft or breach.
While WazirX faces numerous challenges in restoring customer confidence and security, its proactive approach to transparency and risk management will be pivotal in navigating the complexities of the digital asset landscape. The unfolding developments at WazirX serve as a crucial reminder of the importance of transparency and security in the ever-evolving cryptocurrency sector.
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