- WazirX users face losses after a July hack.
- There are not enough funds to repay creditors in full.
- The formation of a users‘ creditor committee is raising suspicions.
Hackers stole $230 million in Ethereum-based tokens from WazirX on July 18. This makes it the second-largest crypto heist of 2024, following the $305 million DMM exchange hack in May. The breach left WazirX insolvent and unable to repay its crypto liabilities to users.
Since the hack, WazirX has faced heavy criticism for its response, particularly its lack of transparency around its financial health and the unpopular socialized loss proposal. Although the Singapore High Court approved the exchange’s restructuring plan last month, new concerns are emerging about the formation of a creditor committee, with users fearing a whitewash in the making.
WazirX to Form a Creditors Committee
In late September, WazirX secured a four-month moratorium from the Singapore High Court, giving the company breathing room to restructure its operations and work towards repaying creditors. This temporary relief has allowed the exchange to navigate the fallout from the $230 million hack as it plots a comeback.
Sponsored
This week, WazirX announced the formation of a Committee of Creditors (COC), claiming the group will represent creditors’ interests during the restructuring process. However, many users remain unconvinced, expressing skepticism about the committee’s ability to secure favorable terms for creditors.
One of the key concerns raised by users is the secrecy surrounding the identities of the COC members. Additionally, a restrictive code of conduct prevents committee members from sharing information deemed confidential with the wider creditor base, heightening fears due to a lack of transparency.
YouTuber Ajay Kashyap criticized the COC, mocking WazirX’s claims of transparency and saying, “Everyone knows what’s going to happen.”
Similarly, X influencer “Justice for WazirX User” urged the company to appoint well-known figures to the COC, suggesting this would reassure creditors that their interests are truly being represented.
How the Committee Will Work
The COC consists of 10 members who are responsible for representing the interests of creditors during WazirX’s restructuring. Their role involves providing feedback on creditor preferences, monitoring the company’s progress, and offering input on key decisions as part of the restructuring process.
Despite the gravity of the situation, WazirX has decided to keep the identities of its COC members confidential, raising concerns about transparency. However, the company indicated that these identities could be revealed to the Singapore Court, if deemed necessary.
WazirX explained its selection process for the COC, which divides creditors into 10 tranches, based on the size of their claims. From each tranche, 1% of creditors are randomly selected to form a “Contingent Creditor Pool.” Creditors from this pool who express interest in participating are then randomly chosen, with one representative per tranche joining the committee.
The COC’s role is advisory, meaning WazirX isn’t required to implement their suggestions. The company expects to finalize the COC selection by October 9, with the first committee meeting scheduled to occur within a week of its formation.
On the Flipside
- Creditors committees are a standard practice in many restructuring cases. However, they usually involve known institutional creditors, such as Genesis and Wintermute, representing FTX creditors, rather than anonymous individuals.
- Previous crypto restructurings, like Mt. Gox, have dragged on for years, with creditors often receiving only a fraction of their original holdings.
Why This Matters
By hiding the identities of its creditor committee, WazirX has managed to turn a trust-rebuilding exercise into another flashpoint for its frustrated users.
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