Key Insights:
WazirX co-founder Nischal Shetty has claimed that the movement was related to a proof of reserve audit.
He previously claimed that Binance operated crypto-crypto pairs.
He also disclosed that they shared a list of 240k wallet addresses for transparency.
The exchange was also looking to onboard a crypto custodian.
WazirX executives have finally revealed the reason why the exchange had to move $75 million worth of cryptocurrencies couple of days ago amid ongoing investigations in India and Singapore.
After one of its hot wallets was drained, the exchange underwent mandatory re-structuring in Singapore. As a result of the exploit, the exchange lost $235 million.
Co-founder Nischal Shetty claimed that WazirX made the $75 million transfer for this specific reason. However, in the past, he claimed that his company only operated INR-crypto pairs and did not own crypto-crypto pairs, which lie with Binance. This means they should not be able to move the crypto without Binance.
Shetty also shared that they disclosed data from over 240,000 wallets so that users could verify the presence of funds in these wallets and not speculate on anything. Interestingly, several investigators on X claimed that this wallet data was fake.
Proof of Reserves is voluntary disclosure followed by several crypto exchanges that show they have enough reserves to withstand a bank run.
The process started after the FTX collapse, when the exchange claimed it was sufficiently funded in the first week of November
Later, FTX was found to have gambled away even the user deposits, resulting in a loss of around $8 billion in crypto assets. The exchange soon filed for bankruptcy on 11 November 2024.
Anyone can easily check whether any exchange has a sufficient reserve to honor withdrawals from it by simply doing a Google search around the exchange.
Below is one of the Proof of Reserves submitted by Binance.
Now, exchanges may implement better reporting of proof of reserves by onboarding an audit company, whether independent or internal.
The audit team can ask those who have chosen to be audited by independent auditors to prove that they own the crypto. To show ownership, exchanges move cryptocurrencies from one wallet to another.
Shetty also claimed they were actively looking for a crypto custodian to help them get better security.
A crypto custodian is a firm that secures crypto assets for larger firms, such as capital managers, exchanges, DeFi protocols, Dapps, and similar entities. For example, Coinbase is a crypto custodian for BlackRock's Bitcoin ETF.
Onboarding a crypto custodian could also provide insurance benefits, as stealing from these firms becomes next to impossible. Crypto custodians are heavily secured, using military-grade hardware and physically securing the vaults that contain the cold storage private keys.
The question of ownership remains the same as it was four years ago. Nischal claimed his company, Zettai Labs, operated crypto-INR pairs while Binance operated the others.
Binance, on the other hand, has categorically denied its ownership and responsibility in the exchange. However, they once tweeted that they could shut down WazirX operations, proving Nischal might not be entirely wrong.
If we take either of them to be true, the question arises of who made the executive decisions, as such a large transfer is impossible without consultation from the exchange's board.
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