Binance and WazirX Ownership Fight Has Users in Patch

Binance and WazirX Ownership Fight Has Users in Patch
A public spat between global cryptocurrency platform Changpeng Zhao, CEO of Binance (known as CZ) and WazirX co-founder Nischal Shetty reached approximately 15 million registered users (as of August) from the Indian crypto exchange.

Meanwhile, Zanmai Labs, which operates WazirX in India, is exploring the legal route amid an ownership dispute with the world’s largest exchange by volume, sources say.

Zhao tweeted on Saturday that WazirX users should transfer their funds to Binance, causing widespread panic, investors told ET.

“We could shut down WazirX. But we can’t, because… it hurts users,” CZ tweeted on Saturday.

A day later, Binance disabled off-chain transfers to WazirX, according to a user screenshot ET reviewed, cutting off users’ ability to transfer funds between the two exchanges internally. Off-chain transactions take place outside of the blockchain.

Young crypto investors whose wallets have been hammered by falling crypto prices and India’s prohibitive tax regime have expressed concern over the safety of their funds on WazirX and the consequences of a soured relationship between the two companies .

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Aditi Khandelwal from Jaipur withdrew all her funds from WazirX on Saturday.

As a retail investor, understanding an issue as complicated as a company’s ownership structure on Twitter was overwhelming, she said.

“My decision has been building since Luna’s collapse. The events of this week have been a turning point,” the 24-year-old said.

Khandelwal was referring to the outage of Terra, a blockchain that used Luna and UST “algorithmic” stablecoins, in May. UST lost over 80% in value over a week, while its sister token Luna fell from $118 in April to $0.0003 in mid-May.

“Right now there is no user protection if I lose my money in the crypto market. Until and unless the crypto space is somewhat regulated in India, I don’t think I will ever go back to crypto even to experiment with a small amount of money,” Khandelwal, who cashed in on the market from the crypto with a 78% loss on her total investments, added.

Binance is closely tied to WazirX on several levels. The former provides wallet services to WazirX users and is also a liquidity provider, sources said.

WazirX VP Rajagopal Menon told ET that users’ cryptocurrency is safe.

“We are the only crypto exchange that allows full crypto withdrawals in India, and that shows how creditworthy we are and how sound our business model is. INR withdrawals are working and there are no issues in terms of the structural viability of the business,” Menon said.

On Friday, the Enforcement Directorate (ED) investigated one of the directors of Zanmai Lab Pvt Ltd, which operates WazirX, and issued a freezing order on his bank accounts worth Rs 64, 67 crore.

“Sentiment among newcomers is a little weak. I transferred my funds from WazirX to Binance while this ED case resolves. I’m sure the funds would be safe at WazirX, but as a professional trader, I can’t risk any interruptions,” said crypto trader Shounak Shetty.

Volumes on WazirX have hit all-time lows since April 1 after digital wallet Mobikwik ceased servicing the crypto-related payments platform and the new tax regime governing crypto took effect.


Since Friday, a
war of words ensued between Binance CZ and WazirX founder Shetty on Twitter about WazirX and Zanmai Labs’ claim of ownership and what that ownership entails.

After announcing the acquisition of WazirX in 2019, CZ distanced itself from Indian exchange operations for the first time on Friday after the ED action.

Both companies agree that Zanmai Labs is fully operated and owned by Shetty and her co-founders and that in 2019 Binance acquired WazirX Technology (IP). The dispute stems from Binance’s denial of having any control over WazirX’s trading operations.

Sources told ET that Zanmai Labs is also considering legal action against Binance.

The Binance-WazirX deal took place against the backdrop of a banking ban by the Reserve Bank of India in 2019, when trading on crypto exchanges in the country was all but decimated.

Shetty says the technology he sold to Binance was licensed to Zanmai by Binance for the Indian market after the banking ban was lifted.

According to Shetty’s Twitter feed, the final stage of the deal was stalled because Binance did not disclose its parent entity. Operations are shared between the two. The Indian entity operates INR-Crypto pairs while Binance oversees crypto-to-crypto pairs and processes crypto withdrawals, according to Shetty.

A lawyer told ET that the deal could have been structured “amphibiously” only because of regulatory uncertainty in India, which could have led WazirX’s founders to accept more legal risk.

“For any tech company, if you take away the IP and the platform, there’s nothing else of value; Binance took everything of value. They don’t want Zanmai because The founders would have thought it was a good deal at the time, but what they failed to realize was that Sebi (the Securities and Exchange Board of India) and RBI rely on them,” the lead attorney, who has experience with such transactions, said.

Transfers between stock exchanges

On Sunday, Binance disabled off-chain transfers to WazirX, cutting off users’ ability to transfer funds between the two exchanges internally.

WazirX, for its part, has started charging fees to transfer funds to Binance from WazirX amid declining volumes due to the introduction of a 1% withholding tax on crypto transactions, according to a company blog post from July.

Binance did not respond to questions from ET seeking comment on its decision to disable off-chain transfers. WazirX has not commented on the introduction of transfer fees.

ED had expressed its concerns on Friday on the “loose regulatory control of transactions between WazirX and Binance, non-registration of transactions on blockchains to reduce costs”.


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