An Indian court has intervened in the ongoing dispute surrounding the distribution of XRP holdings on the WazirX exchange, following a substantial hack in July 2024. The Madras High Court has granted "interim protection" to a WazirX user, preventing the exchange from reallocating the user's XRP assets to offset losses incurred from the hack.
Background of the Case
In July 2024, WazirX, a prominent Indian cryptocurrency exchange, experienced a major cyberattack resulting in losses estimated at $230 million. In the wake of this attack, WazirX proposed a restructuring plan that involved redistributing user assets, including XRP, to mitigate the losses. This proposal triggered legal challenges, primarily concerning the exchange's authority to unilaterally alter the ownership structure of user funds, especially after a security breach.
Court's Ruling
Justice N. Anand Venkatesh of the Madras High Court ruled that WazirX could not redistribute a customer's 3,532 XRP holdings, valued at approximately $9,400, to cover platform losses resulting from the $230 million exploit. The court's decision emphasized the fundamental property rights of cryptocurrency holders, asserting that the user's XRP assets, acquired before the hack, remained their property and should not be diluted to compensate for the platform's operational failures. The court explicitly stated that cryptocurrency qualifies as property, noting that it is "capable of being possessed". This classification provides stronger legal protection for users' digital assets, preventing exchanges from unilaterally altering holdings. The judge also highlighted that the stolen crypto were ERC-20 tokens, which are distinct from the XRP held by the user.
To protect the user's interests during arbitration, the court directed WazirX to furnish a bank guarantee of 956,000 rupees (approximately $11,500) or deposit the same amount into an escrow account.
Implications of the Ruling
This ruling has significant implications for the cryptocurrency landscape in India. It establishes a clearer legal foundation for the industry by affirming that crypto assets are property, thus safeguarding user assets. This recognition is a major step forward, as it opens the door for arbitration and legal remedies related to digital assets. The court's decision reinforces the need for robust legal frameworks in the evolving crypto space, setting a precedent for other jurisdictions grappling with similar issues. It also underscores that as the digital asset space matures, the legal protections surrounding it must also evolve to ensure fairness and trust for all participants.
WazirX's Restructuring and Relaunch
The court's intervention occurred after the Singapore High Court approved a restructuring plan for WazirX, which was supported by nearly 96% of participating creditors. WazirX recently restarted its operations after a 16-month suspension following the 2024 hack. The exchange has initiated token distributions to creditors and is working towards issuing recovery tokens.
The 2024 Hack
The cyberattack that led to WazirX's suspension was attributed to North Korea's Lazarus Group, who exploited a flaw in the exchange's multi-signature wallet system. The attackers manipulated the signers into approving a malicious smart contract upgrade, enabling them to illegally transfer approximately $230 million worth of digital assets.
Impact on XRP Market
The court's ruling has had an immediate impact on the XRP market, with an initial drop in price followed by a recovery. The legal clarity provided by the ruling may boost confidence in crypto ownership rights in India, potentially leading to stronger regional demand for XRP.
