WazirX Affidavits: Analysis, Transparency, and Questions

In the next few days, it’s going to be exactly two months since the biggest crypto hack in India that led to the loss of Rs 2000 crore of user funds from WazirX exchange. The fate of 4.4 million WazirX users in India hangs by a thread, controlled by co-founder Nischal Shetty and exchange management, who have unfortunately dealt in deception since day one of the hack.

WazirX Affidavit: Clarifications and Unanswered Questions

On September 10, Nischal Shetty submitted a supplementary affidavit to the High Court of Singapore as part of the moratorium application filed by Zettai Pte Ltd, the Singapore-based parent entity of WazirX. Prior to the September 10 affidavit, Nischal had also filed an affidavit on August 27. The two affidavits mentioned the balance sheet of Zettai as well as the breakdown of INR and crypto holdings of WazirX exchange.

In the first affidavit, the exchange mentioned that at the time of the hack, they had total funds of $570,068,358, from which $234 million was stolen. However, this amount was corrected in the second affidavit to $546,472,935, including the INR funds. However, the INR funds are managed by Zanmai, an Indian entity, and the crypto funds were handled by Zettai, a Singapore entity.

Why are the funds not separated if Zanmai and Zettai are different entities? In a blog post on July 25, 2024, WazirX claimed that 45% of funds were stolen. However, when subtracting the total funds from the stolen ones, the percentage comes to 42%.

On June 12, 2024, WazirX published its Proof of Reserves Report stating that it maintains a reserve-to-liability ratio exceeding 1:1, but this was not mentioned in the affidavit.

Lack of Transparency in ZETTAI Financial Statement

Through the supplementary affidavit, this was the first time that Zettai Pte. Ltd. shared its financial statements for 2022 and 2023. A closer analysis of the company’s financial statements reveals several red flags and anomalies that raise questions about the accuracy and transparency of the reported figures.

In 2022, WazirX generated $108 million in revenue, spending nearly all of it: approximately $80 million on sales and marketing, and $18 million on “administrative and other expenses.” In 2023, Zettai generated $12,138,206 in revenue, witnessing an 88% decrease in year-on-year revenue, leading to a loss of $1,349,800 for 2023.

The rise in other receivables from $27,773,263 in 2022 to $8,832,063 in 2023 is also concerning. The significant rise in receivables was not clearly defined in the financial statement, raising questions about the recoverability of these amounts.

The financial statement also shows a 91.5% drop in trade payables, raising concerns about Zettai’s cash flow management. Moreover, the cash outflow is not explained in the statement.

The financial statements lack sufficient disclosure and transparency to fully understand Zettai’s financial position and performance. Key information, such as the nature of other receivables and the reasons for the significant decrease in trade payables, is not provided.

11 White Knights or Just a Delay Tactic?

In their second affidavit, WazirX stated they are in talks with 11 big crypto exchanges for capital infusion. They added that WazirX signed a Non-Disclosure Agreement (NDA) with three exchanges.

The exchange also stated that they were discussing various partnerships, plans for the recovery of stolen funds, allocating tokens by token generation events, and more.

However, a significant roadblock in these plans is their current legal standing with Binance. Currently, Zettai and Binance are locked in a legal dispute over the management of the WazirX platform and custody of crypto holdings.

The second affidavit highlights the negligence in operations of Zettai vis-à-vis WazirX, where clerical errors are made even in court documents. Many questions remain unanswered, even as agitated users are demanding full withdrawal of their funds. The future remains uncertain, keeping investors and stakeholders on edge.