Intro to WazirX
WazirX is the largest crypto exchange in India. As of January 2022, WazirX held 60-70 per cent shares of the Indian digital currency exchange. It also has South Asia’s largest NFT marketplace. It was founded by Nishal Shetty, Sameer Mhatre and Siddharth Menon in 2018. They also have their own native token called WRX. This token is widely used in the WazirXNFT platform to trade NFTs. WazirX used to be under Zanmai Labs Private Limited until its acquisition by Binance. Zanmai is an Indian Non-Government Company (NGO) registered in Mumbai (Maharashtra). They work for clients that need business services and operations of various companies. They help in maintaining websites of firms/creating multimedia presentations for other firms.
Issue with Binance
Binance announced in November 2019 that they have acquired WazirX. Though it was acquired by Binance it did not have full control and authority over WazirX because the transaction was never completed as claimed by the CEO of Binance, Changpeng Zhao aka CZ Binance.
He again went on Twitter saying “We asked for transferring of WazirX system source code, deployment, operations, as recently as February this year. This was refused by WazirX. Binance does NOT have control over their systems. WazirX has been uncooperative with us, and looks like uncooperative with ED as well.”
Well on the other hand Nischal Shetty claims that he has all the legal documents to prove the claims wrong and that Binance controls all crypto-to-crypto trading and deposits and withdrawals on WazirX. He said that Binance has given Zanmai Labs the license to process rupee transactions on cryptocurrency exchange WaxirX.
Shetty went on to explain how Zanmai Labs got the license in an interview with MoneyControl & CoinDesk. Shetty said that when the acquisition took place, there was a banking ban regarding crypto in India. But when the ban was lifted, Binance needed an Indian entity to process deposits and withdrawals.
“That is when they suggested and we obliged that we use an entity we own and we get a license from them (Binance) for processing rupee deposits and withdrawals. That is how Zanmai got the license for WazirX from Binance and you can only give a license if you own it. That is proof they had acquired WazirX,” Nischal Shetty said.
History of Binance
Binance is the largest cryptocurrency exchange in the world. It was founded in 2017 by Changpeng Zhao. In 2021 Binance had a $7.7 trillion crypto exchange volume.
It is one of the most successful start-ups of the decade. CZ is the richest person in crypto and he was also listed in Forbes World’s 20 Richest. CZ had previously worked with OKCoin and Blockchain.info. With the prices of crypto plummeting, he still managed to have an estimated net worth of 17.4 billion as of August 2022 according to Forbes. According to Bloomberg Zhao’s net worth was $96 billion in January this year making him the 11th richest man in the world at the time.
In 2021, the United States Department of Justice and Internal Revenue Service has put Binance under investigation on allegations of money laundering and tax offenses. In June 2021 Binance was ordered by United Kingdom’s Financial Conduct Authority to stop all regulated activity in the UK. It has faced similar issues in China, Japan, and Thailand. Binance exchange is based in Cayman Island.
Reason for The Directorate of Enforcement (ED) going after WazirX
Under the Foreign Exchange Management Act, 1999 (FEMA), The Directorate of Enforcement (ED) has served crypto exchange WazirX a notice, minister of state for finance Pankaj Chaudhary confirmed. WazirX has allowed outward remittance of crypto assets worth Rs 2,790 crore to unknown wallets, as claimed by the ED. Foreign users were allowed to convert one crypto into another as per the request on its own platform and also transfers were permitted from third-party exchanges like FTX, Binance, and more.
In the beginning, this was not at all about WazirX. The investigation began with predatory lending of many non-banking companies and illegal instant loan apps. These companies would use tele-callers and misuse the data of customers. Burrowers were harassed and some even committed suicide. Most of these fintech companies are backed by Chinese funds. Actually, these companies could not get the legit licenses required from RBI to lend money and so they sought to get help by signing the memorandum of understanding (MOUs) with defunct NBFCs (Non-banking Financial institutions) and using their license.
Many of these fintech apps were shut down and the intruders would divert their money by purchasing crypto to launder it abroad. WazirX comes into the picture here, as these fintech companies have predominantly used WazirX Exchange to move their assets to unknown foreign wallets. The allegation against WazirX is that they have failed to do proper KYC and have allowed all these illegal loan apps to transfer their funds offshore. The irony here is that neither Zanmai Labs nor Binance took action regarding these illegal activities happening right under their nose.
WazirX is under investigation for money laundering. In one of the directors of Zanmai Labs, the ED made thorough searches and issued an order to freeze the bank balance amounting to Rs. 64.67 crores. There are several exchanges involved in similar activities. The ED claimed that another unnamed crypto exchange’s bank account has been frozen with assets worth 370 crores.
OUTCOME OF THIS FUED
• The trading volume of WazirX has gone down 50%. Previously it had a trading volume of $6.8 million before this whole incident but as of 11th August, the volume is down to $3 million. Experts suggest that it could plummet more.
• Crypto investors are losing confidence and their trust has been hurt. Especially for the new genuine start-ups in the space.
• This incident has made the crypto industry look like a scam.
• Reduction in trading options
• CMO of BuyUCoin Atulya Bhat stated that a lot of user sentiments have been hurt in a negative way.
• Many people are moving out of crypto in India leaving them hopeless.
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Disclaimer: The information provided in this article is solely the author’s opinion. The Content is for informational purposes only, you should not construe this information as legal, tax, investment, financial, or other advice. Do your own research and invest wisely.
