The spat between global cryptocurrency platform Binance and Indian exchange WazirX has left Indians investors in the latter wondering what will happen to their holdings and money invested through the latter.
Investors’ crypto assets are held in custodial wallets owned by Binance, while INR assets are with WazirX.
The spat between global cryptocurrency platform Binance and Indian exchange WazirX has left Indians investors in the latter wondering what will happen to their holdings and money invested through the latter.
About two days ago, Binance CEO Changpeng Zhao asked WazirX customers to transfer their funds to Binance and denied that it held any stake in WazirX. The controversy broke out after the Enforcement Directorate (ED) said that WazirX had violated the Foreign Exchange Management Act, 1999 (FEMA).
We tried to find some answers for you.
Where Is Investors’ Money?
Part of the answer on where investors’ money is lies in the ownership pattern of WazirX.
Binance acquired the intellectual property created by Zenmai Labs in 2019, according to a blogpost published by Binance. Zenmai Labs is the Indian entity which holds WazirX; 99 per cent of Zenmai Labs is held by Zenttai Pte, a Singapore-based entity and 1 per cent is held by Nischal Shetty. Zenttai Pte has three stakeholders—Shetty owns 74.27 per cent, Sameer Hanuman Mhatre owns 18.56 per cent and Siddharth Menon 7.17 per cent shares. Binance, however, does not own equity in Zenmai Labs.
An official who works with a crypto exchange in India told Outlook Money, on the condition of anonymity, “According to the deal, all the crypto assets in WazirX are held in Binance's custodial wallet and all the INR holdings of the users are in Zenmai's bank accounts.”
It is from this INR reserve that, perhaps, WazirX is planning to settle withdrawals. According to WazirX officials, as of now, withdrawals and deposits are possible with the crypto exchange. “We are the only large crypto exchange that allows complete withdrawals of cryptos in India and that shows how solvent we are and how sensible our business model is. INR withdrawals are working, and there is no issue in terms of the structural viability of the company. Users crypto is safe," says Rajagopal Menon, vice-president at WazirX.
Is Your Money Safe?
Currently, Binance has stopped all off-chain transactions to WazirX, though transfers from WazirX to Binance are still functioning.
Off-chain transactions are peer-to-peer transactions done on a third-party platform, in this case, Binance. These transactions are not recorded on the blockchain, so they are not present on the public ledger but are kept in Binance's internal blockchain.
Off-chain transactions are faster but they cannot be tracked as they are not on the blockchain. Their records are kept on the ledgers of a specific platform or exchange.
Considering Binance is not an Indian entity, it would be difficult for ED to get access to Binance’s ledgers for the investigation. “Although, these platforms are doing Know Your Customer (KYC) checks, but as of now, it is not a mandatory regulation for them to do so, as currently there is no legislation regarding cryptocurrency. It is just to create a sense of trust for the user,” said the official mentioned earlier.
However, the money frozen by ED may not be yours. “The money frozen by the ED—Rs 64 crore—belong to the company and not the directors or any individual,” says a second crypto exchange official, who did not want to be named.
Whether your money is safe or not is difficult to say as Binance is not an Indian entity. However, it is also a leading global crypto exchange with huge volumes.