The Journey Of WazirX And Binance, From Marriage To Divorce: A Blow By Blow Account

WazirX is being investigated by the Enforcement Directorate under FEMA laws and is in the middle of a spat with Binance over its ownership.
The Journey Of WazirX And Binance, From Marriage To Divorce: A Blow By Blow Account

As the saga between global cryptocurrency exchange Binance and Indian crypto exchange WazirX unfolds, all eyes are glued to the back and forth spat between the two companies.

The latest statement from Binance says that it will close off all off-chain transactions with WazirX from August 11, but will still own all the crypto deposits made on WazirX.

On the other hand, the latest statement came from WazirX, on behalf of its operator Zanmai Labs, on Tuesday, clarifying its position on investigations by Enforcement Directorate (ED) and off-chain transactions with Binance.

Latest Development

Days after the Enforcement Directorate (ED) of India served a notice to WazirX for violations under the Foreign Exchange Management Act, 1999 (FEMA), WazirX issued some clarifications.

The statement, issued on behalf of operator Zanmai Labs, said that it was cooperating with the investigative agency and was not affiliated to any user misusing the platform. It also sought to clarify the nature of off-chain transactions between Binance and WazirX.

“Zanmai Labs has a no-tolerance policy towards any illegal activities using WazirX… For every transaction, we are able to produce the KYC details of the relevant user. We do not accept any cash transactions… ED appears to be investigating the transactions of certain users, and Zanmai Labs has no affiliation to such users, and is unaware about the purpose of their transactions,” read the statement. It said it was in the position of any other intermediary whose platform may have been misused.

Regarding off-chain transactions, it clarified, “There seems to be a major misunderstanding about off-chain transactions between WazirX and Binance. Off-chain transactions between WazirX and Binance can only be done by a user between his/her/its own account on the two platforms. Hence, KYC details are available for all off-chain transfers as well [and have been submitted to the ED when requested],” it said, clarifying that off-chain withdrawals cannot happen for non-KYC accounts.

“In other words, data on crypto-to-crypto transactions are with Binance but data on KYC accounts is stored in Indian servers,” said a crypto official, who spoke on the condition of anonymity.

How Did The Binance-WazirX Partnership Begin?

On November 21, 2019, Binance announced that it had ‘acquired’ Indian crypto exchange WazirX.

“The acquisition of WazirX shows our commitment and dedication to the Indian people and strengthens the Blockchain ecosystem in India as well as another step forward in achieving the freedom of money,” said Binance CEO, Changpeng Zhao in a blogpost published by Binance then. At the time, WazirX CEO Nischal Shetty and Zhao were seen posing together for a photo.

“The next phase of mass adoption for crypto will arise from developing nations around the world. India with more than a billion people is primed for massive crypto adoption, and this acquisition by Binance gives us the opportunity to not only cater to India, but every developing nation where fiat on-ramps have to be built,” said Shetty in the same blogpost.

The statement was, however, updated on August 5, 2022, after the spat began, to clarify that the 2019 ‘acquisition’ “was limited to an agreement to purchase certain assets and intellectual property of WazirX. Binance did not purchase any equity (and does not own any equity) in Zanmai Labs, the entity operating WazirX and established by the original founders. In addition, WazirX (including the foregoing assets) continues to be operated and managed by Zanmai Labs.”

How Did The Binance-WazirX Feud Start?

On August 2, 2022, Minister of State for Finance Pankaj Chaudhary told Rajya Sabha in a written reply that ED has served a notice to WazirX under FEMA.

Chaudhary said, in a written reply, “In one of the cases, investigation done so far has revealed that one Indian crypto exchange platform, Wazirx, operated by Zanmai Labs Private Limited in India, was using the walled infrastructure of Cayman Island-based exchange BINANCE. Further, it has been found that all crypto transactions between these two exchanges were not even being recorded on the Blockchains, and were thus cloaked in mystery.”

Following this, on August 5, the ED froze WazirX’s assets worth about Rs 64 crore.

The Binance-WazirX Twitter Spat

On August 5, after the ED froze WazirX’s accounts, Zhao tried to explain through a series of Tweets that Binance does not own any equity in Zanmai Labs.

A day later, Zhao tried to put all the blame on WazirX, stating that they do not control “KYC data, trading and initiating withdrawals”.

Nischal then jumped into the conversation to defend himself, stating that he and his co-founders own all the equity in Zanmai Labs, and Binance owns the WazirX domain name and has access to the AWS server.

What About Investors?

Investors were spooked when Zhao encouraged WazirX users to transfer their funds to Binance, saying that the company “could disable WazirX wallets”, but wouldn’t do that because it would “hurt users”. It is difficult to say at present what will happen to investors’ money.

Related Stories

No stories found.
Outlook Business & Money