WazirX to Offer Proof-of-Reserves, Will $72M Bybit Fiasco Be Solved?

Indian crypto exchange WazirX is taking new steps toward transparency by introducing a Proof of Reserves (POR) system, following a $230 million hack in July 2024 and recent large-scale fund transfers. In a recent announcement, WazirX founder Nischal Shetty explained the POR process, which aims to provide a clear, verifiable view of the company’s token holdings.

WazirX Founder Discloses Proof-of-Reserves Plan

The latest initiative comes as WazirX faces scrutiny over its recent movement of $72.13 million worth of crypto assets to rival exchange Bybit. Shetty elaborated on the POR system in a post on X, detailing the steps the Indian crypto exchange is taking to enhance transparency.

He noted that, after filing a fourth affidavit and sharing wallet addresses, the next step involves creating a consolidated view of the exchange’s token holdings. “This means creating a page where we pull data from various wallets and display the balances for everyone to see,” Shetty stated.

About POR:

Now that affidavit 4 is filed and we have provided all the wallet addresses, the next step is to display a consolidated view of all token holdings.

This means creating a page where we pull data from various wallets and display the balances for everyone to see. Our…

— Nischal (Shardeum) 🔼 (@NischalShetty) October 21, 2024

The process is complicated by WazirX’s large number of wallets, with over 240,000 unswept wallet addresses that contain relatively small balances. Shetty acknowledged the difficulty in managing these accounts but outlined the plan to initially show total balances for these addresses to keep the information manageable.

According to Shetty, the Proof of Reserves will be categorized into three distinct sections: cold wallets, third-party custody, and the 240,000+ unswept balances. The second category, third-party custody, remains particularly dynamic, with challenges surrounding legal and compliance requirements for new custody providers.

“During this interim period, balances will be held on exchanges that support these tokens,” Shetty added. He also noted that while discussions with five custody providers have taken place, none of them currently support all the tokens held by the Indian exchange.

Uproar Around Massive Transfers

The introduction of the POR system coincides with revelations that WazirX transferred $72.13 million worth of crypto to the Bybit exchange. This fund movement was identified through a public dashboard created by the team at CoinSwitch, a platform that has become involved in analyzing WazirX’s recent wallet disclosures.

In addition to the transfer to Bybit, approximately $1.5 million was also sent to KuCoin. These transfers have raised questions about the exchange’s fund management practices, particularly in light of the July hack. The compromised exchange has made over 240,000 wallet addresses public as part of an affidavit filed with the High Court of Singapore, following the cyberattack.

However, the volume of disclosed addresses has proven difficult for many users to analyze, prompting CoinSwitch to step in with its public dashboard. The dashboard, developed by CoinSwitch’s team, aims to simplify the interpretation of the complex dataset released by WazirX. Ashish Singhal, co-founder of PeepalCo, shared the tool with the public to assist investors in navigating the situation.

CoinSwitch’s involvement in the matter is not without its own interests. The company has deposits with WazirX that it claims were illegally frozen, leading CoinSwitch to pursue legal action against WazirX in an attempt to recover its funds. Hence, the latest POR dashboard could come in handy to resolve this dispute and gain back user trust if the exchange executes the move properly.

Also Read: WazirX Reportedly Moved $72.13 Million in Crypto to Bybit Post-Hack