There is a battle between the most popular exchange in the world Binance and the most popular exchange in India WazirX. Most popular crypto exchanges in India are facing summons from ED for money laundering. Now this money laundering case takes different turns and twists. This ED summons starts WazirX and Binance Battle. WazirX and Binance are blaming each other for different things and it becomes messy to understand what happens. It can be a trick to get away with a money laundering case or something real fishy happening behind the curtains. In this, all blaming fight crypto users who used WazirX are in confusion mode. So let’s see what we can learn from WazirX and Binance Battle
First, let’s understand why ED summons most of the Indian crypto exchanges. The probe is a part of the ED’s investigation into claims of money laundering against several non-banking financing businesses and their fintech partners, who have also been accused of engaging in predatory lending through loan apps. The businesses employ telemarketers who abuse personal information to force borrowers into paying high rates of interest.
The fintech businesses backed by Chinese investors were unable to get NBFC licences from RBI to lend money and instead signed MOUs with defunct NBFCs to exploit their licence.
Many of these fintech applications stopped down when the criminal probe started and shifted profits utilising the mentioned methods.
ED discovered that a significant amount of money was moved by fintech businesses to buy crypto assets and subsequently launder them abroad while conducting the fund trail investigation. These businesses and virtual assets are currently untraceable. A summons was sent to the cryptocurrency exchanges. According to ED’s press release, it is evident that the greatest amount of cash was diverted to the WazirX exchange, and the crypto assets so acquired were then transferred to unidentified international wallets.
The Modus Operandi
The agency is looking into at least 10 cryptocurrency exchanges for allegedly using the profits of crime from the companies charged in the quick lending app case to launder more than Rs 1,000 crore. The Economic Times reports that the ED investigation has uncovered instances where the accused businesses approached exchanges to acquire cryptocurrency coins for more than Rs 100 crore and move the coins to foreign wallets. Fintech is reportedly used by the accused app-based loan firms to accept payments. Profits accrued, and the remaining amount was subsequently sent abroad using cryptocurrency.
The Big Problem
Money becomes untraceable after it is transferred to an international wallet. WazirX is allegedly unable or unwilling to give details about these transactions, according to the ED.
The ED has stated that summonses were sent to all Indian crypto exchanges, but it alleges that WazirX was responsible for the majority of the funds that were diverted and that the business actively helped 16 lending app companies launder money through the use of cryptocurrency. If this information is confirmed, the asset freeze may include all digital currency assets held by WazirX, which would be concerning for Indian investors in digital currency who used the platform to make their investments.
When the Times of India discussed experts about this problem they said:
“The crypto-to-crypto trading and crypto deposits and withdrawals are directly owned by Binance and ED can get this information in the terms and conditions of the website. WazirX has a legal document of acquisition and a licence to operate the rupee market in India. WazirX can reproduce appropriate legal documents including KYC documents and details of the transactions to deny claims of illegal transactions,”
WazirX and Binance Battle
Enforcement Directorate (ED) announced on August 5, 2022, that WazirX’s bank assets worth Rs 64.67 crore have been frozen. In response to this,
Changpeng Zhao, CEO, of Binance, through a series of tweets, officially clarified that his company Binance never completed the acquisition of WazirX.
CZ(Changpeng Zhao) also tweeted that the world’s largest cryptocurrency exchange by trading volumes “never—at any point—owned any shares of Zanmai Labs, the entity operating WazirX.”
In an interview with Moneycontrol, WazirX founder Nischal Shetty said Zanmai Labs, an Indian entity that operates WazirX, is owned by him and other co-founders and has a licence from Binance for processing rupee transactions. WazirX as a product and a brand is owned by Binance, which acquired it in 2019.
Shetty said there was a banking ban in place when the acquisition took place and after the ban was lifted, an Indian entity was needed for WazirX to process rupee deposits and withdrawals. “That is when they suggested and we obliged that we use an entity we own and we get a licence from them (Binance) for processing rupee deposits and withdrawals. That is how Zanmai got the licence for WazirX from Binance and you can only give a licence if you own it. That is proof they had acquired WazirX,”
When Money control talked to WazirX’s employee and former employees they said:
“We always thought that Binance owned WazirX. Binance even sent all of us WazirX employees Apple watches last year during their anniversary around July,” said a former WazirX employee requesting anonymity.
The employee said WazirX didn’t allot employee stock options to its staff, while other Indian exchanges offered lucrative ESOPs to recruits.
“We raised this issue many times about ESOPs since it’s a volatile sector. But we were always told that it’s Binance-owned, so no question of ESOPs,” the employee said.
What happened in 2019 Between WazirX and Binance
In a blog post from November 2019, Binance announced its acquisition of WazirX and explained how platform users will be able to access the whole variety of cryptocurrencies directly through Binance’s trading platforms, purchase cryptocurrencies using Indian rupees (INR), invest in stable coins like Tether (USDT), and buy cryptocurrencies using Indian rupees (INR).
It was also made clear that the acquisition and integration of WazirX is a part of the business’s aim to expand its network of international partners to give the world’s crypto community quick, safe access to cryptocurrencies.
WazirX Structure and Ownership
Nischal Shetty, Siddharth Menon, and Sameer Mhatre established WazirX in 2018.
According to regulatory records, Shetty and Mhatre serve as directors of Zanmai Labs. Zettai, a Singapore-registered corporation, controls 99.99 per cent of Zanmai Labs, with Shetty owning the remaining 0.01 per cent.
The three cofounders each own a portion of Zettai, with Shetty having the greatest stake (74.3 per cent). Menon and Mhatre each control 7.2 per cent of the total.
Based on Moneycontrol’s post, WazirX, Binance, or any of these companies were not mentioned in the payslips sent to exchange staff. According to the former employee, Qizil21 software was stated on the paystubs. According to the information that is currently accessible, Shetty, Mhatre, and Shetty’s wife Moujhuri Guha is the company’s directors. According to regulatory documents, Shetty and Guha have 60 and 40 per cent of the company’s shares, respectively.
Sad that these have to be debated on Twitter:
Binance provides wallet services for WazirX.
WazirX domain is transferred to our control.
We were given a shared access to an AWS account.We could shutdown WazirX. But we can’t, because.. 1/2 https://t.co/YoMIgAHC5v
— CZ ? Binance (@cz_binance) August 5, 2022
As per tweets by Shetty and CZ
Shetty tweets
“WazirX is acquired by Binance. Zanmai labs is an Indian entity to operate INR-Crypto pairs in WazirX. Binance operates crypto to crypto pairs and Crypto Withdrawals. WazirX domain name and AWS server access are transferred to binance. Binance has all cryptos and crypto profits.”
After that CZ tweets
“Binance provides wallet services to WazirX and WazirX domain and AWS access is transferred to binance but Binance does not control operations like User sign-up, KYC, trading and initiating withdrawals. These things control by the founding team and never transferred despite our requests. The deal was never closed. No share xfers.”
As per these tweets and scenarios. Binance owns WazirX and user onboarding like sign-up KYC, user control and INR-BTC exchange is handled by zanmai which means the co-founder team. All crypto-related transactions like wallet deposit, withdrawal, and crypto-to-crypto exchange are handled by Binance. Domain control and AWS access only owners can have not wallet providers.
Off-Chain Transactions
Now we get a basic idea of what is happening between these more concerning issues for ED is off-chain transfers.
Fund transfers that take place off the blockchain are known as off-chain transactions. Off-chain transactions have gained a lot of traction because they have no or little gas fee.
Off-chain transactions posed the largest difficulty. The transaction would be traceable if you made cryptocurrency withdrawals using the blockchain, therefore the government would not need to question Shetty or CZ about these withdrawals. Off-chain transfers, however, are completely hidden since they own the information.
As per the moneycontrol post, A few WazirX employees confirmed the exchange did not have any further information to share because the rest of the data needed access from Binance.
Right now Binance is not allowed off-chain transfer but off-chain transfers mean the wazirX crypto pool and binance crypto pool is connected because without that it’s not possible to transfer crypto off the chain. If binance has off-chain transaction details but binance is not registered in India that means both entities may dodge questions. WaziX saying data is with Binance and vice versa.
The other part of this WazirX case involves two cofounders leaving India. Some workers claimed to Moneycontrol that they were not notified of Shetty and Menon’s decision to relocate their base to Dubai.
As per Moneycontrol Post, “Things started changing as their involvement in day-to-day affairs reduced from around October 2021. Sameer was the only one involved with the teams,” an employee said. “This is not the case with other exchanges and founders.”
Last but not least thing is the WRX coin
In February 2020, WazirX’s native utility coin, WRX, was formally introduced. The plan was to act as the framework for the whole WazirX ecosystem. The WazirX website states that thus far, it has more than fulfilled its promise.
As per BNB Chain explorer WRX tokens are currently valued at approximately $92 million, and there are over 10,000 account holders.
As per INC42
a public announcement made by Binance and WazirX in 2020, $200 Mn was raised through the sale of 10 Mn WRX tokens using a lottery system at the rate of $0.018 per WRX token. The token value rallied 700% post the IEO to touch a high of $0.144.
Shetty maintains that Binance controls the WRX distribution, and as a result, it has the authority to delist the currency at any moment.
What will happen to WazirX’s users?
Till now ED has not attached any exchange’s crypto assets. If binance owns wazirX and its crypto balances then possibly they will move out WazirX balance to owned exchange and asks users to d KYC if that is applicable. Another thing is that off-chain transfers from WazirX are stopped by Binance for now but possibly it can be done from login into the Binance account.
If wazirX owns crypto and ED freezes all crypto assets then possibly users cannot access their funds it may happen or may not.
More questions in WazirX and Binance Battle which not get answered by Binance or WazirX
- Outside, the WazirX-Binance agreement appeared straightforward. WazirX was purchased by Binance, who currently owns the business. However, neither Zanmai Labs nor Zettai is part of Binance’s ownership portfolio.
- Who has the user transaction data?
- Why did CZ tweet now after ED released a statement against WazirX?
- Why did Shetty move to Dubai around the time the ED started its investigation?
- “The investigation started a year back. Why did CZ tweet now?” asked a former employee of WazirX.
[…] Some Chinese NBFCs without licences lend money via various applications. Many of these loan applications were halted when the criminal investigation began. Profits were then transferred by being converted into cryptocurrency and sent to an international cryptocurrency wallet. You can read the detailed modus Operandi here. […]