CoinDCX launches $6m customer protection fund following WazirX hack

Cryptocurrency exchange CoinDCX has created a $6 million emergency fund to protect client assets as the Indian cryptocurrency market struggles to recover from the $230 million WazirX hack.

In a press release shared with Crypto.news, it was stated that the ‘Crypto Investor Protection Fund’ will act as a safety net to compensate for user losses in the event of a security breach or other unforeseen circumstances that could put customer funds at risk.

“This dedicated fund will provide an additional layer of protection, ensuring our clients’ assets remain safe and sound,” said Sumit Gupta, co-founder of CoinDCX.

With an initial allocation of Rs 50 crore, which is around $6 million, CoinDCX will continue to inflate the size of the fund by committing 2% of brokerage revenue over time. According to Gupta, the fund will be continuously monitored and subject to annual reviews to ensure its viability.

Additionally, the company has established a governance framework to transparently manage the fund’s lending and utilization processes.

The establishment of the CIPF comes on the heels of the theft of more than $230 million from WazirX, which hosts the lion’s share of Indian cryptocurrency investors. The incident deprived the exchange of 45% of its client assets and the ability to hold 1:1 collateral.

To calm its customers’ nerves, the exchange has proposed a socialized churn strategy that will allow users to instantly access 55% of their assets, with the rest locked in Tether’s USDT.

However, the plan backfired as crypto investors perceived it as unfair and an attempt to avoid full responsibility for losses. As a result, the exchange was forced to abandon the plan.

Emergency funds like the CIPF are not new to the crypto space, which has been plagued by cyberattacks since its inception. With such attacks showing no signs of slowing down, several major crypto exchanges have set up similar funds as a lifeline.

For example, Binance launched the Secure Asset Fund for Users in 2018, where it allocates a portion of trading fees. Similarly, cryptocurrency exchange HTX introduced a 20,000 BTC reserve fund in 2019, while OKX has a fund called Risk Shield to which it allocates a portion of its revenue.