WazirX, India’s largest cryptocurrency exchange, is in hot water.
On Friday August 5, India’s economic crime unit the Enforcement Directorate issued a freezing order on the platform’s INR 64.67 Crore (US$8.1mln) of assets while it conducts an investigation into money laundering and predatory lending practices within the company.
The criminal investigation is part of a wider ED probe into India’s fintech sector, and will likely be seen as another belligerent move by the highly crypto-sceptic Modi government.
But amid WazirX’s regulatory woes, a spat has broken out between WazirX’s developer Zanmai Labs and the world’s largest crypto exchange Binance.
In a move likely intended to deflect responsibility for any of the accusations being lobbed at WazirX by the ED, Binance has sought to distance itself from the exchange, despite evidence that Binance is, in fact, the ultimate owner.
That old court of public opinion Twitter has erupted into debate, with some criticising Binance’s CEO Changpeng “CZ” Zhao’s denial of ownership of the exchange, despite evidence to the contrary.
Who owns WazirX?
People aren’t just plucking this out of thin air; CZ has gone on record calling WazirX “Binance-owned” in the past.
» Binance-owned Indian crypto exchange WazirX crosses $200m in daily trading volume; eyes $1b in 2021 - The Financial Express https://t.co/t3GD7UwvYt
— CZ ???? Binance (@cz_binance) April 5, 2021
As far back as November 2019, CZ stated via a blog post: “The acquisition of WazirX shows our commitment and dedication to the Indian people and strengthen the blockchain ecosystem in India as well as another step forward in achieving the freedom of money.”
But that blog post has now been updated with the following: “We would like to clarify that the 2019 'acquisition’ described in this blog 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.”
This suggests that while Binance has some controlling interest in the WazirX platform, it has no ownership of the platform’s original developer Zanmai Labs.
According to Crunchbase, Binance owns WazirX, and has done since November 21, 2019.
WazirX was seemingly purchased by Binance in November 2019 — Source: Crunchbase
But CZ threw a spanner in the works by stating on August 5 that the WazirX transaction actually didn’t go through.
2/ On 21 Nov 2019, Binance published a blog post that it had “acquired” WazirX. This transaction was never completed. Binance has never - at any point - owned any shares of Zanmai Labs, the entity operating WazirX.
— CZ ???? Binance (@cz_binance) August 5, 2022
CZ continued: “Binance only provides wallet services for WazirX as a tech solution. There is also integration using off-chain tx (transactions), to save on network fees. WazirX is responsible for all other aspects of the WazirX exchange, including user sign-up, KYC, trading and initiating withdrawals.
WazirX’s user agreement seems to corroborate this, stating: “Zanmai enables Users to trade with each other in trading pairs involving Indian Rupees (INR) on the one hand, and
Supported Cryptocurrency on the other hand (eg. INR-BTC, INR-ETH). Such enabling of trades is on a non-P2P basis only (as P2P transactions are offered and operated by Binance)”.
The user agreement also suggests that Binance controls the WazirX crypto wallet; that makes sense, since CZ warned that he could disable these wallets if he wanted to (though he said he'd prefer not to).
Judging by the heated Twitter spat between the two parties, both seem to be in agreement that each party is responsible for certain functions of the WazirX exchange, while Binance has zero controlling interest in Zanmai Labs.
Binance CEO Changpeng "CZ" Zhao and the WazirX team in less-acrimonious times — Source: The Block Crypto
Control over WazirX, however, is another story; CZ stated on Saturday: “We (Binance) asked for transferring of WazirX system source code, deployment, operations, as recently as Feb this year. This was refused by WazirX. Binance do NOT have control on their systems."
However, CZ also stated that “We can shut down the domain,” which Zanmai co-owner Nischal Shetty said proves that Binance has control over the system.
Still confused?
So am I, but maybe that’s the whole point.
In an August 5 press release issued by the Indian Enforcement Directorate regarding the money laundering and predatory lending accusations, the ED had this to say (edited for clarity):
“Zanmai Labs — the company owning WazirX Crypto Exchange — has created a web of agreements with Crowdfire, Binance and Zettai to obscure the ownership of the crypto exchange,” adding: “They are giving contradictory and ambiguous answers to evade oversight by Indian regulatory agencies."
The statement also alleges that Shetty misled the ED on the exact partnership structure with Binance.
Perhaps Sam Bankman-Fried could just offer a few billion for the platform and everyone can move on.
Comments are pending from Binance; Nischal Shetty has been approached for comment.