Who Owns WazirX? Binance has some explaining to do
CEOs of WazirX and Binance argued publicly on who owns the Indian Crypto Exchange Platform
A year ago the Enforcement Directorate of India opened an investigation on Crypto Exchange WazirX. On August 5, this year, ED said WazirX was uncooperative in the investigation and so was the parent company Binance. Then all hell broke loose on Twitter, of all places as the CEOs of Binance and WazirX fought over who really owned WazirX exchange.
WazirX is commonly referred in media circles as “Binance Owned WazirX”, because both Binance and WazirX announced the latter’s acquisition by the former in November 2019.
However, it appears that the acquisition has had some snags, and the truth was not fully out. In today’s letter we explore:
Who truly owns the WazirX Business?
The liabilities of WazirX w.r.t to the ED investigation
Binance should come clean about other investments to the public.
Readers, I write this story with nothing but facts. I waited till the noise from the media settled to send you this letter. I hope it gives the necessary insight that you may not have had so far on the story. But first, do subscribe to the newsletter so these stories get delivered to your inboxes directly.
The History of WazirX Crypto Exchange
WazirX Bitcoin exchange, as it was called back in February 2018, had received over 30000 Sign upsin the first 24 hours of launch. Nischal Shetty co-founded WazirX with Sameer Mhatre and Siddharth Menon. The trio previously launched Crowdfire, a tool to drive engagement for brands and influencers on social media. Nischal has since been at the forefront of Crypto conversations in India.
Not long after the exchange was operational, India witnessed a choke-hold on its crypto industry as the Reserve Bank of India announced restrictions on banks from supporting any crypto businesses. Right after launch, WazirX and all other crypto exchanges in India had to find a way to fight for the right of the crypto community and crypto trading in India.
Long story short, while the case against RBI stayed in court, exchanges in India began finding ways to circumvent the so-called “Banking ban”.
At the time, most crypto exchanges registered as Indian companies providing technology services. WazirX operated under a company called Zanmai Labs Private Limited with Nischal Shetty and Sameer Mhatre as appointed directors.
But to breathe under RBI’s restrictions, these exchanges began to create Foreign companies and ran their Indian entities as subsidiaries. By early 2019, WazirX had a Singapore entity called Zanmai Pte Ltd., later renamed as Zettai Pte Ltd. which held 99% shares of Zanmai Labs private limited.
This chart by Entrackrwill help understand the structure better.
All the India operations on WazirX were done by Zanmai Labs Private Limited, but the parent company is Zettai Pte Ltd, in Singapore.
In between WazirX launched a one-of-a-kind automated order matching Peer-to-peer market for USDT. This allowed anyone in India to buy or sell USDT with other traders without ever having to deposit the INR into WazirX exchange. A USDT buyer would simply transfer INR to the seller and WazirX will remove the USDT from the seller’s account and deposit it to the Buyer’s account after all parties have confirmed the payment. The solution became revolutionary and shaped the way Indians circumvented the RBI banking ban legally in order to continue crypto investments.
This, possibly interested the attention of the biggest exchange in the world by volume - Binance.
Binance Acquires WazirX
In November 2019, Binance and WazirX announced that the former had acquired the latter. The WazirX blogand Binance Blog links are in the footnote at the end.
Both these blogs clarify that the acquisition will benefit Binance with a Crypto-to-fiat gateway for Indian users and help WazirX acquire international users. “Users on Binance.com will be able to directly place orders on Binance.com and the Binance iOS or Android app to purchase Tether (USDT) against INR.”, the blog reads.
But by 2020, Binance introduced its own Peer-to-peer market which is operational to date.
As of press time, there is an update on the blog that says,
Update 5th August 2022: 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. In addition, WazirX (including the foregoing assets) continues to be operated and managed by Zanmai Labs.
Both CZ and Nischal took to Twitter to discuss the ownership of WazirX.
So, Who Owns WazirX?
Binance clarified they do not own shares of Zanmai Labs. But does Zanmai Lab own the WazirX exchange? If so, what exactly does Binance control or what did it acquire?
There were several tweets back and forth between CZ and Nischal, but I wanted to simplify it for you. So here goes.
Binance has control of the WazirX domain. Agreed by both CZ and Nischal.
Binance has access to AWS servers on which the WazirX platform operates. Agreed by both CZ and Nischal.
Binance provides Wallet Service to WazirX. Agreed by both CZ and Nischal.
According to Nischal, Binance also controls the Crypto-to-crypto markets. However, CZ says they have no access to trading systems.
WazirX Crypto-to-INR market is operated by Zanmai Labs Pvt. Ltd. Agreed by both.
According to Nischal, the agreement is for the sale of technology, not the company. Hence WazirX technology belongs to Binance and Zanmai Labs runs the Crypto-INR market under license from Binance. No comments from CZ.
Lastly, Binance says they wanted control of everything, but WazirX denied it. Nischal says, if they want control of the Crypto-INR market, they have to buy Zanmai Labs.
If this doesn’t seem messed up enough, Binance actually did the IEO - Initial Exchange Offering and sold WRX tokens on their platform after WazirX’s acquisition. Nischal claims the tokens were sold and are now its distribution is controlled by Binance.
Binance has shown its hostility towards WazirX twice since Friday. Once when CZ tweeted that they could shut down WazirX, but they won’t, as they do not want to harm the users. The second time on Sunday, Binance removed the bridge between Binance and WazirX that allowed users with accounts on both exchanges to move funds seamlessly.
Binance <> WazirX Bridge is the Main Character of the Story
Update as on Aug 11, 2022 - Binance has shut the bridge for offline transactions between WazirX and Binance.
Bear with me. This story isn’t even halfway done yet. There is a lot to unpack between the largest exchange by volume globally and the largest exchange by volume in India.
As I mentioned before, the whole Twitter debate happened after the Enforcement Directorate of India froze 64.67 crore INR worth of WazirX assetsand in the press release mentioned that the exchange was uncooperative.
After the now renounced acquisition, WazirX and Binance introduced a bridge for their users. Using the bridge, users on WazirX and Binance could send crypto assets to the other exchange without fees between their own accounts.
ED says 2790 crore INR worth of assets were transferred using this bridge and that WazirX has no record of it. Of course, WazirX has denied the claim and said that they are fully cooperative with the investigation.
Binance has also said that they will co-operate with ED for any investigation.
WazirX had already discouraged transfers between WazirX and Binance through the bridge by introducing a fee for the transfer. On Sunday though, Binance removed the bridge from their platform altogether. However, that may have been temporary, as the feature is available on my app when I checked it at the time of writing.
This in addition to CZ openly asking usersto move their funds to Binance has reduced morale among the users of WazirX. Crypto prices on WazirX are trading at 3-4% lower than the rest of the Indian exchanges at the time of this writing.
The exchange however has assured that all functionalities are operational.
Who will be in trouble under ED Investigation?
The answer isn’t as simple as one would hope, but it can be boiled down to two important points.
Whoever owns the KYC and AML policies of WazirX, owns the liabilities of the exchange.
What kind of ownership does Binance have over WazirX in terms of access to users, their data and control over them?
It appears that the KYC and AML policies for WazirX are controlled by Zanmai Labs, which is a company owned by Nischal and others.
And as we learned above and from the Terms of Service of WazirX, Binance does control a few moving elements of the platform, like wallets and crypto-to-crypto markets. If ED needs any information regarding these, they may summon Binance for the same.
So far, Zanmai’s director Sameer Mhatre seems to have faced immediate trouble. ED raided his house, checked the database of WazirX and determined that WazirX hid information from ED. That is the reason for freezing WazirX bank balance. That is also the reason why CZ “clarified” on Twitter how the acquisition was never fulfilled and that led to the whole debate.
ED complained in the press release that Binance rarely responds to the queries sent to their email address.
I personally believe that now both exchanges will willingly submit whatever information ED will ask of them. I also believe that people of prominence have taken note of what has taken place on Twitter and will duly cite this incident when required. For now, we await the investigation of ED on WazirX.
Now, for the third act of this drama, I want to talk about Binance and CZ. It seems that this isn’t and will not remain their first acquisition that never went through or went through but was revealed to the public in a completely different manner. Let’s dig.
Binance should come clean about their investments to public
The principles of decentralisation are simple. No single entity controls the power to make amendments. They also advocate for open source and transparency.
The WazirX-Binance incident sheds light on the most obscure nature of how corporations in Crypto operate, unlike how crypto themselves tend to operate. And hence we must, as a community demand more transparency. Why did it take CZ and Binance three years to clarify they do not own Zanmai? And why did anytime before this month, CZ and Binance never correct the reporting of “Binance-owned Wazirx”?
Binance has before acquired one company called “Swipe”. Swipe is a crypto card provider that launched a token SXP.
In July 2020, Binance acquired a majority stake in Swipe. At the time, the max supply of SXP tokens was set at 300 Million. On December 30, 2021, Binance announced it will acquire the remaining shares in Swipe. Swipe was acting as Binance's card program manager and technology platform. “Swipe also works with strategic partners to issue cards in permitted regions and markets.”, said the announcement.
It added, “Following the completion of the purchase of the remaining outstanding shares, Swipe CEO Joselito Lizarondo will step down and leave Binance.”
With this announcement, the SXP token became an orphan. SXP was designed to be the currency of the Swipe wallet with limited supply and burning schedules. But it ended up being a token with no use case and increased supply. The total supply according to aggregators like Coingecko and Coinmarketcap is over 500 Million and the max supply is unlimited.
Joselito went on to create Solar, a decentralised community-driven protocol powered by the SXP token.
Everything mentioned above is legal. Correct even. But, the users were never made aware of these developments. Similarly how none of the users of WazirX knew that it is not fully owned by Binance.
Binance has acquired several startups and many of them are in the news cycles every now and then. But now, do we know which ones are actually fully in control of Binance? Aren’t we as a community holding the right to know that? Perhaps to even secure ourselves?
And that is my appeal from the letter today. Binance should, for the sake of the users and community, reveal the exact status of their acquisitions. No one likes the public fights between CEOs on Twitter.
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More News on Binance:
Binance lost Billions in revenue after removing sanctioned accounts that were not KYCed. Read more on CoinDesk.
Binance and Mastercard will launch prepaid crypto cards in Argentina. Read more on CoinTelegraph
Binance Taps Co-Founder Yi He to Head $7.5B Venture Arm. Read more on CoinDesk
More News on WazirX:
Investigation on WazirX by ED, allegations say companies used WazirX to launder money abroad. Read more on Coin Crunch.
The truth of WazirX probe of $350 Million FEMA Violation. Read more on Coin Crunch.
Binance acquires Wazirx, official Binance blog - https://www.binance.com/en/blog/all/binance-acquires-indias-leading-digital-asset-platform-wazirx-to-launch-multiple-fiattocrypto-gateways-404105749895733248
Entrackr report on WazirX - https://entrackr.com/2022/08/the-strange-case-of-wazirx-ownership-without-any-stake-for-binance/
WazirX blog on WazirX Acquisition - https://support.wazirx.com/hc/en-us/articles/360039273693-WazirX-Gets-Successfully-Acquired-By-Binance
CZ asks WazirX users to move funds to Binance - https://twitter.com/cz_binance/status/1555667069923901440