From August 11, Binance will cease to support off-chain fund transfers between WazirX Exchange and Binance via the “Login with Binance" option. However, users will be allowed to deposit and withdraw through the standard process between Binance and WazirX.
Patrick Hillmann, Chief Communications Officer, Binance said, "At Binance, we prioritize the protection of users and the community."
Hillmann added that "as a result of the recent regulatory action taken against Zanmai Labs Pvt Ltd, in relation to their operations of the WazirX Exchange, it has come to our attention that some users were given to believe that funds deposited in WazirX were managed by Binance. This is not the case."
To provide clarity and protection for users, Hillmann said, "we are removing the off-chain fund transfer channel between WazirX and Binance. Effective from 2022-08-11 03:00 (UTC), Binance will cease to support off-chain fund transfers between WazirX Exchange and Binance via the “Login with Binance" option. Users will still be able to deposit and withdraw balances via the standard withdrawal and deposit process between Binance and WazirX."
Zanmai issue:
On August 8, ED conducted searches on one of the Directors of Zanmai which owns the popular Crypto-currency exchange WazirX.
The search is being conducted for money laundering against the number of Indian NBFC companies and their fintech partners for predatory lending practices in violation of the RBI guidelines and also by using tele-callers who misuse personal data and use abusive language to extort high-interest rates from the loan takers.
In the investigation, ED observed that Zanmai created a web of agreements with -- Crowdfire Inc. USA, Binance (Cayman Islands), Zettai Pte Ltd Singapore -- to obscure the ownership of the crypto exchange.
However, earlier, WazirX Managing Director Nischal Shetty claimed that their exchange is an Indian Exchange that controls all the crypto-crypto and inr-crypto transactions and only has an IP & preferential agreement with Binance.
In a major shock, ED took note that Zanmai claims that they are involved in only inr-crypto transactions, and all the other transactions are done by Binance on WazirX.
"They are giving contradictory & ambiguous answers to evade oversight by Indian regulatory agencies," ED said in its note.
It is known that WazirX works from a Cloud-based software (AWS Mumbai), all employees work from home, the registered office is a 2 Chair co-working Wework space, and all crypto-crypto transactions are controlled by Binance (which is again without any known office, any known employee and rarely responds to queries on legal@binance.com).
WazirX has failed to give the crypto transactions of the suspect fintech APP companies and reveal the KYC of the wallets. Most of the transactions are not recorded on the blockchain also.
In July 2020, WazirX stated that they did not even record the details of the Bank Account from which funds were coming into the exchange to purchase crypto assets. ED's note said that "No physical address verification is done. There is no check on the source of funds of their clients. No EDD is done. No STRs were raised."
ED said, "The lax KYC norms, loose regulatory control of transactions between WazirX & Binance, non-recording of transactions on Blockchains to save costs and non-recording of the KYC of the opposite wallets has ensured that WazirX is not able to give any account for the missing crypto assets. It has made no efforts to trace these crypto assets. By encouraging obscurity and having lax AML norms, it has actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route."
Thereby, assets to the extent of ₹64.67 crore with WazirX were frozen under PMLA, 2002.
Changpeng Zhao (CZ) vs Nischal shetty:
Founded in 2017, Binance is the largest exchange in the world in terms of the daily trading volume of cryptocurrencies.
Also, incepted in 2017, WazirX is the largest cryptocurrency exchange in India in terms of volume.
After the Zanmai controversy, WazirX Founder Nischal Shetty on August 5, said on Twitter that "WazirX was acquired by Binance. Zanmai Labs is an Indian entity owned by me and my co-founders. Zanmail Labs has license from Binance to operate INR-Crypto pairs in Wazir X. Binance operates crypto to crypto pairs, processes crypto withdrawal."
Shetty stated that Binance is the owner of the WazirX domain, has root access to AWS servers, has all the crypto assets, and has all the crypto profits. He said, "Don't confuse Zanmai and WazirX."
The statement grabbed the attention of Binance founder Changpeng Zhao who is also the richest cryptocurrency billionaire.
On Shetty's tweet, CZ said, "sad that these have to be debated on Twitter," adding, "Binance provides wallet services for WazirX." He said, "WazirX domain is transferred to our control. We were given shared access to an AWS account."
"We could shut down WazirX. But we can't, because...," CZ added.
"It hurts users," CZ added, "Binance does NOT have control on operations including "user sign-up, KYC, trading and initiating withdrawals", as stated earlier. WazirX's founding team controls that. This was never transferred, despite our requests. The deal was never closed. No share xfers."
Also, CZ said, "WazirX founding team maintained control of the operations of the platform. We (Binance) were never give data or control of users, KYC, etc. We would love to work with ED to fix these issues in WazirX."
Shetty spat back on CZ's statement, and said, "Proves you have control."
Further, CZ revealed that they asked for the transfer of WazirX system source code, and deployment operations, as recently, as February this year. The Binance founder claimed that "this was refused by WazirX."
Thereby, CZ stated that Binance does not have control over WazirX systems. He added, "WazirX has been uncooperative with us, and looks like uncooperative with ED as well."
The Binance-WazirX controversy is widely discussed on Twitter. Some investors have been accusing both sides, while some displaying concern over their assets and money.
Are users crypto safe?
Hillman said, "Moving forward, Binance will support Indian regulators in the ongoing matters concerning WazirX. Binance believes in keeping an open dialogue with regulators, policymakers, and the law enforcement community as we collectively seek to establish a global regulatory framework for the industry."
Meanwhile, WazirX spokesperson said, "We have been fully cooperating with the Enforcement Directorate(ED) for several days and have responded to all their queries fully and transparently. We do not agree with the allegations in the ED press release. We are evaluating our further plan of action."
On users' investment, Rajagopal Menon, Vice President, WazirX said, "We are the only large crypto exchange that allows complete withdrawals of cryptos in India and that shows how solvent we are and how sensible our business model is. INR withdrawals are working, and there is no issue in terms of the structural viability of the company. Users crypto is safe."
