It's been a brutal year for cryptocurrency exchange WazirX, recording a 76% drop in users' trading volumes. Trading volumes dropped to $10 billion for the first 11 months of the year from $43 billion for the same period last year. ZebPay and Bitbns are other exchanges in India showing significant declines in trading volumes of more than 30%. Trading volumes overall in the industry are down due to the Indian government tax policies on cryptocurrency trades. The collapse of Terra Stablecoin and FTT exchange have also rattled investors. The standoff stems from India's Enforcement Directorate accusing the exchange’s holding company Zanmai Labs of engaging in economic sabotage and money laundering.
Binance ‘Acquires’ WazirX
The relation between the two exchanges dates back to 2019 when Binance, the world's largest exchange by trading volumes, announced its "acquisition" of WazirX. With the acquisition, WazirX's unique auto-matching engine was integrated into the Binance Fiat Gateway platform, offering over a billion people easy cryptocurrency access.
The acquisition made it easy for people to buy and sell cryptocurrencies with Indian Rupees on the Binance Fiat Gateway. The acquisition also made it easy for people to trade digital assets on Binance.com on purchasing USDT on WazirX digital asset marketplace.
Zanmai Labs Probe
In August, India's cryptocurrency was thrown into a tailspin amid questions about who owns WazirX. The concerns and questions arose amid a fierce public row between Binance founder Changpeng Zhao and WazirX founder Nischal Shetty.
The spat erupted after the Enforcement Directorate conducted a search on Zanmai Labs, the license holders were tasked with providing INR crypto pairs to the WazirX crypto exchange. The search, which targeted one of the Directors at Zanmai, was related to money laundering claims involving several Indian NBFC companies.
There were also claims of predatory lending in violation of Reserve Bank of India guidelines. Zanmai also stood accused of using tele-callers that misused data and used abusive language to extort high interest from borrowers.
In its defence, Zanmai insisted it was only involved in crypto transactions. It reiterated that Binance was responsible for all other transactions done on WazirX.
Following the search, Binance announced it would no longer offer support for off-chain fund transfers between itself and WazirX exchange. Accordingly, since August 11, 2022, Binance has not provided any support for off-chain fund transfers between WazirX exchanges via the 'Login with Binance' option.
Nevertheless, people were allowed to deposit and withdraw through the standard process between the two exchanges.
Binance throws WazirX under the Bus
In a bid to protect its reputation and brand, Binance distanced itself from WazirX in the aftermath of the Zanmai Labs regulatory probe. In a press release the Chinese exchange reiterated it did not manage any funds deposited in the WazirX exchange.
Binance reiterating that users were duped into believing it was responsible for managing any amount deposited in WazirX appears to have rattled the market. Most people were dealing with WazirX banking on its close ties with Binance, one of the largest and most liquid exchanges.
Accordion to Binance, its 2019 "acquisition" agreement was limited to purchasing certain assets and intellectual property of WazirX. The Chinese crypto exchange insists it did not purchase any equity stake and does not own any equity stake in Zanmai, which operated WazirX. Consequently, it is not responsible for any money deposited into the Indian exchange.
The Chinese exchange has since reiterated that it is working with Indian regulators to ensure all matters concerning WazirX are sorted out.
Binance-WazirX Ties in Doubt
The future between WazirX and Binance remains in the balance as the Indian exchange remains under regulatory scrutiny. In addition, the exchange ties with Zanmai Labs, accused of economic crimes and assisting loan companies to launder money, could strain their relationships given the bad publicity that the probe brought about its operations.
Binance founder Zhao distancing Binance from all operations at WazirX and that of its holding company Zanmai Labs spells out the doomed relationship between the two. Nevertheless, it still needs to be determined how WazirX views its association with Binance.
It is still being determined what the future holds for WazirX as it remains under regulatory scrutiny in India. While its accounts have been unfrozen, the damage could have been done. Crypto users and enthusiasts remain wary and fearful following the cryptocurrency sector collapse. The implosion of FTX, one of the biggest cryptocurrency exchanges by trading volume, early this month has also sent shockwaves leaving many Indian crypto investors and enthusiasts wary.