Crypto exchange CoinDCX has established a $6 million contingency fund in a bid to protect customer assets as the Indian crypto market struggles to recover from the aftermath of the $230 million WazirX hack.
A press release shared with crypto.news stated that the ‘Crypto Investors 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 that our customers’ assets remain secure and intact,” said Sumit Gupta, co-founder of CoinDCX.
With an initial allocation of 50 crores, approximately $6 million, CoinDCX will continue to inflate the fund’s size by committing 2% of its brokerage income over time. According to Gupta, the fund will be monitored continuously and subject to annual reviews to ensure its viability.
Further, the company has established a governance framework to manage the fund’s credit and utilization while keeping the process transparent.
The establishment of the CIPF comes shortly after WazirX, which housed the lion’s share of Indian cryptocurrency investors, got hacked for over $230 million. The incident left the exchange devoid of 45% of its customer assets and the ability to maintain a 1:1 collateral.
To calm the nerves of its customers, the exchange proposed what it called a socialized loss strategy that would allow users immediate access to 55% of their assets, but the remainder would be locked in Tether’s USDT.
However, the plan backfired, as crypto investors perceived it as unfair and an attempt to avoid full responsibility for the losses. Ultimately, the exchange had to abandon the plan.
Contingency funds like the CIPF are not new in the cryptocurrency sector, which has been bombarded by cyber attacks since its inception. With such attacks showing no signs of slowing down, several major crypto exchanges have established similar funds as a lifeline.
For instance, Binance established the Secure Asset Fund for Users in 2018, where it allocates a portion of its trading fees. Similarly, crypto exchange HTX introduced a 20,000 BTC reserve fund in 2019, while OKX has a fund called Risk Shield, where it allocates a portion of its revenue.
