The tweet exchange between the co-founders is clear. However, Shetty claimed that the acquisition deal was only for technology transfer. This is why WazirX technology is owned and operated by Binance. Zanmai Labs operates only crypto/INR pairs under a Binance license.
Cointelegraph reached Binance in an attempt to clarify the acquisition deal. The exchange refuted Shetty’s claims that it operates crypto-tocrypto trading pairs. Binance spokeswoman told Cointelegraph:
Binance does not offer crypto-to-crypto trading on the WazirX Exchange. Zanmai Labs is the sole operator of WazirX. We also agreed to purchase WazirX’s technical assets and intellectual properties, but this was not finalized.
CZ also claimed in another tweet that Binance tried to acquire the company as late as February, but WazirX refused. Shetty replied to the tweet again, claiming that the deal involved Binance’s acquisition of its parent entity. Binance, however, gave an “ambiguous answer” that the parent entity was in the midst of restructuring at the time.
Cointelegraph was told by a Binance spokesperson that the agreement between Binance Labs and Zanmai Labs was intended for the acquisition of certain intellectual property and assets of WazirX and not equity in Zanmai Labs.
WazirX believes that Binance should buy India operations from India using its parent entity. This would avoid the risk of users and Binance could sell WazirX back.
It took three years for the deal to be disclosed.
The alleged money laundering investigation of India’s Enforcement Directorate is the main reason for the conflict between the companies. This investigation was conducted one year ago. It is not about money laundering, but rather a violation of the Foreign Exchange Management Act (FEMA).
FEMA is one of the many capital control regulations the Indian government has implemented to stop capital leaving the country. FEMA states that an individual can only send $250,000 per year to India for specific purposes. FEMA laws do not cover cryptocurrency transfers due to lack of regulation in the crypto market.
FEMA laws still apply to crypto transfers exceeding $250,000. This seems to be true in the ED’s WazirX investigation. The ED is currently investigating 10 other crypto platforms.
The crypto investment is not one. FEMA regulations would prohibit you from sending more than the amount allowed, even if it is crypto. FEMA regulations are violated when funds are transferred to an Indian-domiciled exchange.
In 2022, the EED froze $8.1 million of assets. This was a year old investigation. The ED claimed it could not find on-chain records transactions totaling millions of dollars. WazirX, however, disputed the claim of ED and claimed it had records for every transaction.
The ED refers to off-chain transactions as the direct transfer between WazirX, Binance. This feature was introduced by both parties as part the partnership. This feature allows users to transfer assets between two exchanges, without having to pay any transfer fees.
WazirX stated in an official statement that there was a significant misinterpretation of off-chain transfers. According to the crypto exchange, an ED press release was trying to make these transitions seem mysterious and untracked. However, KYC users can only use the services. There is no doubt about untraced money, and WazirX stated that it was confident in proving ED wrong at the court of law.
Binance finally shut down the bridge between the platforms on Aug. 11. It notified users in advance and reminded them that funds can still be transferred to WazirX via standard wallet transfers.
Binance and WazirX both assured their full cooperation in the investigation. However, a source who is familiar with the matter but chose not to be identified told Cointelegraph that Binance was scared by the investigation which ultimately led to the fallout. Binance later confirmed that it was forced to inform its users by the ED investigation. Cointelegraph was told by a spokesperson for Binance that the issue had been raised.
“We had issues with Zanmai Labs. We tried to work with Zanmai Labs to resolve the issue for some time. There have been material developments in the news regarding the ED investigations and notices pertaining to Zanmai. This clarification was necessary for user protection.
Indian crypto investors will be affected by the Binance-WazirX story.
Indian investors using WazirX were panicked by the Binance-WazirX scandal. After the fracas between the co-founders, many traders sold their assets. CZ prompted users to transfer their assets from Binance, escalating the negative sentiment.
WazirX stated to Cointelegraph there were signs of liquidation or movement of funds following the tweets. However, after assuring that users would be safe, WazirX said that the trend was in decline.
Indian crypto entrepreneurs believe that investors’ confidence was affected by the torrent of social media posts, regardless of fault. Co-founder of Indian crypto exchange Unocoin was Sathvik Vishwanath. He stated that such fracas can affect the crypto market and its investors.
“This type of action in crypto market leaves a negative impression on all stakeholders, but it seems that the problem can be reversed. They must either complete or undo the transaction. The owners should be publicly identified. Transparency seems to be the missing key.
Although the Indian crypto ecosystem has been thriving for many years and produced numerous crypto unicorns, trading volumes on major Indian crypto exchanges have dropped dramatically. Not only did the new tax rules discourage Indian investors, but they also encouraged several top crypto service providers to search for crypto-friendly jurisdictions.
While the Indian central bank has called for a ban of crypto use in any form, the central government has not changed its position over time and has not offered any regulatory framework. Many market pundits believe that the current Binance–WazirX case could be used by Indian law enforcement agencies and the central banks to make a case against crypto regulations, despite the increasing complexity of the Indian crypto ecosystem.