FTX fabricated its insurance fund size using Python code: Gary Wang

By: Dickson Arinze

FTX fabricated its insurance fund size using Python code: Gary Wang

October 9, 2023 8:21 AM

The former CTO of FTX has stated that the cryptocurrency exchange's "Backstop Fund" number is completely fabricated.


Trade in Cryptocurrencies Gary Wang, co-founder of FTX, testified that the company buried Python code to inflate the amount of its insurance fund, which was designed to protect users' assets in the case of a massive collapse. 


Gary Wang, the former CTO of FTX, testified on October 6 that the company's alleged $100 million insurance fund in 2021 never actually contained any of the exchanges' FTX tokens (FTT).


Instead, that amount was arrived at by multiplying the daily trading volume of FTX Tokens by a somewhat arbitrary value, somewhere around 7,500.


The prosecution presented the aforementioned tweet, along with other public pronouncements of its value, to Wang, who responded with a simple "No." when asked if this figure was accurate.


"For starters, the insurance fund contains no FTT. It's simply the USD amount. Second, the number stated here does not correspond to the one in the database."


The alleged source code used to calculate the size of the public insurance fund known as the "Backstop Fund" was displayed in court on October 6 as an exhibit. 

 


FTX's insurance fund was promoted heavily on the company's website and social media as a way to mitigate user losses in the event of extreme, unexpected market fluctuations.


Wang said that the fund's assets were frequently insufficient to cover such losses.


Wang claims that in 2021, a trader lost the exchange hundreds of millions of dollars by taking advantage of a flaw in the margin system to make a large investment in MobileCoin.


Wang claims that when Bankman-Fried saw that the insurance money was almost gone, he ordered Alameda to "take on" the loss. It was speculated that this was done in an effort to conceal the loss, as Alameda's financials were less publicly available than FTX's.


Wang claims that Bankman-Fried prompted him and Nishad Singh to add an "allow_negative" balance feature to the code at FTX, which allowed Alameda Research to trade with nearly unlimited liquidity on the cryptocurrency exchange.


Already having pled guilty to all counts, Wang stated on October 5 that he and Bankman-Fried, as well as former Alameda Research CEO Caroline Ellison and former FTX director of engineering Nishad Singh, had committed wire fraud, commodities fraud, and securities fraud.