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  • Writer's pictureJamal Saafir

FTX Co-Founder Testifies That Exchange Insurance Fund Was Fake

Updated: Oct 19, 2023

In case you haven't tuned into crypto-related news in the past week or so. Sam Bankman-Fried a.k.a. SBF, CEO and founder of the now-collapsed crypto exchange FTX, has been having his long-awaited day in court.

According to a report from Decrypt, in his Friday testimony, FTX co-founder Gary Wang said the crypto exchange’s insurance fund balance did not reflect the actual funds possessed by the exchange.

“For one, there is no FTT in the insurance fund,” Wang reportedly stated, according to a retranscription of Day 4 of the hearing posted on Twitter by BitMEX Research. “It's just the USD number. And, two, the number listed here does not match what was in the database.”

FTT was the native exchange token for the now-bankrupt exchange.

Many crypto exchanges depend upon insurance funds as a safeguard against potential monetary fallout.

These funds are vital in guaranteeing that users' successful trades remain unobstructed,

even at times of exceptional market turbulence.

"So it's a fake number," asked the prosecution. "Yes," said Wang.

Wang also highlighted the rather unorthodox method used to calculate this balance.

Describing the process, he mentioned that a random figure, roughly 7,500, was multiplied by the exchange's daily trade volume.

The result, once divided by one billion, was then displayed as the insurance fund balance on FTX’s website.

An exhibit was shared with the audience, displaying the alleged code used to generate the size of the public insurance fund.

Wang also confessed granting permission to Alameda to make unlimited withdrawals by applying an “allow_negative” balance feature in the code at FTX, which allowed Alameda Research to trade with near-unlimited liquidity on the crypto exchange.

On Thursday, Wang, who plead guilty and has decided to cooperate with the investigators, alleged that SBF, as well as some close associates, had engaged in wire fraud.

Wang and Bankman-Fried have a long history of friendship, dating back to their high school years. Wang was significant in founding FTX but remained reasonably behind the scenes compared to the more publicly visible Bankman-Fried.

The Bankman-Fried trial, which started on October 3rd, is anticipated to conclude by mid-November. Sam Bankman-Fried is facing seven different charges ranging from wire fraud and money laundering to unauthorized political contributions.

If found guilty, SBF faces a maximum sentence of 110 years.

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