- Gary Wang, former FTX CEO, has testified about FTX’s handling of its insurance fund.
- He claimed that the $100 million insurance fund claimed by FTX in 2021 was not real and did not contain any FTX tokens.
- Wang explained that the fund was calculated by multiplying the daily trading volume of the FTX Token by an arbitrary number, which did not match the actual data in the database.
Gary Wang, the former Chief Technology Officer of FTX, has recently testified about some concerning practices within the cryptocurrency exchange. His revelations, shared on October 6th, shed light on FTX’s handling of its insurance fund.
According to Wang, FTX employed hidden Python code to manipulate the reported value of its insurance fund. This fund is meant to protect users from losses during significant market liquidation events. Shockingly, Wang asserted that the $100 million insurance fund claimed by FTX in 2021 was not real and did not contain any FTX tokens (FTT), as publicly stated.
Instead of being based on actual holdings, FTX apparently calculated the displayed figure by multiplying the daily trading volume of the FTX Token by an arbitrary number, roughly 7,500. When asked about the accuracy of this calculation, Wang bluntly answered, “No.”
He clarified that the insurance fund only represented a USD value, devoid of any FTT tokens, and this value did not match the actual data in the database.
During the trial on October 6th, an exhibit was presented, revealing the code used to determine the size of FTX’s “Backstop Fund” or public insurance fund. FTX frequently showcased this fund’s value on its website and social media to reassure users in the event of sudden market fluctuations. However, Wang’s testimony suggests that the fund’s actual size often fell short of covering substantial losses.
For example, in 2021, a trader managed to exploit a vulnerability in FTX’s margin system, resulting in significant losses, according to Wang’s account. This incident reportedly cost FTX hundreds of millions of dollars.
When Sam Bankman-Fried, FTX’s founder, learned of the depleted insurance fund, Wang alleged that he was instructed to shift the loss to Alameda Research to hide it. Alameda’s financial records were deemed more private compared to those of FTX.
Wang also disclosed that he and Nishad Singh were directed by Bankman-Fried to implement an “allow_negative” balance feature in FTX’s code. This allowed Alameda Research to trade with nearly unlimited liquidity on the cryptocurrency exchange.
On October 5th, Wang, who had already pleaded guilty to all charges against him, admitted to participating in wire fraud, commodities fraud, and securities fraud alongside Sam Bankman-Fried, former Alameda Research CEO Caroline Ellison, and former FTX director of engineering Nishad Singh.