Alameda Research Used Secret Backdoor in FTX to Withdraw Customer Funds
The Wall Street Journal has confirmed that Alameda Research, a third-party company, used a secret backdoor in the defunct exchange FTX to withdraw billions of dollars of customer funds. Some employees at LedgerX, another crypto company, discovered the backdoor in spring 2022. Despite raising concerns about the “special code,” it was not addressed, and a senior manager was later fired. FTX staff became aware of the situation when LedgerX employees reported the “special features” they had found. Julie Schoening, LedgerX’s chief risk officer, informed her boss Zach Dexter, who discussed the backdoor with Nishad Singh, co-lead engineer of FTX Trading Ltd. The details of their discussions are unclear, but sources say Dexter believed the issue was resolved after Singh removed the code.
A spokesperson for Miami International Holdings, LedgerX’s parent company, stated that their internal investigation found no evidence that any employees were aware of the code enabling Alameda Research to access FTX customer assets.
In August 2022, Schoening was allegedly fired because she identified risk management problems at FTX. A $5 million settlement between Schoening and FTX was reportedly agreed upon but never finalized due to the collapse of FTX in November 2022.
Hot Take: Alameda Research’s Secret Backdoor Exposes Vulnerabilities in Crypto Exchanges
The revelation of Alameda Research using a secret backdoor in FTX highlights the need for stronger security measures in crypto exchanges. This incident raises concerns about customer fund protection and transparency within the industry. The fact that concerns raised by LedgerX employees were not promptly addressed indicates a lack of diligence on FTX’s part. Additionally, the termination of Julie Schoening, who reportedly identified risk management issues, raises questions about accountability and whistleblowing in the crypto space. The collapse of FTX further complicates the situation, leaving unresolved matters such as the $5 million settlement. This incident should serve as a wake-up call for crypto exchanges to prioritize robust security protocols and ethical practices to safeguard customer assets and maintain trust in the industry.
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