FTX co-founder Gary Wang provided more details about Alameda Research’s unethical relationship with the exchange during Sam Bankman-Fried’s trial for fraud. Wang revealed that the function necessary for Alameda to steal client funds was integrated into FTX’s computer systems in 2019. Wang explained that Alameda enjoyed three special privileges at FTX. One of these privileges was the “allow negative” feature, which allowed Alameda to trade with more funds than it had in its account. This feature was later exploited by Alameda to withdraw $8 billion worth of fiat and crypto that it did not possess.
Wang clarified that the extra funds came from FTX customers who had not agreed to lend out their funds. He admitted that he had known about Alameda’s negative balance since 2019. Additionally, Alameda had a credit line of $65 billion from FTX, while other clients could access a maximum credit of $1 billion.
During cross-examination, Bankman-Fried’s lawyers argued that Alameda’s negative balance was allowed so that it could serve as a market maker for FTT, FTX’s native token. Wang clarified that while this exemption existed, it was also because Alameda’s position was so large that liquidating it could cause significant damage.
Hot Take: Alameda Research’s privileged relationship with FTX allowed them to exploit the exchange and withdraw billions of dollars they did not possess. These revelations shed light on the corrupt practices within the crypto industry and highlight the need for stricter regulations to protect investors. It is crucial for exchanges and trading firms to operate transparently and ensure the security of client funds.
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