Crypto Exchange FTX’s Insurance Fund Balance Differs from Actual Funds, Co-Founder Testifies
In his testimony on Friday, FTX co-founder Gary Wang revealed that the balance of the crypto exchange’s insurance fund did not match the actual funds held by the exchange. Wang stated that there was no FTT (the native exchange token) in the insurance fund, and the listed number did not align with the database. Insurance funds are crucial for crypto exchanges to protect against financial setbacks and ensure uninterrupted trading for users.
Unconventional Method to Determine Balance
Wang explained that the balance was determined using an unconventional method. A random figure multiplied by the daily trade volume was divided by one billion to generate the insurance fund balance displayed on FTX’s website. An exhibit displayed during the trial showed the alleged code used for this calculation.
Unlimited Withdrawals and Allegations of Wire Fraud
Wang admitted to allowing Alameda Research to make unlimited withdrawals by implementing a “allow_negative” balance feature in FTX’s code. This allowed Alameda Research to trade with near-unlimited liquidity on the exchange. On Thursday, Wang, who pleaded guilty and is cooperating with investigators, accused FTX CEO Sam Bankman-Fried and close associates of wire fraud.
The Bankman-Fried Trial and Potential Consequences
The trial of Sam Bankman-Fried, facing charges including wire fraud and money laundering, is expected to conclude by mid-November. If found guilty, he could face a maximum sentence of 110 years. Bankman-Fried and Wang have a longstanding friendship dating back to high school, with Wang playing a key role in founding FTX but remaining less visible than Bankman-Fried.
Hot Take: Serious Allegations and Potential Impact
The testimony from FTX co-founder Gary Wang raises serious concerns about the transparency and integrity of the exchange’s insurance fund. The discrepancy between the stated balance and actual funds held by the exchange suggests a misleading representation to users. Additionally, the allegations of wire fraud and unlimited withdrawals further highlight potential misconduct within FTX. These developments could have significant repercussions for the reputation and trustworthiness of FTX in the crypto community. As the trial continues, it remains to be seen how this will impact the future of FTX and its leadership.
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