FTX, a cryptocurrency exchange, used hidden Python code to manipulate the value of its insurance fund, according to testimony from FTX co-founder Gary Wang. Wang revealed that the so-called $100 million insurance fund in 2021 was actually fabricated and did not contain any FTX tokens, as claimed by the exchange. Instead of accurately representing the value, FTX calculated the figure by multiplying the daily trading volume of the FTX Token by a random number close to 7,500. This revelation raises questions about the adequacy of the insurance fund to cover user losses during market volatility.

When questioned about a tweet from FTX boasting about the value of the insurance fund, Wang stated that the amount mentioned was inaccurate and there were no FTX tokens in the fund. An exhibit in the trial showcased the alleged Python code used to generate the size of the insurance fund. The code manipulated the calculation by multiplying the daily trading volume by a random number around 7,500.

Wang also disclosed that the insurance fund was often insufficient to cover losses resulting from market movements. In one instance, a trader exploited a bug in FTX’s margin system and incurred a loss of hundreds of millions of dollars for the exchange. Upon realizing that the insurance fund was nearly depleted, Wang stated that he was instructed by FTX CEO Sam Bankman-Fried to transfer the loss to Alameda Research to conceal the extent of the loss. Wang admitted to committing wire fraud, commodities fraud, and securities fraud in cooperation with Bankman-Fried and others involved.

Summary

FTX co-founder Gary Wang revealed in court that the exchange used hidden Python code to manipulate the value of its insurance fund. The so-called $100 million fund never contained any FTX tokens and was calculated by multiplying the daily trading volume of the FTX Token by a random number. The testimony raises concerns about the adequacy of the fund to cover user losses. Wang also admitted to committing wire fraud, commodities fraud, and securities fraud in collaboration with FTX CEO Sam Bankman-Fried.

FAQ

What is FTX?

FTX is a cryptocurrency exchange known for its wide range of trading options, including futures and options.

What is an insurance fund in a cryptocurrency exchange?

An insurance fund is a pool of funds set aside by a cryptocurrency exchange to cover user losses during large liquidation events or sudden market movements.

Why did FTX use Python code to manipulate the insurance fund value?

FTX used Python code to fake the value of its insurance fund in an attempt to mislead users and potentially conceal losses incurred by the exchange.

What were the consequences of FTX’s insurance fund manipulation?

The manipulation of the insurance fund value raises concerns about its adequacy to cover user losses during market volatility. It also calls into question the transparency and integrity of FTX as an exchange.

What charges did Gary Wang admit to?

Gary Wang admitted to committing wire fraud, commodities fraud, and securities fraud in cooperation with FTX CEO Sam Bankman-Fried.