Former FTX Chief Technology Officer, Gary Wang, has made startling allegations that FTX employed covert Python code to manipulate the reported value of its insurance fund, also known as the “Backstop Fund.” This fund is intended to serve as a safety net, shielding users from substantial losses during large-scale liquidation events.
Wang’s testimony, presented on October 6, has cast serious doubts on the integrity of FTX’s actions. He asserted that FTX’s claim of having a $100 million insurance fund in 2021 was, in fact, a fabrication. Moreover, he revealed that this fund never actually contained any of the exchange’s FTX tokens (FTT), as had been publicly claimed. Instead, the publicly disclosed figure was generated by multiplying the daily trading volume of the FTX Token by a seemingly arbitrary number close to 7,500.
![FTX's Insurance Fund Was Fake, Former CTO Admits image 44](https://i0.wp.com/nosisnews.com/wp-content/uploads/2023/10/image-44.png?resize=848%2C199&ssl=1)
![FTX's Insurance Fund Was Fake, Former CTO Admits image 44](https://i0.wp.com/nosisnews.com/wp-content/uploads/2023/10/image-44.png?resize=848%2C199&ssl=1)
When confronted with a tweet and other public statements that touted the fund’s value, Wang’s response was unequivocal: “No.”
Wang elucidated further by stating that there were no FTT tokens in the insurance fund; it solely comprised a USD-denominated figure. Additionally, the figure provided did not align with the actual data recorded in the database.
SBF Trial Day 4 – Gary Wang testimony
— BitMEX Research (@BitMEXResearch) October 6, 2023
FTX's published insurance fund number was fake and FTX's published insurance fund balance was produced by a random number generator!
Transcript extracts below
Q. And the number here, what is the size of the backstop fund listed?
A. Five…
FTX had consistently showcased its insurance fund as a protective measure for users in the event of significant, sudden market fluctuations. This value was prominently displayed on the FTX website and across social media channels. However, Wang’s testimony has exposed a startling reality: the fund’s size was often insufficient to cover the losses incurred during such events.
![FTX's Insurance Fund Was Fake, Former CTO Admits image 45](https://i0.wp.com/nosisnews.com/wp-content/uploads/2023/10/image-45.png?resize=1024%2C882&ssl=1)
![FTX's Insurance Fund Was Fake, Former CTO Admits image 45](https://i0.wp.com/nosisnews.com/wp-content/uploads/2023/10/image-45.png?resize=1024%2C882&ssl=1)
An illustrative example from 2021 highlights the inadequacy of the fund. A trader exploited a vulnerability in FTX’s margin system, taking an exceedingly large position in MobileCoin, resulting in losses amounting to hundreds of millions of dollars for FTX.
Wang further alleged that when Sam Bankman-Fried, the founder of FTX, realized the insurance fund was nearly depleted, he instructed Wang to shift the losses onto Alameda Research, ostensibly to conceal the loss. Alameda’s financial records were considered more confidential than those of FTX.
In addition to these revelations about FTX’s allegedly fraudulent insurance fund, Wang disclosed another concerning aspect of the operation. He asserted that he and Nishad Singh were directed by Sam Bankman-Fried to implement an “allow_negative” balance feature in FTX’s code. This feature effectively permitted Alameda Research to engage in trading with seemingly limitless liquidity on the crypto exchange.
On October 5, Wang, who has already admitted guilt to all charges filed against him, confessed to engaging in wire fraud, commodities fraud, and securities fraud alongside Sam Bankman-Fried, former CEO of Alameda Research, Caroline Ellison, and former FTX Director of Engineering, Nishad Singh. These revelations are sending shockwaves through the cryptocurrency community, raising critical questions about transparency, regulatory compliance, and ethical conduct within the industry.
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