Gary Wang: FTX used Python code to fake its insurance fund numbers

Author: Tom Mitchelhill, Cointelegraph; Compiler: Songxue, Golden Finance

Cryptocurrency exchange FTX used hidden Python code to misrepresent the value of its insurance fund, a fund designed to protect users from losses in the event of a mass liquidation, according to testimony from FTX co-founder Gary Wang.

In a shocking new testimony on October 6, former FTX CTO Gary Wang said that FTX’s so-called $100 million insurance fund for 2021 was actually a fabrication and never actually included any exchange The FTX Token (FTT) does exactly what it claims to do.

Instead, the numbers shown to the public are calculated by multiplying the FTX token’s daily trading volume by a random number close to 7,500.

When prosecutors released the tweet (along with other public statements about its value) and asked Wang whether the number was accurate, he had a one-word answer: "No."

"For one thing, there is no FTT in the insurance fund, it's just a dollar figure. Second, the numbers listed here don't match the numbers in the database."

One piece of evidence at the Oct. 6 trial showed the code used to generate the size of the so-called "reserve fund," or public insurance fund.

FTX’s insurance fund is designed to protect users from losses in the event of sudden large market moves, and its value is often touted on its website and social media.

However, the amount in the fund was often insufficient to cover those losses, according to Wang's testimony.

For example, Wang said that in 2021, a trader took advantage of a vulnerability in FTX's margin system to hold a large position in MobileCoin, causing FTX to lose hundreds of millions of dollars.

When Bankman-Fried realized the insurance fund was nearly depleted, Wang said he was told to let Alameda "bear" the loss. This was allegedly an effort to cover up losses because Alameda's balance sheet is more private than FTX's.

In addition to exposing the allegedly fraudulent nature of the FTX insurance fund, Wang also claimed that he and Nishad Singh, at Bankman-Fried's instigation, implemented the "allow_negative" balance function in FTX's code, which made Alameda Research Nearly unlimited liquidity is available for trading.

On October 5, Wang pleaded guilty to all charges against him, pleading guilty to wire fraud, commodities fraud and securities fraud with Bankman-Fried, former Alameda Research CEO Caroline Ellison and former FTX engineering director Nishad Singh .