Gary Wang, a co-founder of FTX, testified that crypto exchange FTX used covert Python code to inflate the value of their insurance funds, a pool of money intended to protect users from losses during significant liquidation events.
Gary Wang, a former chief technology officer of FTX, provided fresh testimony on October 6. He claimed that FTX’s alleged $100 million insurance funds for 20221 were defrauding and never contained any of the alleged exchanges of ETX’s tokens (FTT), as claimed.
The figure shown to the public is a random number close to 7,500 instead of being calculated by multiplying the daily trading volume of FTX. The prosecutors surfaced the tweet, among other public stains of its value, and asked Wang about its accuracy, and he replied with a single word, “No.”
The alleged code used to determine the size of the so-called “Backstop Fund,” or public insurance fund, is displayed in an exhibit in the trial on October 6th. FTX’s insurance fund has been designed to protect user losses in cases of huge, impulsive market activities, and its value is often praised on its website and social media.
The amount contained within the funds was often insufficient to cover these losses, as per Wang’s testimony. Wang claims he was instructed to have Alameda “take on” the loss when Bankman-Fried realized the insurance fund had almost run out. Given that Alameda’s balance sheets were more private than FTX’s, this was allegedly an effort to conceal the loss.
In addition to disclosing the allegedly fraudulent nature of FTX’s insurance fund, Wang asserted that Bankman-Fried prompted him and Nishad Singh to implement an “allow_negative” balance feature in the code at FTX, which allowed Alameda Research to trade with nearly limitless liquidity on the cryptocurrency exchange.