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According to a recent testimony provided by FTX’s former Chief Technology Officer (CTO), Gary Wang, it has been revealed that the exchange’s claim regarding the “backstop fund” figure was nothing but a fabrication.
Wang has alleged that the popular cryptocurrency exchange employed Python code to intentionally misrepresent the value of its purported $100 million insurance fund in 2021, which was designed to shield users from potential losses during significant liquidation events.
Details of the Insurance Fund Were All Lies
The testimony also revealed that the insurance fund never contained any of the FTT tokens as claimed, but just a USD number. The exchange’s co-founder, when asked about the source of the fabricated number, said the exchange generated figures independently, ignoring the actual assets held in the insurance fund.
As per BitMex research, FTX used a random number function to generate the insurance fund it revealed to the public. The screenshot from BitMex research revealed the lines of codes of the Python programming language that generates a random number from a normal distribution, measures it to the size of its daily volume, divides it by a number, and returns the outputs.
FTX’s insurance fund is a safety net that is supposed to provide reassurance to users trading on the exchange.
It is intended to function as an insurance mechanism, safeguarding against the risk of massive liquidations resulting from market volatility. However, the deliberate misinterpretation of important figures such as the backstop funds erodes confidence in the exchange’s ability to protect user funds and leaves traders vulnerable to potential losses.
FTX Execs Pleads Guilty
Markedly, Caroline Ellison and Gary Wang have earlier pleaded guilty to the charges brought against them immediately after the exchange collapsed. Prosecutors have acknowledged that they have both been cooperating and will testify against Sam Bankman-Fried in court.
Two other FTX executives have also pleaded guilty to fraud charges but only one of them had agreed to cooperate. Apart from Ellison, co-CEO of Alameda Research Sam Trabucco was equally mentioned in the SBF essay as well as his discord with Ellison.
SBF Requests Access to FTX Insurance Policy Fund
Recall that in April, SBF requested that the bankruptcy judge extend the period of stay so that insurance companies Relm Insurance and Beazley Insurance could determine if he was covered in the FTX insurance plan. Also, the embattled CEO was seeking access to the exchange insurance policy funds for his legal defense.