FTX Co-Founder Gary Wang Says Exchange Insurance Fund Was Fake

FTX co-founder Gary Wang detailed how FTX generated the display figure for the collapsed crypto exchange’s insurance fund.

Mattis Meichler2 min read

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In his Friday testimony, FTX co-founder Gary Wang said the crypto exchange’s insurance fund balance differed from the actual funds held by the exchange.

“For one, there is no FTT in the insurance fund,” Wang reportedly said, according to a retranscription of the trial’s fourth day posted on Twitter by BitMEX Research. “It's just the USD number. And, two, the number listed here does not match what was in the database.”

FTT was the native exchange token for the collapse crypto exchange.

Many crypto exchanges rely on insurance funds as a safeguard against potential financial setbacks. Such funds are crucial in ensuring that users' successful trades remain uninterrupted, even amidst significant market turbulence.

"So it's a fake number," asked the prosecution. "Yes," said Wang.

Wang also shed light on the rather unconventional method used to determine this balance.

Describing the process, he mentioned that a random figure, roughly 7,500, was multiplied by the exchange's daily trade volume.

The result, once divided by one billion, was then displayed as the insurance fund balance on FTX’s website.

An exhibit was displayed to the audience, showing the alleged code used to generate the size of the public insurance fund.

Wang also admitted having permitted Alameda to make unlimited withdrawals by implementing an “allow_negative” balance feature in the code at FTX, which allowed Alameda Research to trade with near-unlimited liquidity on the crypto exchange.

Bankman-Fried’s lawyers did not immediately respond to Decrypt’s request for comment.

On Thursday, Wang, who pleaded guilty and has chosen to cooperate with the investigators, alleged that Bankman-Fried, alongside some close associates, had engaged in wire fraud.

Wang and Bankman-Fried share a longstanding friendship, tracing back to their high school days. Wang was instrumental in founding FTX but remained relatively behind the scenes compared to the more publicly visible Bankman-Fried.

The Bankman-Fried trial, which began on October 3, is expected to wrap up by mid-November. Sam Bankman-Fried faces seven different charges ranging from wire fraud and money laundering to unauthorized political contributions.

Should he be found guilty, Bankman-Fried might face a maximum sentence of 110 years.