FTX used Python code to fake its insurance fund figure — Gary Wang

FTX’s so-called “Backstop Fund” figure was a big lie, according to the crypto exchange’s former chief technology officer.

Crypto exchange FTX used hidden Python code to misrepresent the value of its insurance fund — a pool of funds meant to prevent user losses during huge liquidation events — according to testimony from FTX co-founder Gary Wang. 

In a damning testimony on Oct. 6, FTX’s former chief technology officer, Gary Wang, said that FTX’s so-called $100 million insurance fund in 2021 was fabricated and never contained any of the exchanges’ FTX tokens (FTT) as claimed.

Instead, the figure shown to the public was calculated by multiplying the daily trading volume of the FTX Token by a random number close to 7,500.

When the prosecution surfaced the above tweet — among other public statements of its value — and asked Wang whether this amount was accurate, he replied with a single word: “No.”

FTX’s insurance fund was designed to protect user losses in case of huge, sudden market movements and its value was often touted on its website and social media.

According to Wang’s testimony, however, the amount contained within the fund was often insufficient to cover these losses.

For example, in 2021, a trader exploited a bug in FTX’s margin system to take an outsized position in MobileCoin, which resulted in a loss of hundreds of millions of dollars for FTX, according to Wang.

When Bankman-Fried realized that the insurance fund had all but been exhausted, Wang said he was told to make Alameda “take on” the loss. This was supposedly an attempt to hide the loss, as Alameda’s balance sheets were more private than FTX’s.

In addition to revealing the allegedly fraudulent nature of FTX’s insurance fund, Wang claimed 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 near-unlimited liquidity on the crypto exchange.

On Oct. 5, Wang — who has already pleaded guilty to all charges pressed against him — admitted to committing wire fraud, commodities fraud and securities fraud with Bankman-Fried, former Alameda Research CEO Caroline Ellison and former FTX director of engineering Nishad Singh.