In a shocking revelation, a former Chief Technology Officer (CTO) of FTX’s crypto exchange has exposed the alleged manipulation of FTX’s claimed “Backstop Fund.” Gary Wang, the co-founder, testified on October 6, revealing that FTX used concealed Python code to distort the true value of its insurance fund, designed to protect users during significant market liquidation events.
Wang asserted that FTX falsified the purported $100 million insurance fund in 2021 and did not hold any FTX tokens (FTT) as previously stated. Instead, the exchange calculated the publicly presented value by multiplying the daily trading volume of the FTX Token by an arbitrary figure, approximately 7,500.
During the prosecution’s examination, Wang confirmed the deception, stating, “For one, there is no FTT in the insurance fund. It’s just the USD number. And, two, the number listed here does not match what was in the database.”
In the October 6 trial, court documents unveiled the code allegedly used to create the deceptive size of the insurance fund, commonly known as the “Backstop Fund.” FTX had promoted this fund on its website and social media, assuring users it would protect their funds during market downturns
FTX promoted an insurance fund on its website and social media, claiming it would protect user funds during market downturns.
Wang testified that the purported insurance fund was not large enough to cover potential losses.
However, Wang testified that in 2021, there was a case where a trader exploited a margin trading bug to make an unusually large trade, causing hundreds of millions in losses for FTX.
When Bankman-Fried became aware that the purported insurance fund was no longer sufficient, he told Wang to transfer the loss to Alameda, purportedly to keep the loss from becoming public. Allegedly, this was because Alameda’s balance sheets were not publicly available.