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The reliability of FTX’s “Backstop Fund” is in danger after revelations made by the cryptocurrency exchange’s former Chief Technology Officer. FTX used a hidden Python code to manipulate the actual value of the insurance fund. Gary Wang revealed that a fund initially designed to protect users from substantial losses during significant liquidation events was exposed to manipulation.
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Gary Wang made a shocking statement on October 6th, alleging that the $100 million insurance fund claimed was a hoax. Furthermore, this fund did not contain the FTT tokens it claimed to possess. The figure presented to the public, instead of a correct valuation, was based on the FTX Token’s daily trading volume and was multiplied by an arbitrary factor of about 7,500.
Wang resisted the prosecution’s claims about the fund’s value, stating in a concise manner: “No.”
Wang continued as such: “Firstly, there is no FTT in the insurance fund. It’s just a figure in US dollars. Secondly, the figure presented here does not match the figure in the database.”
FTX has presented the ”Backstop Fund”
On October 6, an exhibit demonstrating the code alleged to determine the size of the “Backstop Fund” or public insurance fund was ready to present at the case hearing. FTX had frequently promoted the value of the insurance fund on the website, providing users with protection against market fluctuations. Wang’s statement revealed that the fund’s actual resources were insufficient to cover potential losses.
In 2021, a trader exploited a security loophole in FTX’s margin system to hold a significant position in MobileCoin. Also, As explained by Wang, this exploitation resulted in hundreds of millions of dollars in losses for FTX.
Wang claimed Bankman-Fried instructed Alameda to shift insurance fund burden to hide loss, as investors believed Alameda’s private balance sheets made it an appropriate choice.
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