Bankrupt FTX Faces Scandal over Manipulated Insurance Fund

FTX co-founder Gary Wang exposed that the insurance fund balance displayed on FTX’s website was artificially derived from random numbers. Instead of reflecting the true status, the exchange calculated this balance by multiplying a random number with their daily trading volume, then dividing by a billion.

The arrest of its founder Sam Bankman-Fried, the problems arising from the old functioning of the stock exchange, and most recently the scandal regarding the insurance fund, continue to keep FTX, which went bankrupt in 2022, on the agenda.

FTX generated the insurance fund balance displayed on its website with a formula based on random numbers. This situation emerged with the statements of FTX co-founder Gary Wang. Wang stated that the platform’s insurance fund balance is actually less than the amount shown to the public.

He Confessed in Court

According to Wang’s statements, the FTX exchange showed the amount of insurance fund by multiplying a random number (about 7,500) by the daily trading volume and dividing by one billion to determine the amount of cash added. However, this calculation did not reflect how much the fund actually was. Wang stated in his statement to the court that the balance shown was different from the amount actually stored.

Prosecutor Nicolas Roos asked: “Does this number have anything to do with the real number in the insurance fund?” Wang’s “No” answer to the question revealed that the funds were determined by random numbers.

”Insurance funds are a great security tool in crypto exchanges. “These funds prevent the automatic closing of profitable positions caused by counterparty liquidations, thus ensuring that investors receive their profits and cover possible losses.”

Source: The Block

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