FTX used random numbers to calculate insurance fund size

FTX used random numbers to calculate insurance fund size

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Author: Robert Strickland (crypto expert)
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FTX used random numbers to calculate the insurance fund size

FTX used random numbers to calculate the size of the exchange's insurance fund


 

The fund was to serve as a means to protect against liquidation of traders' positions and cover losses

 

FTX employed a random number-based method to determine the size of its insurance fund. This fund was designed to serve as a safeguard against traders' positions being liquidated and to cover potential losses.

According to Gary Wang, one of the co-founders of FTX, the reported amount kept in the exchange's insurance fund did not reflect reality and was essentially fictitious. This revelation emerged during the trial of Sam Bankman-Fried, the former head of FTX, as reported by The Block.

Insurance funds are crucial for ensuring profits and mitigating losses, preventing the automatic closure of profitable positions due to widespread liquidation on the exchange.

During his deposition, Wang disclosed that FTX used a random number, specifically around 7,500 times the daily trading turnover of the platform, divided by one billion, to determine the publicly displayed amount to be allocated to the fund. However, this number did not match the actual amount of funds in the insurance fund.

Wang testified that the displayed number did not correspond to the real figure stored in the database. In reality, the balance of the insurance fund was lower than what was presented to the public. The publication also provided evidence from the exchange's program code that supported Wang's testimony.

The trial against Sam Bankman-Fried commenced on October 4 and is expected to last between one and a half to two months. If found guilty, he could face a sentence of over 100 years in prison for the charges against him. All members of the FTX management team, except for Bankman-Fried himself, have already admitted to embezzlement of user funds and will testify as witnesses during the trial.

 

 

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