FTX used a random number to generate the size of its insurance fund

FTX’s insurance fund balance was based on a formula that included a random number and daily trading volume. Gary Wang, co-founder of the platform undergoing bankruptcy proceedings, admitted this, writes The Block.

He testified in the trial of FTX co-founder Sam Bankman-Fried. Earlier Wang pleaded guilty to charges related to the exchange’s collapse and agreed to assist investigators.

According to him, to determine the growth of the insurance fund the exchange multiplied daily turnover by ~7500 and divided the resulting figure by 1 billion. The actual size was below the declared figure, as it did not account for the amount of available funds.

Wang told the prosecutor that the figure on the site was not linked to the actual size of the insurance fund. The latter serves as a guarantee of payouts, preventing automatic closing of profitable positions in the event of mass liquidations.

On October 3, began hearings in the Sam Bankman-Fried case. He faces seven criminal counts, including conspiracy to commit fraud.