How $8 Billion fraud was hidden in the source code | FTX

Coding with Dee • 37.6k views • 00:18

Summary of Key Data Points from the FTX Collapse Video Transcript

Background Information

• FTX Foundation: Founded in 2019 by Sam Bankman Fried (SBF) and Gary Wang.
• FTX Growth: Became one of the largest cryptocurrency exchanges, with over 1 million users by July 2021.
• Market Competitors: Competed with platforms like Binance.

Key Events and Allegations

• Fraud Allegations: In 2022, FTX was accused of committing billions in fraud, including misusing customer deposits.
• Alameda Research: Founded by SBF in 2017, focused on cryptocurrency trading using algorithms.
• FTT Token: Introduced as a loyalty token, which was essentially fabricated with no intrinsic value outside the FTX platform.

Financial Misconduct

• Financial Relations: FTX allegedly mixed customer funds with those of Alameda Research, leading to substantial losses.
• Bankruptcy: In November 2022, FTX ceased customer withdrawals and declared bankruptcy due to insufficient funds.
• Borrowing Limits: At bankruptcy, Alameda was borrowing approximately $8 billion from FTX, which represented customer money.

Key Technical Details

• Code Manipulation:
  • A special feature allowed Alameda accounts to have negative balances, facilitating risky trading without sufficient collateral.
  • An increase in the credit line to $65 billion was mentioned, though this was more of a limit than actual borrowing.
• Insurance Fund Deception:
  • FTX claimed to have an insurance fund of $5.5 million in USD and $5.25 million in FTT, which were later revealed to be fabricated.
  • The numbers were generated through questionable coding practices, not tied to actual financial data.

Trial Insights

• Trial Focus: The trial highlighted SBF's lack of technical coding skills, which necessitated others (like Gary Wang) to implement deceptive coding practices.
• Prosecution Evidence: Screenshots of Python code were used as evidence to demonstrate how FTX manipulated data to mislead customers.
• Public Statements: On the day of the code changes, SBF publicly denied any unfair advantages for Alameda, despite knowing the truth.

Conclusion

The video highlights the complexity of financial fraud within cryptocurrency exchanges, the role of code in facilitating deceptive practices, and the impact on customers who lost substantial amounts due to the underlying misconduct.