The recent fraud trial of Sam Bankman-Fried, the founder of FTX, has shed light on the corrupt relationship between Alameda Research and the cryptocurrency exchange. In his testimony, FTX co-founder Gary Wang revealed shocking details about how Alameda had manipulated FTX’s computer systems and exploited special privileges to steal client funds. This article analyzes the testimonies presented in the trial and uncovers the extent of the corruption.
According to Wang, Alameda Research was given three special privileges at FTX that other customers did not have. One of these privileges was the “allow negative” feature, which enabled Alameda to trade with more funds than it had in its account. This feature was later used to withdraw a staggering $8 billion worth of fiat and crypto, surpassing the trading firm’s actual account balance. Wang emphasized that the extra funds came from FTX customers who had not consented to lending out their funds.
Early Warning Signs
Alarming details revealed during the trial indicate that the scheme had been ongoing since 2019. Wang disclosed that he had been aware of Alameda’s negative balance as early as that year when the withdrawal amounts were initially limited to around $50 million to $100 million. However, a year later, Wang discovered that Alameda’s negative balance had already exceeded FTX’s annual revenue of $150 million, reaching at least $200 million.
Wang’s testimony directly contradicted Sam Bankman-Fried’s repeated claims that FTX customer funds had remained untouched. Wang affirmed that Bankman-Fried himself had witnessed Alameda’s negative balance, challenging Bankman-Fried’s previous statements of being unaware of Alameda’s financial state leading up to its collapse. The magnitude of the corruption becomes more apparent as the testimony reveals the complicity of the FTX founder.
The Outsized Line of Credit
Another disturbing revelation during the trial was the outsized $65 billion line of credit granted to Alameda Research, while other clients were limited to a maximum credit of $1 billion. This further indicates the preferential treatment Alameda received from FTX, highlighting the deep-rooted corruption within the relationship.
Alternative Perspective
During cross-examination, Bankman-Fried’s lawyers argued that Alameda’s negative balance was permitted as it served as a market maker for FTX’s native exchange token, FTT. However, this explanation seems feeble when confronted with the enormity of funds withdrawn by Alameda, surpassing its actual account balance by billions of dollars.
The revelations made during Sam Bankman-Fried’s fraud trial have painted a grim picture of the corrupt relationship between Alameda Research and FTX. The exploitation of special privileges, the unauthorized withdrawals, and the preferential treatment given to Alameda all point towards systemic corruption within FTX. As the trial continues, it is crucial to seek justice for the affected clients and hold those responsible accountable for their actions. The cryptocurrency industry must address such issues head-on to foster trust and integrity within the market.
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