During the ongoing trial of Sam Bankman-Fried, co-founder of the now-defunct FTX crypto exchange, startling revelations have emerged regarding his understanding of cryptocurrency.
FTX Co-Founder’s Shocking Testimony
According to live coverage of the trial by The Guardian, Bankman-Fried confessed to knowing “basically nothing” about cryptocurrency before launching FTX and its affiliated hedge fund, Alameda Research. On the stand, Bankman-Fried admitted:
I had absolutely no idea how they worked. I just knew they were things you could trade.
According to the report, when Bankman-Fried teamed up with co-founder Gary Wang, who testified against him in the trial, they had no idea how to attract customers.
As for FTX’s collapse, US Attorney Mark Cohen’s questioning suggested that there was nothing particularly wrong with the exchange’s operations or Bankman-Fried’s business decisions.
The attorney highlighted FTX’s terms of service, finalized in early to mid-2022, which included provisions allowing a client’s balance to be used to cover others’ losses in certain situations, such as futures trading.
Bankman-Fried also discussed FTT, the cryptocurrency created by FTX. Its role in the collapse of FTX and Alameda Research cannot be overstated. Customers rushed to withdraw funds from FTX after reports revealed that Alameda’s loans heavily relied on FTT.
Per the report, Bankman-Fried portrayed FTT as a beneficial token for FTX users, providing account benefits if held. He explained the concept of “buy and burn,” where FTX used a portion of its weekly earnings to buy and eliminate FTT tokens, effectively giving value to FTT holders.
Management Mistakes Admitted
According to The Guardian, Throughout his testimony, Bankman-Fried attempted to portray the growth of his exchanges as a result of growing pains rather than intentional wrongdoing.
Bankman-Fried argued that borrowing from FTX was in line with the setup of the exchange and its sister hedge fund, Alameda Research. As long as the risk was managed and assets exceeded liabilities, they did not concern themselves with how users utilized funds/
Furthermore, Bankman-Fried acknowledged making management mistakes, admitting that the lack of a dedicated risk management team was the most significant oversight. The defense sought to present Bankman-Fried as an overwhelmed math savant, mitigating allegations of criminal intent.
As the trial unfolds, the question of whether Bankman-Fried is a crypto criminal mastermind or an unfortunate “math nerd” remains central.
While Bankman-Fried denies committing fraud, he acknowledges significant oversights. Bankman-Fried’s personal history, including his time at MIT and associations with FTX co-founder Gary Wang and exchange developer Adam Yedida, has also come under scrutiny during the trial.
As of the time of writing, the exchange’s token FTT is trading at $1,2714, representing a 1.4% increase. This surge follows a substantial upward trend observed over the past 30 days.
Featured image from FOX Business, chart from TradingView.com