In a live Twitter Space on Thursday, Sam Bankman-Fried appeared to suggest that FTX was selling clients Bitcoin that did not exist.
During the conversation with Ran Neuner, the host of the Crypto Banter podcast, Bankman-Fried sought to explain why customers’ ssets were missing on FTX’s spot exchange when the exchange filed for bankruptcy on Nov. 11 in the U.S..
Bankman-Fried said that because FTX had not secured banking partners during 2019 and 2020, the exchange instructed customers to deposit funds into the bank account of its sister trading firm, Alameda Research.
Neuner questioned whether the funds ever moved from Alameda’s account with Silvergate Bank, or if FTX users were credited with a notional balance in their accounts that did not represent underlying assets held on their behalf by the exchange.
Bankman-Fried responded that he believes customers were “effectively” being credited with notional balances on FTX’s user interface while their deposits remained in Alameda’s account, suggesting users were trading crypto assets on FTX that did not actually exist.
“That would make sense as to why Alameda had so much money to invest in projects, and FTX didn’t have any money to pay out to customers,” Neuner said. “You were just letting us buy notional tokens that actually didn’t really exist… That makes sense as to why there were no more Bitcoin to withdraw… because those Bitcoin didn’t really exist.”
“I believe that what you are saying is, in fact, part of what happened,” Bankman-Fried replied.
Jesse Powell, the CEO of rival centralized exchange, Kraken, also slammed Banlman-Fried for his depiction of FTX’s margin trading operations.
“He’s saying that the whole exchange operated on a net account equity model and anybody could borrow anything (in any amount?) from client funds or from nowhere,” Powell said. “That’s not how it should work.”