FTX deposits controlled by Alameda for months, Yedidia testifies.

FTX deposits controlled by Alameda for months, Yedidia testifies.

The Intricacies of the Blockchain Industry Uncovered

In the ongoing trial of former FTX CEO Sam Bankman-Fried, his college roommate and early FTX employee, Adam Yedidia, took the stand as a prosecution witness, testifying under immunity. Yedidia’s testimony provided valuable insights into the inner workings of FTX and shed light on the relationship between Alameda Research, Bankman-Fried, and other key players in the industry.

Yedidia revealed that he initially started as a trader for Alameda Research before transitioning to FTX as a software developer from January 2021 to November 2022. During his tenure, Yedidia reported to former FTX engineering director Nishad Singh while also having informal ties to FTX co-founder Gary Wang and Bankman-Fried himself.

One crucial piece of information Yedidia disclosed was that, according to his understanding, the ultimate beneficiaries of the profits generated from Alameda Research’s trading on FTX were Bankman-Fried and Wang. This sheds light on the interconnectedness of various entities within the blockchain industry, where trading activities can have ripple effects across different organizations.

Yedidia also detailed his involvement in the development of a code aimed at automating customer deposits and withdrawals on FTX. He mentioned that Bankman-Fried was heavily involved in the project as well. Initially, Yedidia believed that customer deposits were being sent to an FTX bank account. However, he later discovered that FTX encountered difficulties in opening a bank account, leading to deposits being redirected to an account controlled by Alameda Research named North Dimension Inc.

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Customers were instructed to send their deposit funds to the North Dimension account, unaware that it was controlled by Alameda Research. This arrangement was purportedly disclosed to Yedidia by either Singh or FTX’s head of settlements, Ray Salame. It wasn’t until later in 2021 that FTX managed to open a bank account under the name “FTX Digital Markets,” giving customers the option to send funds directly to FTX. Nevertheless, Yedidia noted that some customer deposits continued to flow into the Alameda Research-controlled account.

To track customer deposits accurately, FTX maintained an internal database called “Fiat at FTX.com,” which contained information rather than actual monetary funds. Yedidia clarified that the sum of customer deposits should equal the liability recorded in the “Fiat at FTX.com” account.

However, Yedidia revealed that the automated code he helped develop contained a bug. While customer withdrawals correctly lowered the liability recorded in the “Fiat at FTX.com” account, the bug failed to decrease Alameda Research’s liability to FTX, as intended. Although Yedidia did not specify who informed him about the bug, he did mention discussing it with Bankman-Fried.

The bug persisted for approximately six months, resulting in an overstatement of Alameda Research’s liability by $500 million. The issue was not fixed until around June 2022, with Yedidia himself taking the responsibility for resolving it. When the bug was eventually rectified, Alameda Research’s liability in the “Fiat at FTX.com” account decreased from $16 billion to $8 billion.

During the trial, Yedidia expressed concern regarding the significant remaining liability, prompting Bankman-Fried to reassure him by claiming that the company was “bulletproof” both in the past year and within the next six months to three years. While Yedidia understood “bulletproof” to mean financial robustness, this statement raises questions about the overall stability and risk management practices within the blockchain industry.

Furthermore, Yedidia revealed that the “People of the House” – a group of individuals living together in the luxury Albany Resort in the Bahamas, including himself, Bankman-Fried, and others – utilized the Signal messaging app for communication. He specifically mentioned using Signal to share documentation related to the bug fix with Bankman-Fried. Interestingly, Yedidia noted that the app was set to automatically delete messages after a certain period, supposedly to mitigate potential regulatory risks. This practice sheds light on the delicate relationship between regulation and privacy concerns in the blockchain industry.

In summary, Yedidia’s testimony during Sam Bankman-Fried’s trial provides valuable insights into the inner workings of the blockchain industry, showcasing the intricate relationships between different entities and shedding light on the technical and operational challenges faced by companies like FTX. This case serves as a reminder of the importance of robust risk management practices, transparent operations, and effective communication within the industry. As the blockchain industry continues to evolve, it becomes increasingly crucial for companies and regulators alike to address these challenges and ensure the long-term stability and trustworthiness of cryptocurrency exchanges and platforms.