FTX Customers Were Credited With Notional Balances While Their Deposits Remained In Alameda’s Account

That scale at which FTX, the failed crypto exchange founded by Sam Bankman-Fried, was mismanaging customer funds continues to be brought to light, with Bankman-Fried confirming that the exchange was selling clients Bitcoin that did not exist during a live Twitter Space on Dec. 1.

During the conversation, Ran Neuner, the host of the Crypto Banter podcast, asked Bankman-Fried to explain why FTX’s spot exchange customers’ assets were missing when the exchange filed for bankruptcy. 

SBF noted that since 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 custodied on their behalf by the exchange.

Notional Balances

Bankman-Fried responded that he believes customers were indeed “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 SBF 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.”