Yedidia’s FTX Testimony: Coding Glitch, Alameda’s $8 Billion Liability, and SBF’s ‘Bulletproof’ Reassurance

The FTX saga continues to unfold, and the latest testimony from Adam Yedidia, a former FTX insider, has dropped some bombshell revelations. Yedidia, once a college roommate of Sam Bankman-Fried (SBF) and an early FTX employee, took the stand, painting a picture of technical mishaps, massive liabilities, and SBF’s seemingly nonchalant reassurances. Let’s dive into the key takeaways from Yedidia’s testimony and what it means for the ongoing FTX trial.

Who is Adam Yedidia and What Was His Role at FTX?

To understand the significance of Yedidia’s testimony, it’s crucial to know his background and role within the FTX empire. Here’s a quick snapshot:

• College Days with SBF: Yedidia and Sam Bankman-Fried were roommates during their college years, establishing an early connection.
• Early FTX Employee: He joined FTX in its early days, gaining firsthand insight into the exchange’s operations.
• From Trader to Developer: Yedidia started as a trader at Alameda Research, FTX’s sister trading firm, before transitioning to a software developer role at FTX in January 2021.
• ‘People of the House’: During his time in the Bahamas, Yedidia resided at the luxurious Albany Resort, part of the inner circle known as the “people of the house.”
• Reporting Structure: He reported to Nishad Singh, FTX’s former engineering director, and informally to Gary Wang (FTX co-founder) and Sam Bankman-Fried himself.

This close proximity to the core FTX team gives Yedidia’s testimony considerable weight. His insights aren’t from an outsider looking in, but from someone deeply involved in the day-to-day operations, particularly on the technical side.

The Glitch in the Machine: Automating Deposits and Withdrawals

One of the most critical aspects of Yedidia’s testimony revolved around a program he developed – a system to automate customer deposits and withdrawals for FTX. This sounds straightforward, but the execution and subsequent discoveries revealed a tangled web.

Initial Setup and the North Dimension Account

Initially, the plan was for customer deposits to go directly into an FTX bank account. However, Yedidia revealed that FTX faced hurdles in setting up a bank account. The workaround? Directing customer deposits to an account named North Dimension Inc. Here’s the catch:

• Alameda Control: North Dimension Inc. was an entity controlled by Alameda Research.
• Customer Unawareness: Customers depositing funds were allegedly unaware that their money was going into an Alameda-controlled account, believing it was directly going to FTX.
• Information Source: Yedidia stated that he learned about this arrangement from either Nishad Singh or Ray Salame, FTX’s head of settlements.

Later, FTX did manage to open a bank account under the name “FTX Digital Markets,” providing customers with another deposit option. However, even after this, a portion of customer deposits continued to flow into the Alameda-linked North Dimension account. This commingling of funds would later become a central point of concern.

Tracking Deposits: ‘Fiat at FTX.com’

FTX used an internal database to track deposits under an account named “Fiat at FTX.com.” It’s important to note that this wasn’t an actual bank account holding funds, but rather a record-keeping system. Think of it as a digital ledger. According to Yedidia, the total customer deposits should have matched the liability reflected in this “Fiat at FTX.com” account.

The $500 Million Bug: A Coding Error with Huge Implications

This is where things take a turn. Yedidia disclosed a significant bug in the automation code he had developed. This bug, active for about six months, had a staggering impact:

• Withdrawals Correctly Reflected: The code accurately recorded customer withdrawals in the “Fiat at FTX.com” account.
• Alameda Liability Error: However, the bug failed to reduce Alameda Research’s liability to FTX when withdrawals were made. Essentially, the system wasn’t correctly accounting for money moving out of FTX that was linked to Alameda’s obligations.
• Inflated Liability: This resulted in an artificial inflation of Alameda Research’s liability to FTX by a whopping $500 million.
• Duration: This error persisted for approximately six months, from late 2021 until around June 2022.
• Discovery and Fix: The bug was brought to Yedidia’s attention by Gary Wang or Nishad Singh. Yedidia then discussed it with Bankman-Fried and ultimately rectified the code in mid-June 2022.

This $500 million discrepancy highlights a critical failure in FTX’s internal controls and technical infrastructure. A seemingly small coding error ballooned into a massive misrepresentation of Alameda’s financial obligations.

The $16 Billion Liability and the ‘Correction’ to $8 Billion

Yedidia’s testimony revealed the sheer scale of Alameda’s liability on FTX’s books. When he fixed the $500 million bug, the “Fiat at FTX.com” account showed:

• Initial Figure: Alameda Research liability was recorded at $16 billion.
• Post-Fix Adjustment: After correcting the bug, this figure was revised down to $8 billion.
• Visibility: This significant adjustment was visible to others within the company, indicating a potentially widespread awareness (at least within the inner circle) of the massive sums involved.

The reduction from $16 billion to $8 billion, even after fixing a $500 million bug, underscores the enormous financial entanglement between FTX and Alameda Research. It begs the question: What exactly constituted this $8 billion liability, even after the correction?

SBF’s Reassurance: ‘Bulletproof’ and Signal Messages

Understandably concerned about the remaining $8 billion liability, Yedidia voiced his worries to Sam Bankman-Fried. SBF’s response, as recounted by Yedidia, was…reassuring? Or perhaps dismissive, in retrospect.

According to Yedidia, Bankman-Fried asserted that FTX had been “bulletproof” in the past year and would regain that status within six months to three years. Yedidia interpreted “bulletproof” to mean financially sound and robust.

This reassurance contrasts sharply with the eventual collapse of FTX and the revelation of massive financial mismanagement. It raises questions about SBF’s awareness of the true financial situation and whether these reassurances were genuine or attempts to downplay serious risks.

Signal and Deleted Messages: A Culture of Opacity?

Yedidia also shed light on the communication practices within the “People of the House.” They primarily used the Signal messaging app, known for its encryption and privacy features. Crucially, messages were set to automatically delete after a certain period.

Why the disappearing messages? Yedidia quoted Bankman-Fried’s rationale: Retaining messages had a “downside.” SBF reportedly believed that if regulators discovered something unfavorable in the messages, it could cause trouble for the company.

This practice of auto-deleting messages raises eyebrows and suggests a culture of opacity and a potential desire to avoid scrutiny. While not inherently illegal, it certainly paints a picture of a company operating with a degree of secrecy, especially when dealing with sensitive financial matters.

Key Takeaways from Yedidia’s Testimony

Yedidia’s testimony offers a glimpse into the inner workings of FTX and Alameda Research, highlighting several critical points:

• Technical Deficiencies: A seemingly simple coding error had significant financial consequences, exposing weaknesses in FTX’s technical infrastructure and internal controls.
• Alameda’s Dominance: The deep financial entanglement between FTX and Alameda Research is further underscored, with Alameda holding a massive liability on FTX’s books and controlling accounts receiving customer deposits.
• SBF’s Reassurances vs. Reality: Bankman-Fried’s “bulletproof” reassurances stand in stark contrast to the eventual collapse, raising questions about his awareness and transparency.
• Culture of Secrecy: The use of Signal with auto-deleting messages hints at a culture of opacity and a potential desire to avoid regulatory oversight.
• Prosecution’s Narrative: Yedidia’s testimony, given under immunity and called by the prosecution, likely strengthens the narrative of financial mismanagement and potential fraud at FTX.

What’s Next?

Adam Yedidia’s testimony is just one piece of the puzzle in the ongoing FTX trial. As the trial progresses, we can expect more revelations and insights into the events leading to FTX’s downfall. The focus will likely remain on the flow of funds between FTX and Alameda, the extent of knowledge and involvement of key figures like Bankman-Fried, and the overall operational and ethical standards at the heart of this crypto empire.

Stay tuned as the FTX saga continues to unfold, promising more twists and turns in this high-stakes courtroom drama.