Babel Finance loses 280 million dollars placed by its clients

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The overwhelming document showed that the centralized financial platform (CeFi) lost the equivalent of the $ 280 million invested by its users. Babel Finance was already in turmoil and is now working on a final bailout plan. Explanations.

Negligent risk?

Babel Finance is an investment platform founded in 2018 and based in Hong Kong. The company specializes in cryptocurrency lending and lending, as well as fund management.

A revealing document dated July 20 leaked this week. First, we learn that the company is developing a restructuring plan. Following the collapse of Terra USD (UST) and LUNA, as well as due to the bear market, the company has tentatively confirmed its suspicions that it would have liquidity problems.

Thus, the announcement of the study of the global restructuring plan confirms that times are serious for Babel Finance. Furthermore, in this document, we learn that 8,000 Bitcoin (BTC) and 56,000 Ethereum (ETH) have been lost due to the investment of its customers. Total losses are estimated at 280 million dollars.

June 17 is the turn of Babel Finance payments are suspended on its platform. The reason cited at the time was “unusual liquidity pressure”. We now know that it is not just the bear market to blame.

In an article published this week, we can read:

During that volatile week in June when BTC plummeted from 30,000 to 20,000, unhedged account positions suffered significant losses. This led directly to the forced liquidation of several trading accounts, resulting in the loss of 8,000 BTC and 56,000 ETH.

Given the magnitude of these losses, the company was unable to meet the margin requirements of its counterparties, which led to the dilution of some clients’ assets.

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Babel Finance distances itself from its resellers

In a leaked report, Babel Finance condemns the transactions conducted by its traders. The company stated:

“The failed trades of a team of proprietary traders are outside the normal course of business for a company that would otherwise have run smoothly with proper management and supervision. “

Despite these revelations, the platform still prides itself on using robust, systemic risk scoring models to “protect assets”. In the document, Babel Finance states that the commercial team responsible for this terrible loss was “out of control and out of control”.

He added that no commercial mandates or risk controls were established during these operations. He adds: “The orders from the Babel sales team were not supported by any set of conditions and therefore were not registered in the system. “

The company has already played with client funds and lost

In October 2020, Babel Finance’s failed transactions with their clients’ funds were made public. It was then that it was revealed that the company was using its users’ funds to put itself in a risky position on the eve of Bitcoin. The Black Thursday incident. This date is remembered due to the fact that on March 12, 2020, BTC suffered one of the most spectacular falls in its history. The cryptocurrency, valued at $ 7,900 at the time, plummeted to $ 3,600 in one day.

At the time, Tether stepped in to help save Babel Finance. To this end, the company allowed Babel to extend its margin requirement to buy time to strengthen its collateral.

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Towards a new restructuring plan?

If Babel Finance did well in 2020, we could now ask ourselves if 2022 will deliver the coup de grace. In fact, the company is aiming for this year. Raise hundreds of millions of dollars improve your financial situation and survive.

To this end, Babel Finance wants to convert its debt into shares. As a first step, this would require converting $ 150 million of major creditors’ debt into bonds. In the second phase, US $ 250 million to US $ 300 million will be converted in the same way. Finally, the company wants a $ 200 million loan to restore its operations on its terms.

If this plan goes ahead, Babel Finance’s current lenders will become its shareholders. However, this cannot be done without her confidence in her future and the ability to get out of the turmoil.

Note that the company currently counts on the support of major players such as Dragonfly Capital, Circle Ventures and Sequoia Capital. Additionally, Babel Finance won a funding round held last May. $ 80 million They have been deleted. At the time, the company was valued at $ 2 billion.

The company has not yet commented on the revelations relating to its restructuring proposal. The future of the Hong Kong company is now in the hands of its creditors, unless a generous rescuer takes his own fate in hand.

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