Babel Finance used customer money to trade with a loss of 280 million USD

Babel Finance lost about 8,000 BTC and 56,000 ETH, worth $280 million, because of trading losses. Notably, this is the user’s funds deposited into the platform.

Loss of $280 million

Follow The Block, Babel Finance lost about 8,000 BTC and 56,000 ETH, worth $280 million, because of trading losses. On June 17, 2022, the platform announced to block withdrawals and has not reopened since.

“During the tumultuous week of June when the BTC price plummeted from $30,000 to $20,000, Babel’s unhedged positions suffered heavy losses. So Babel was liquidated and ultimately resulted in a loss of 8,000 BTC and 56,000 ETH.”

Because of these losses, Babel’s lending and trading division was unable to respond to Margin Calls from counterparties.

“Conclusion: The reason for failure was that Babel’s proprietary trading division, which was outside of its core business, suffered heavy losses that affected the entire company.”

The proprietary trading department operates a number of trading accounts that are not hedged, have no risk management mechanism and do not report Profit/Loss to Babel’s system. Or to put it simply:

Babel Finance used customers’ money to make extremely risky transactions, without hedging assets.

This is not the first time Babel has done this. Back in October 2020, many leaked sources said that the company used user funds to trade BTC during the extremely risky time of Black Friday.

At that time, Tether was said to have “rescued” Babel Finance, extending the Margin Call time to 1 month to give Babel more time to raise collateral.

However, this time, no one was able to rescue Babel.

Restructuring plan

A spokesperson for Babel Finance declined to comment on the loss, but said:

“The company is working closely with customers, investors, stakeholders and external advisors during this very difficult time. Babel believes this is the only way to fully recover the company and maximize value for all parties.”

After reaching debt agreements with partners, Babel is now looking to raise hundreds of millions of debt assets and equity investments. Specifically, Babel is intending to:

– Converting USD 150 million of the largest creditor’s debt into convertible bonds;

– Mobilize from USD 250 million to USD 300 million in the form of convertible bonds;

Secure a $200 million revolving credit loan from creditors “for business recovery”.

If successful, the plan would turn Babel’s biggest creditors into the company’s shareholders.

Babel Finance is not the only name affected by the liquidity crisis that is spreading across the cryptocurrency market. Three major companies have filed for bankruptcy, including Celsius, Three Arrows Capital (3AC) and Voyager Digital.

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