Wednesday, October 5, 2022

Babel Finance Loses $280M Customer’s Fund in Proprietary Trading 

Crypto lender, Babel Finance played with customers’ funds and ended up with a loss worth about $280 million in Bitcoin (BTC) and Ethereum (ETH). The Hong Kong-based crypto lender had gotten involved in proprietary trading with huge funds belonging to its customers.

From the restructuring proposal deck which Babel released, it was confirmed that a total of 8,000 BTC and 56,000 ETH were lost. The loss was attributed to the failure of the proprietary trading.

According to the deck, “In that volatile week of June when BTC fell precipitously from 30k to 20k, unhedged positions in [proprietary trading] accounts chalked up significant losses, directly leading to forced liquidation of multiple Trading Accounts and wiped out ~8,000 BTC and ~56,000 ETH,”

The restructuring proposal deck explained that the proprietary trade was actually executed outside the company’s regular operations. The proprietary trading team went about the transaction without being monitored or controlled by the appropriate authority. Therefore, there was no profit and loss report neither was there a trading mandate and no risk control was implemented on the affected accounts.

Babel Finance Might Transition Creditors to Shareholders 

As part of its restructuring plans, Babel Finance plans to make a move that will transition its largest creditors into shareholders. The crypto lender will convert $150 million of its biggest creditor’s debt to convertible bonds. Next is its business restoration plans. It will spawn between $250 million to $300 million in convertible bonds to obtain a revolving credit of $200 million again from its creditors.

Generally, Babel wants to secure hundreds of millions of dollars in debt and equity and then raise more funds in a revolving credit facility. 

While taking stock of all the crypto lender has been through in the past month of the year, there have some silver lining in the Babel cloud. Amid the scorching crypto winter, Babel Finance raised its valuation to $2 billion after successfully raising $80 million in a round. 

The successful round was a far cry from what the lender faced in June. It was confronted with liquidation and had to abruptly halt withdrawals on its platform. It joined other crypto firms like Three Arrows Capital (3AC) and Celsius which had been dealt with by the prevalent extreme market conditions. 

Victoria Nye
A Blockchain columnist who is enthusiastic about developing a network interface between the real world and the cryptosphere.

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