Babel Finance, the Hong Kong-based crypto lender, apparently had other designs when its worldwide user base handed over their crypto to the company than just borrowing and lending. It seems to have been doing what everyone else does with crypto, rapidly speculating and trying to make “line go up.” Of course, all that changed when the line no longer went up.
The Block reported based on restructuring proposal documents that Babel Finance had lost 8,000 bitcoin and 56,000 ether in June, worth close to $US280 ($AU401) million, though of course the price is constantly fluctuating. The company had apparently been conducting proprietary trading with customers’ funds. It remains unclear based on reporting if users were/are aware their crypto was/is being used in this way. The company has not put out any formal statement about the issue, and did not immediately respond to Gizmodo’s request for comment through the main company email.
The documents were reportedly dated for July but they detail the company’s losses last month when it suffered liquidation due to the crypto bear market in June. According to the report, Bitcoin’s fall to $US20,000 ($AU28,668) “chalked up significant losses” leading to the liquidation of multiple trading accounts, taking the thousands of crypto with it. Last month, the company halted withdrawals on its platform, around the same time all this was going down, describing “major fluctuations” in the market.
The restructuring proposal deck further described a “single point of failure” with their propriety trading team, basically throwing the workers under the bus for operating “outside the company’s normal business, which has otherwise been running smoothly.” However, the company’s attempts at speculation in the crypto market drastically failed with the overall market downturn. The company apparently did not think to hedge their bets on these accounts, and their trading operations weren’t even recorded in their internal system.
The company essentially acts as a “bank” for crypto, with savings and lending services, though of course any company worth their salt in the crypto-sphere avoids the connotation of “bank” whenever possible. Babel promotes several services including its lending and borrowing arm, asset management, and some crypto mining.
But despite the company’s finger pointing, Babel has been shown to be fast and loose with user funds in the past. Back in 2020, CoinDesk reported based on leaked private conversations between co-founder Del Wang and another, unknown person that the company was leveraging user funds, and that some of those activities had blown up in their face during a market crash.
The company later wrote that during that so-called “Black Friday crash” that they had started to gradually “increase hedge position through options.”
Babel’s point of failure has not just been hurting itself, but other exchanges that had been working alongside it. Friday reports showed the Thailand-based exchange Zipmex filed for bankruptcy protection, saying it had around $US48 ($AU68) million invested in Babel and another $US5 ($AU7.17) million in fellow failed crypto trading platform Celsius.
Babel does have a plan to restructure after all this mess, with plans to convert $US150 ($AU215) million of creditors’ debt into bonds, then raise more in investments. The company has previously shown a $US2 ($AU2.87) billion valuation thanks to institutional investors, so who’s to say how this will all shake out?