Babel Finance lost $280 million trading with customer funds

The company lost about 8 000 BTC and 56 000 ETH in June, facing liquidations due to a significant downturn in the market

29.07.2022 - 15:40

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What’s new? Asian lending platform Babel Finance, which suspended withdrawals last month, suffered heavy losses on trades using customer funds, The Block reported, citing a restructuring proposal document. The company lost more than $280 million in bitcoin and Ethereum in June, facing liquidations due to a significant market downturn.

Information on The Block's website

What does the document say? Company representatives explained the losses as follows:

“In that volatile week of June when BTC fell precipitously from $30 000 to $20 000, 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.”

Because of these losses, Babel's lending and trading departments were unable to meet the margin calls from counterparties.

Specifically, the platform owes $48 million to crypto exchange Zipmex. Zipmex had previously suspended withdrawals, citing financial difficulties with key partners. The exchange also went to court to obtain a 6-month moratorium on proceedings with creditors, among other things, in order to gain time to reclaim Babel's loan.

What is the essence of the restructuring proposal? As part of its recovery plan, Babel seeks to convert $150 million of debt to its biggest creditors into convertible bonds, raise another $250 million to $300 million in convertible bonds, and then get a $200 million revolving loan from it.

To learn about how Celsius, another bankrupt lending platform, lost hundreds of millions of dollars of its customers in high-risk schemes, see this GetBlock Magazine's article.

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