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 loans and lending. It seems to have done what everyone else does with crypto, quickly speculated and tried to get the “line to go up.” Of course, this all 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 $280 million, although of course the price is constant swinging. The company had apparently carried on proprietary trading with the customers’ funds. It is still unclear based on reporting whether users were/are aware that their crypto was/is being used in this way. The company has not released a formal statement on the issue, and did not immediately respond to Gizmodo’s request for comment through the company’s main email.
The documents were reportedly dated July, but they detail the company’s losses last month when it was liquidated due to the crypto bear market in June. According to the report, Bitcoin’s fall to $20,000 “calculated significant losses” that led to the liquidation of several trading accounts, taking thousands of cryptos with it. Last month, the company stopped withdrawal on its platform around the same time all of this went down, describing “big swings” in the market.
The restructuring proposal Deck further described a “single point of failure” with its defense trading team, basically throwing the workers under the bus for operating “outside of the company’s normal business, which has otherwise been running smoothly.” However, the company’s attempt at speculation in the crypto market failed drastically with the general market downturn. The company apparently did not think to hedge their bets on these accounts and their trading operations were not even recorded in their internal system.
The company essentially acts as a “bank” for crypto, with savings and lending services, although of course any company worth its salt in the cryptosphere avoids connotation of “bank” when possible. Babel markets several services, including its lending and borrowing department, asset management and some crypto mining.
But despite the company’s finger-pointing, Babel has proven to be fast and loose with user tools in the past. Back in 2020, CoinDesk reported based on leaked private conversations between co-founder Del Wang and another, unidentified person that the company was exploiting user funds, and that some of that activity had blown up in their faces during a market crash.
The company wrote later that during the so-called “Black Friday crash” they had begun to gradually “increase the hedging position through options.”
Babel’s point of failure has not only been to harm itself, but other exchanges that had worked alongside it. Friday reports showed the Thailand-based exchange Zipmex filed for bankruptcy protectionand said it had invested about $48 million in Babel and another $5 million in another failed crypto trading platform Celsiuspp.
Babel has a plan to restructure after all this mess, with plans to convert $150 million of creditors’ debt into bonds, so get more in investments. The company previously showed a $2 billion valuation thanks to institutional investors, so who’s to say how this will shake out?