Babel Finance lost over $280 million in client funds due to risky trades, Eyes Fundraising

Struggling crypto lender Babel Finance lost over $280 million in client funds in the trade.

The crypto lender, which stopped withdrawals last month, lost 8,000 Bitcoin and 56,000 ETH last month due to liquidation resulting from the market slowdown at the time.

Part of the bridge apparently reads,

During that volatile week in June, when BTC fell precipitously from 30,000 to 20,000, unhedged positions in [proprietary trading] accounts experienced significant losses, directly leading to the forced liquidation of several trading accounts and wiping out ~8,000 BTC and ~56,000 ETH.

The losses made it impossible for Babel to meet its counterparty margin calls. The bridge blamed the company’s current difficulties on the failure of its own business.

Business failure blamed for woes

Moreover, he revealed that even though proprietary trading was considered risky, the team failed to hedge the risk.

The Proprietary Trading Team maintains multiple trading accounts not controlled or monitored by the Trading Department; no trading mandate or risk control has been put in place for these accounts; no NLP [profit and loss] has been reported.

Not only were they negligent with client funds, but the proprietary trading team also operated without transparency. There was no term sheet supporting their buy and sell orders, and there was no record in the system.

Additionally, the company failed to set a trading cap for the team, and the wallet management team released unlimited funds to accounts controlled by the trading team.

This isn’t the first time Babel has been accused of mismanaging user funds, however.

A leaked record in 2020 revealed that the company leveraged user funds to maintain a long position in BTC and was at risk of defaulting during the year.

Babel Eyes Fundraiser

Meanwhile, the lender may still be able to pull itself out of this hole with the restructuring plan to raise around $650 million through equity and debt investments.

The bulk of the plan rests with the creditors, who will become the company’s major shareholders if the plan works. Already, Tether has extended the deadline for margin calls for the company by one month.

A spokesperson for Babel said the company is “working closely with customers, investors and other stakeholders and outside advisors during this very challenging time for the industry, as we believe this is the best path to full recovery and maximization of value for all parties”.

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