Struggling cryptocurrency lenders, Babel Finance reportedly lost over $280M of customer funds in proprietary trading. The embattled crypto lender stopped withdrawals from it’s platform last month after they lost 8,000 BTC and 56,000 ETH last month due to the negative market downturn.
In the most volatile week of June, BTC fell from $30,000 to $20,000. Due to this price fall, Babel Finance’s unhedged positions in their trading accounts hit significant losses. This led to the liquidation of multiple trading accounts and the loss of 8,000 BTC and 56,000 ETH. These significant losses crippled Babel Finance and stopped them from meeting margin calls from their counterparts.
The Company blamed the proprietary trading failure for it’s recent struggles. However, they knew how risky proprietary trading is and the firm failed to hedge the risk. They were not only careless with customer funds but also operated without transparency as several trading accounts they operated were not controlled by the Trading department neither were any risk controls put in place for these accounts.
Their biggest mistake is that the firm did not set a trading cap for their trading team. Their wallet management team just kept releasing unlimited funds to their trading account. This was a gross mismanagement of funds and the cryptocurrency market downturn has heightened the consequences of these actions.
However, this is not the first time that the firm has been accused of mismanaging customer’s funds. A recording leaked in 2020 revealed that the firm used undocumented users funds to leverage a long position on BTC and was at a huge risk of default during the year.
Babel Finance still sees a way out of their current financial debacle as they have put together a restructuring plan of raising about $650 Million through debt investments and equity. Mostly, the plan hinges on creditors who will then become the largest shareholders in the firm should everything go on as planned. Tether has already extended the deadline for the firm’s margin calls by a month.
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