Another crypto fund manager Babel Finance freezes withdrawals.
The company Babel Finance was founded in 2018, offering crypto lending, asset management and prime financing services. The company operated from Hong Kong, Luxemburg, Singapore, and the UK. Importantly, it also structured billions of dollars worth of crypto derivatives, especially options. The company’s co-founders are Flex Yang and Del Wang. Investors include Tiger Global Management, Jeneration Capital, 10T Holdings, Dragonfly Capital, Boyu Capital, and BAI Capital. On May 25, it raised $80 million at an upsized $2 billion valuation. At the time, the company boasted 500 clients. It had increased its loan balance 33% from February to December. Moreover, it claimed responsibility for $20 billion worth of notional options activity during fiscal 2021.
There seems to be a consistent theme in the cryptocurrency lender and asset manager space in not understanding the idea of assessing risk. Babel Finance becomes another example by renegotiating its massive $3 billion loan balance. On June 17, the company suspended all redemptions and withdrawals, citing “severe market volatility.” Alarmingly, it’s conducting “an emergency assessment” of creditors’ cash demands. The crypto markets took a severe hit from the Terra Luna crash alongside the Ukraine war and economic uncertainty throughout the entire world. People are steadily moving capital out of traditional markets as well, waiting to see when the next move should be.
Babel is now prohibiting withdrawals not too long after Celsius made a similar move with also making claims to have reached “preliminary agreements on the repayment period of some debts” which has “eased the company’s short-term liquidity pressure.” However, the company has not responded to several journalists’ inquiries about its overall solvency.
Babel Finance traded actively on centralized and decentralized crypto exchanges. For the most part, it dealt in BTC, ETH, USDT, USDC, and derivatives thereof. It claimed to use more conservative leverage than its competitors: 3X versus an industry average approaching 10X, in its estimation though there is no third-party audit that can confirm this claim. Options notion the right to buy or sell at a predetermined price and time. Importantly, the leverage of a typical options contract is usually 10X. That leverage multiplier can increase for over-the-counter and non-standard contracts. Like so many of its competitors in the allegedly transparent DeFi world, Babel does not disclose its notional exposure to the derivatives that it’s structured.
Customers are currently in limbo by not being allowed to withdraw any funds. The Twitter has suspended as well citing policy violations. (Babel claims it was hacked.) As the markets continue to sit at these levels we will continue to see who really has the appropriate balance sheets to weather the storm.
