Babel lost over $280M trading with customer funds; wants to raise up to $300M

Embattled crypto lender Babel Finance lost over $280 million while trading with customer funds, The Block reported July 29, citing the firm’s restructuring proposal deck.

The report said that Babel Finance lost around 8,000 Bitcoin (BTC) and 56,000 Ethereum (ETH) in June when it faced forced liquidation of its positions due to the market downturn.

The deck read:

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

Owing to these losses, Babel’s lending and trading departments could not meet margin calls from counterparties, the report said. The firm’s woes can be attributed to the Proprietary Trading team’s failure, the deck said.

The deck further revealed that Babel Finance’s proprietary trading team had free reign and failed to hedge risk. The team handled multiple trading accounts that were not controlled or monitored by the firm’s trading department, the deck showed. Additionally, the proprietary trading team had no trading mandates or safeguards against risks and did not report any profit or loss.

The proprietary trading team also operated in the dark, such that their buy and sell orders were “not supported by any term sheets and thus were not recorded in [the] system,” as per the deck. Moreover, there was no trading cap for the team and Babel’s wallet management team “released uncapped amount of funds” to the trading accounts controlled by the team, the report said.

A Babel Finance spokesperson told The Block that the firm is —

“working closely with clients, investors and other stakeholders and external advisors during this very difficult time in the industry as we believe that is the best path for a full recovery and value maximization for all the parties.”

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