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Babel Finance, a struggling cryptocurrency lender, lost almost $280 million of its customers' cash in trading.
- Babel Finance, a troubled cryptocurrency lender, lost almost $280 million due to reckless trading methods.
- Babel was unable to fulfill its counterparties' margin calls as a result of the losses.
- Babel is considering fresh fundraising efforts to help it climb out of its hole.
The crypto lender, which stopped accepting withdrawals last month, lost 8,000 Bitcoins and $56,000 ETH owing to market decline at the time.
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.
Babel was unable to fulfill its counterparties' margin calls as a result of the losses. The collapse of the firm's Proprietary Trading was placed on the deck.
Trading failure is being blamed for the company's woes.
Furthermore, despite the fact that proprietary trading was created to be dangerous, the team failed to hedge the risk.
The Proprietary Trading team operates several Trading Accounts not controlled or monitored by Trading Department; no trading mandate or risk controls were implemented for these accounts; no PnL [profit and loss] was reported.
Not only were they irresponsible with their clients' finances, but the proprietary trading crew also lacked transparency. There was no term sheet to back up their purchase and sell orders, and no record existed in the system.
Furthermore, the business neglected to create a trading restriction for the team, and the wallet management team distributed limitless cash to the trading team's accounts.
This is not, however, the first time Babel has been accused of mishandling of user cash.
According to a leaked 2020 recording, the business used customer cash to maintain a long position on BTC and was at risk of default during the year.
Fundraising for Babel Eyes
Meanwhile, the lender may be able to dig itself out of this hole with a restructuring plan that involves obtaining $650 million in stock and debt investments.
The majority of the proposal is dependent on creditors, who will become the firm's largest shareholders if the plan succeeds. Tether has already delayed the firm's margin call date by a month.
According to a Babel spokeswoman, the company is "working closely with clients, investors, and other stakeholders, as well as external consultants, at this very challenging moment in the sector since we believe that is the best road for a full recovery and value maximizing for all parties."
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