Babel Finance lost 8,000 BTC and 56,000 ETH in proprietary trading with customer funds, according to a restructuring proposal deck obtained by The Block.
According to the deck, which is dated July 2022, Babel Finance lost more than $280 million in ether (ETH) and bitcoin (BTC) as a result of its private trading failure. In particular, it suffered losses of almost 8,000 BTC and 56,000 ETH in June after being forced to liquidate because of a severe market decline.
“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,”
According to the deck
The lending and trading divisions of Babel were unable to satisfy counterparties’ margin requests as a result of these significant losses.
“Conclusion: Single point of failure – The Proprietary Trading team’s failed operation falls outside of the company’s normal business which has otherwise been running smoothly with proper management and control,”
The proprietary trading team at Babel reported that their orders “were not backed by any term sheets and, thus, were not registered in system”. Additionally, the company’s personnel in charge of managing wallets “distributed limitless amount of funds” to trading accounts run by its proprietary trading team.
According to reports, Babel Finance has already tampered with consumers’ money. Leaked audio recordings from October 2020 showed that the company had used some customer cash to leverage a bitcoin trade and was at risk of default following the Black Thursday market fall that year.
Tether reportedly intervened at the moment to save Babel Finance. According to reports, the stablecoin issuer extended Babel’s margin call dates to a month so that the company would have more time to increase its collateral.
Babel Finance’s restructuring proposal
As part of its rescue plan, Babel now seeks to raise hundreds of millions of dollars in debt and equity investments.
First, it seeks to convert $150 million of the biggest creditors’ debt to convertible bonds.
Additionally, it looks to raise $250 million to $300 million in convertible bonds and then secure a revolving credit of $200 million from creditors “for business restoration.”
The plan, if successful, would turn Babel’s largest creditors into shareholders.
It remains to be seen whether Babel, which is backed by high-profile investors including Sequoia Capital China, Dan Tapiero’s 10T Holdings, Dragonfly Capital and Circle Ventures, will be able to raise fresh capital.
Just days before its financial woes, Babel had raised $80 million at a $2 billion valuation.
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