The Collapse of Babel Finance

The Collapse of Babel Finance

Babel Finance, a Hong Kong based company, on Friday suspended its withdrawal. Babel wrote on Friday 17th, 2022 that “redemptions and withdrawals from Babel Finance products will be temporarily suspended.”

The company cited “unusual liquidity pressures” as the reason for its decision to pause services, noting that the cryptocurrency market has seen “major fluctuations” of late.

Babel added that it is in “communication with all related parties” on actions that may affect them. Babel did not name those parties; however, it is known to work with various companies including Genesis Capital, Bitgo, and Blockchain.com.

The firm did not make it clear if or when services will be restored, but said that this will be indicated in a separate notification.

In May, Babel announced it had raised $80 million in a funding round, bringing its valuation to $2 billion. It reported 500 clients and an outstanding loan balance of $3 billion at that time.

Babel Alludes to Other Crypto Crises

Babel added that other crypto firms have seen “experienced conductive risk events” over the past several days.

Though Babel did not name those firms, it is likely referring to Three Arrows Capital, which has reportedly seen liquidations of $400 million from various companies. Those liquidations were likely carried out by Genesis Trading and BlockFi among others.

The firm may also be referring to Celsius Network, which paused customer withdrawals on Monday, June 13. Celsius saw massive withdrawals as a result of the collapse of TerraUSD, compelling it to suspend its services on that day.

Combined with the fact that Bitcoin is priced near $20,500—a low not seen since December 2020—these lending crises make it unlikely that the above firms will make a rapid recovery.

Babel Finance Looks to Solve Liquidity Crisis

Last week, the firm suspended withdrawals citing unusual liquidity pressure amid extreme market conditions. Babel Finance in an official announcement on June 20 said the firm is taking several steps to solve its liquidity crisis. A statement on the website reads:

“We have communicated with major counterparties and relevant customers, and reached preliminary agreements on the repayment period of some debts, which has eased the company’s short-term liquidity pressure.”

Moreover, Babel Finance is currently carrying out an emergency assessment of business operations in order to understand the company’s liquidity status.

The Babel Finance management is actively communicating with shareholders and potential investors to solve or ease the liquidity pressure.

However, Babel Finance has committed to continue providing updates in a timely and transparent manner to its customers, counterparties, and other partners. Moreover, the firm will fulfill its legal responsibilities and work on preventing liquidity risks in the future.

“We thank our customers for their understanding and support during this period, and hope to obtain further support from our partners.”

Conclusion

Novogratz CEO of Digital Galaxy believes the crypto market has suffered the most because of recurring negative events over the past month.

These include a long list of market players with monster leverage, such as Celsius, Three Arrows, Finbolx, and Babel Finance which has created fear, uncertainty, and doubt (FUD) among investors.

Mike Novogratz further stated that even though prices are down, over 130 million investors still see Bitcoin as a viable investment, and as such, the cryptocurrency is here to stay.

Major crypto players, such as Coinbase, Bybit,Crypto.com, and BlockFi, have cut jobs to better weather the “crypto winter”.