Babel Finance Loses $280 Million Of Client Funds – Bitcoin Magazine
- Babel Finance lost $280 million in customer funds from unsecured trading.
- The amount includes 8000 BTC.
- Babel is seeking a restructuring through convertible debt which will lead to creditors becoming shareholders.
Babel Finance, a cryptocurrency financial services firm, recently reported a staggering loss of its clients’ funds totaling over $280 million, according to a report by The Block citing a restructuring of the broker.
The firm lost 8,000 BTC and a significant amount of another token through leveraged positions it failed to hedge against – a reminder that users can never be completely sure of the safety of their bitcoin funds when they entrust them to a third party.
“In the volatile week of June when BTC fell sharply from 30k to 20k, unhedged positions in [proprietary trading] accounts racked up significant losses, which directly led to the forced liquidation of several trading accounts and wiped out ~8,000 BTC and ~56,000 ETH,” the deck reads.
Proprietary trading techniques, when a financial firm utilizes funds held to trade for its own benefit, can arguably create conflicts of interest with certain information belonging to particular institutions that clients cannot see. In addition, companies can in some cases choose to rehypothecate customer funds for their own gain.
“A proprietary trading team operates multiple trading accounts that are not controlled or monitored by the trading department; no trading mandate or risk controls were implemented for these accounts; no PnL [profit and loss] was reported,” according to the cover, according to the report.
Massive losses thus led to the companies’ capitulation due to a failure in risk management with the use of customers’ funds.
Now, the company is reportedly seeking to convert $150 million of debt into convertible bonds to raise up to an additional $300 million through more convertible bonds, and to receive $200 million in revolving credit. If successful, Babel’s biggest creditors will become shareholders.
In fact, Babel is far from the first firm in the ecosystem to experience a mass liquidation event in recent months. Voyager Digital recently filed for bankruptcy, in part due to the implosion of Three Arrows Capital (3AC), a fund Voyager was exposed to. The contagion in the space also saw FTX exchange save BlockFi and Celsius Network’s downfall.
Last month, Babel stopped withdrawals on its platform due to the huge losses from the market downturn.
