Babel Finance leadership told the story of the collapse and bankruptcy of the platform

At one time, the Babel Finance project was considered one of the largest participants in the scope of cryptocurrency lending and asset management. In 2020, during a market collapse that occurred on March 12, the company was on the verge of bankruptcy, but survived thanks to the support of Tether and the subsequent restoration of the market. Later, in May 2022, the leadership successfully completed the round of financing the series B, having received $ 80 million and an estimate of $ 2 billion. However, on June 17 of the same year, representatives of the company announced insolvency. On the official website, the conclusions of funds and operations to repay the products were suspended.

In the period from March to April 2021, Babel Finance reached a peak against the backdrop of Bitcoin price growth. The main reason was the IPO Coinbase, after which the BTC rate took off to $ 64,000. At that time, assets and loans in the amount of about $ 7 billion were under the control of the company. Centralized credit organizations then significantly exceeded decentralized Defi Protokols in terms of funds.

The main clients of the companies were Asian miners and institutional investors from the USA. The miners who hold large volumes of BTC needed liquidity, while American trading participants were engaged in the GBTC arbitration.

Between 2018 and 2021, the GBTC traded with the prize, which created an opportunity for various strategies. Investors occupied Bitcoin, invested in GBTC for 6 months, then sold the BTC in the spoting market for hedging. After the end of the blocking period, they sold GBTC and recorded profit.

Babel Finance has passed 3 stages of development. From 2018 to 2020, she was engaged exclusively with lending, providing loans to miners and institutional customers for Boil BTC. In 2020-2021, the business expanded at the expense of capital management proposals, including structured products based on options trade. In 2021, Babel moved to its own trade operations and an increase in the share of borrowed capital. However, this stage led to a high level of risk, since the boundaries between lending, asset management and trading began to blur.

As a result, the Babel Finance model was dependent on the rapid increase in prices for Bitcoin. In conditions of high demand for BTC and excess liquidity of the company’s strategy, the company gave profitability. However, when the market turned around, an aggressive approach led to insolvency.

Author

Peter Ivanov