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Saturday, December 5, 2020

Is Babel, China-based crypto-lending giant, in deep trouble?

China-based Babel Finance has been a prominent crypto-lending company for a while now. However, it has been in troubled waters recently. The trouble, in fact, came in full force after the Black Thursday crash in March.

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Tether trouble

According to an investigative report by Colin Wu, Babel Finance was badly affected by the crypto-market crash that took place on 12 March. In fact, the company allegedly lost almost all its funds and customers due to an acute shortfall.

Days before the crash, the crypto-lending company had claimed to have $380 million in outstanding loans, as of February, according to reports. The Co-founder of the company, Felix Yang, had then noted the growing demand in the market for crypto-lending businesses, with outstanding loans growing from USDT worth $52 million in Q1 2019 to $289 million by end of December 2019.

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However, as per Wu, Babel had advertised a $300 million loan out of which $20 million was a borrowed sum. Wu explained the business fundamentals of Babel by stating,

“The core of Babel’s business is to absorb funds at a low cost, including the users’ collateral to borrow in series, to obtain more BTC and then to bet on rising BTC prices to obtain profits.”

At the time of the crash, the active trading of Bitcoin had led to huge liquidations on the platform. There was evidence of customers liquidating their positions, equaling over 3000 to 4000 Bitcoins, although there was speculation that the company was trying to protect customers from liquidations. Wu added that “Babel defaulted on the funder and suffered pressure from the funder.”

BlockFi, Genesis, Gemini, Coinbase-backed Babel

Prominent names in the crypto-business – BlockFi, Coinbase, Gemini, and Genesis have been among those that have reportedly backed the Babel Finance Group. However, after the crash on 12 March, its overseas funding was put to the sword as BlockFi and OSL interrupted their cooperation, along with Tether.

The report added,

“Recently, it has resumed. The partner that continues to support Babel is Genesis. Previously, BlockFi gave a pledge ratio of 1:1.”

In fact, Twitter user @btcking555 highlighted this baffling incident as a “scam,” suggesting that BlockFi had “cancelled partnership.” However, BlockFi has not confirmed this, as of yet.

At the time, Tether had extended its replenishment period from 48 hours to 1 month to help Babel, Wu claimed, with the latter owing Tether 5000 BTC at the time, despite having only 200 BTC.

“Babel has blocked its fate on Tether. It believed that Tether will give it time, and Tether can print money indefinitely. Tether did not respond to Wu’s consultation, suspected to be worried about its behavior will bring legal risks and other borrowers will also request extension”

About Babel investors

Crunchbase data suggests that there are three major investors in the company – Dragonfly Capital Partners, Parallel Ventures, and Next Generation Capital. However, its core customers and partners included f2pool, NGC, KuCoin, BigOne, and others.

Apart from a partnership with F2Pool, Poolin was another mining pool that had partnered with the company during its inception. However, according to Wu, that partnership was suspended in time too.



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