- Babel Finance lost $280 million in client funds due to unhedged trades.
- The amount includes 8,000 BTC.
- Babel seeks a convertible debt restructuring that would see creditors become shareholders.
Babel Finance, a cryptocurrency financial services company, recently reported a staggering loss of client funds totaling over $280 million, according to a report by The block citing a broker restructuring platform.
The company 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 fully assured of the safety of their bitcoin funds. by entrusting them to a third party.
“During that volatile week in June, when BTC fell precipitously from 30,000 to 20,000, unhedged positions in [proprietary trading] accounts experienced significant losses, directly leading to the forced liquidation of several trading accounts and wiping out ~8,000 BTC and ~56,000 ETH,” the bridge reportedly said.
Proprietary trading techniques, when a financial firm raises funds held to trade for its benefit, may arguably create conflicts of interest with certain information belonging to particular institutions that customers cannot see. Additionally, in some cases, companies may choose to remortgage customer funds for their own benefit.
“A proprietary trading team manages multiple trading accounts not controlled or monitored by the trading department; no trading mandates or risk controls have been put in place for these accounts; no PnL [profit and loss] has been reported,” according to the bridge, according to the report.
Thus, massive losses led to corporate capitulation due to failure of risk management with the use of its clients’ funds.
Now, the company is reportedly looking to convert $150 million of creditor debt into convertible bonds to raise up to $300 million more through more convertible bonds and receive $200 million in revolving credit. If successful, Babel’s biggest creditors will become shareholders.
Indeed, Babel is far from the first company in the ecosystem to experience a mass liquidation event in recent months. Voyager Digital recently deposit for bankruptcy, in part due to Three Arrows Capital (3AC) implode, a fund to which Voyager was exposed. The contagion in space also saw the exchange of FTX register BlockFi and the Celsius Network Fall.
Last month, Babel has stopped withdrawals on its platform due to the massive losses due to the market downturn.