Babel Finance Lost Over $280 Million in Proprietary Trading With Customer Funds

Babel Finance, the troubled Asian crypto lender that abruptly halted client withdrawals last month, suffered heavy losses due to proprietary trading with customer funds, according to its restructuring proposal deck obtained by The Block. From a report: The deck, dated July 2022, reveals that Babel Finance lost more than $280 million in bitcoin (BTC) and ether (ETH) due to its proprietary trading failure. Specifically, it lost around 8,000 BTC and 56,000 ETH in June after facing liquidation due to a significant market downturn. 'In that volatile week of June when BTC fell precipitously from 30k to 20k, unhedged positions in [proprietary trading] accounts chalked up significant losses, directly leading to forced liquidation of multiple Trading Accounts and wiped out ~8,000 BTC and ~56,000 ETH,' reads the deck. Due to these massive losses, Babel's lending and trading departments were unable to meet margin calls from counterparties.

'Conclusion: Single point of failure - The Proprietary Trading team's failed operation falls outside of the company's normal business which has otherwise been running smoothly with proper management and control,' according to the deck. Babel Finance describes its proprietary trading business as a 'risky' business yet it failed to hedge its positions. 'A Proprietary Trading team operates several Trading Accounts not controlled or monitored by Trading Department; no trading mandate or risk controls were implemented for these accounts; no PnL [profit and loss] was reported,' per the deck.

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