Babel Finance Halts Withdrawals

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Babel Finance

Babel Finance is a global investment firm based in Hong Kong for high net worth individuals. Investors would provide digital assets to the platform, which could then be invested on their behalf. In June 2022, they stopped allowing withdrawals of assets on their platform. No further notice has been available on the website since July 2nd, and no updates have been available on Twitter since June 20th. It is unclear if any assets will be recovered at any point in the future.

About Babel Finance

Babel Finance Homepage:

"Founded in 2018, Babel Finance started out by providing BTC-backed crypto lending services. Since then, we have grown to become one of the world's largest wholesale crypto financial services providers. By the end of 2021, we had accumulated more than 3 billion USD in loan balances. Based in Hong Kong and Singapore, we assisted global institutional investors and high net worth individuals in developing integrated solutions covering technology, products, and strategies around crypto lending and crypto asset management services."

"Aiming to be the most prestigious institution in crypto finance, we're committed to offering our clients full crypto financial services. By offering an easy, smooth and secure experience, we're building a solid crypto financial infrastructure for the world."

"Our business covers Bitcoin, Ethereum, mainstream stablecoins, and major altcoins in which we deliver a high quality service to more than 600 institutional and high net worth individual clients. Currently, Babel Finance has an average monthly crypto derivative trading volume of over 8 billion USD. Over the years, we have gained the trust of global investors such as Sequoia China Capital, BAI Capital, Zoo Capital, Tiger Global Management, Dragonfly Capital, as well as NGC Ventures. As cryptocurrency is quickly being adopted by mainstream audience across the globe, the importance of bracing for compliance and regulation is paramount."

"At Babel Finance, we are actively applying for licenses and working to enhance our compliance in Asia, Europe, and North America. This will ensure the security of our business as pioneers of the developing crypto industry. Backed by a well-funded network of global partners, Babel Finance is a reliable and strong bridge between Europe, North America, and Asia Pacific's crypto market. Led by our professional trading team we are dedicated to providing stable yields for our clients. Babel Finance looks forward to working with you to build a new crypto finance world."

Babel Finance has 500 clients. The service limits itself to bitcoin, ethereum and stablecoins, raised $80 million in a funding round last month, valuing it at $2 billion. It had ended last year with $3 billion of loan balances on its balance sheet.

"Crypto lenders gather crypto deposits from retail customers and re-invest them, proclaiming double-digit returns and attracting tens of billions of dollars in assets."

Babel Finance describes it's vision as "Building open financial infrastructure for the future" and core values as "Integrity, efficiency, fun, and value creation".

This is a global/international case not involving a specific country.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

"Hong Kong-based Babel Finance temporarily suspended the withdrawals and redemption of crypto assets on Friday, as the crypto lender scrambles to pay its clients after the recent slump in the digital currency market." "[C]rypto lender Babel Finance froze users’ assets and is currently considering restructuring options."

"Recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events. Due to the current situation, Babel Finance is facing unusual liquidity pressures. We are in close communication with all related parties on the actions we are taking in order to best protect our customers. During this period, redemptions and withdrawals from Babel Finance products will be temporarily suspended, and resumption of normal service be notified separately. We apologize sincerely for any inconvenience caused."

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Babel Finance Halts Withdrawals

Date	Event	Description
March 18th, 2018	Babel Bank Founding	Flex Yang and Del Wang founded Babel Bank.
June 18th, 2019	Name Change To Babel Finance	Babel Bank was renamed Babel Finance as a commercial crypto financial institution.
August 26th, 2019	Launch of Lending Service	Babel Finance launched inter-institutional lending service for institutional clients.
March 12th, 2020	Verge of Bankruptcy	"During 2020/3/12, Babel Finance was on the verge of bankruptcy because of its high-risk operations, and Tether’s forbearance and market recovery saved it." "it was widely believed that Babel strengthened its risk control and even became extra low profile in its behavior."
March 1st, 2021	Outstanding Loan Milestones	The Babel Finance’s active outstanding loan amount reached $2 billion and they've now served over 500 global institutional clients.
May 11th, 2021 2:15:22 AM MDT	CoinQuora Article on Babel Finance	CoinQuora publishes an article on a $40m funding round by Babel Finance. "Babel Finance, a crypto-lending Chinese start-up, has just earned $40 million from some big-name investors. Babel Finance has made quite the buzz in the crypto space. So far, it has lent its services to over 500 institutional clients. Moreso, its core lending service alone has hit $2 billion in active outstanding loans."
June 10th, 2021 1:12:12 PM MDT	Series A Funding Round Completed	Babel Finance completed a $40m Series A funding round.
May 25th, 2022 6:56:00 MDT	Series B Funding Round Closed	Babel Finance closed a US$80 million Series B fundraising round at US$2 billion valuation.
June 16th, 2022 4:17:00 AM MDT	Last Tweet Prior To Event	Babel Finance's last Tweet is unrelated to the situation.
June 17th, 2022 4:50:14 AM MDT	Babel Finance Announces Withdrawal Suspension	The first capture of the announcement on the Babel Finance website.
June 17th, 2022 5:13:17 AM MDT	CoinDesk Article Published	CoinDesk publishes an article on Babel Finance suspending withdrawals. The article includes information from the official announcement and past funding of Babel Finance. “Babel Finance is taking action to best protect the interests of our clients," a company spokesperson told CoinDesk. "We are in close communication with all related parties and will share updates in a timely manner."
June 17th, 2022 7:39:00 AM MDT	CNBC Article Published	CNBC publishes an article about the situation. They report that withdrawals are temporarily suspended and published quotes from the company.
June 17th, 2022 2:12:13 PM MDT	Crypto Briefing Article	A Crypto Briefing article is published on the halting of withdrawals. "Babel added that it is in “communication with all related parties” on actions that may affect them. Babel did not name those parties; however, it is known to work with various companies including Genesis Capital, Bitgo, and Blockchain.com."
June 18th, 2022 3:06:19 AM MDT	Wu Blockchain Article Published	Wu Blockchain published an article about the situation. "With so many famous VCs, how do they do their due diligence? Did they not read our article and simply didn’t understand the huge risks involved in this model, or did they also think that One Cannot Step Twice in the Same River?"
June 20th, 2022 6:00:00 AM MDT	Preliminary Agreement Reached	An announcement appears on the Babel Finance website announcing preliminary agreements have been reached. This is reported in media including The Block and Bloomberg. Both articles are reposted on the Babel Finance Twitter account.
June 20th, 2022 6:00:38 AM MDT	Inclusion in Crypto.com Weekly DeFi Update	The situation with Babel Finance is included in the weekly update published by Crypto.com.
June 20th, 2022 11:49:00 PM MDT	CryptoPotato Article	A CryptoPotato article is published about the situation. TBD Expand.
June 21st, 2022	Babel Finance Twitter Attack Announcement	The Babel Finance website reports an announcement on a Twitter attack, unrelated to the primary incident.
July 2nd, 2022	Orthogonal Trading Dispute Announcement	Babel Finance publishes a notice to their website about the disputed claim of Orthogonal Trading.
March 5th, 2023 11:21:01 PM MST	FX Street Article Shares Hope	A FX Street article covers over the Babel Finance "Hope", a stable token which uses Bitcoin and Ether as collateral, maintaining a value close to the dollar through arbitrage incentives. The plan is to use this stablecoin to restructure the $766m debt which Babel owes to creditors.
March 6th, 2023 8:39:00 AM MST	Moratorium Application Files	Babel Finance publishes a press release including a moratorium application in Singapore high court. "In light of the foregoing developments, Babel Finance has filed applications in the General Division of the High Court of the Republic of Singapore for moratorium protection under section 64 of the Insolvency, Restructuring and Dissolution Act" "In anticipation of the proposed Scheme, Babel Finance has engaged FTI Consulting to carry out an independent evaluation of aspects of the Restructuring Plan. Babel Finance also intends to nominate partners from an international accounting firm to act as the proposed scheme administrator or manager for the proposed Scheme."
March 6th, 2023 5:29:00 AM MST	CoinDesk Article on Hope Stablecoin	CoinDesk publishes an article about the proposal to role out a DeFi platform to begin paying back creditors. "Babel has filed a moratorium extension that would prevent creditors from making claims for at least another six months, according to a press release. The filing, according to Bloomberg, alleges that co-founder Wang Li racked up $524 million in proprietary trading losses, with another $224 million being lost after lenders liquidated collateral that underpinned loans issued to Babel."

Total Amount Lost

The total amount lost is unknown.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Babel Finance Announcement

Babel Finance posted an announcement to their website on the morning of June 17th.

Recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events. Due to the current situation, Babel Finance is facing unusual liquidity pressures. We are in close communication with all related parties on the actions we are taking in order to best protect our customers. During this period, redemptions and withdrawals from Babel Finance products will be temporarily suspended, and resumption of normal service be notified separately. We apologize sincerely for any inconvenience caused.

"Babel Finance will be consulting with its various advisors as to whether or not the disputed actions taken by Orthogonal Trading may give rise to a cause of action by Babel Finance against Orthogonal. However, constructive mutually beneficial dialogue remains Babel Finance’s preferred path for addressing Orthogonal’s concerns about Babel’s plans for addressing the current liquidity position."

"Given the current context of severe market volatility, Babel Finance’s management will continue to communicate closely with customers, counterparties, and other partners, and provide updates in a timely and transparent manner."

"Babel Finance will actively fulfill its legal responsibilities to customers and strive to avoid further transmission and diffusion of liquidity risks. We thank our customers for their understanding and support during this period, and hope to obtain further support from our partners."

"At around 9:00AM Hong Kong time [on June 22nd, 2022], Babel Finance's official Twitter @babelfinance experienced an unknown attack, causing the account to be abnormally suspended. We are actively contacting Twitter to restore the account. Meanwhile, we discovered the following fake accounts on Twitter: @BabelFinance_, @BabelFinance__. We remind our customers and partners to be vigilant to avoid fraud and deception."

Reactions Of Crypto Community

Coach K Crypto responded to the events on Twitter.

Feel sorry for anyone in #bablefinance that got rekt!! Not sure how they did it but you give money to amateurs who have no hedging or trading risk parameters this is what can happen!

Ultimate Outcome

Preliminary Repayment Agreements

Within a few days, Babel Finance had reached preliminary agreements with multiple customers. This was reported in The Block, Bloomberg, and on their Twitter account.

Babel Finance management has taken the following steps to alleviate the company's liquidity situation:

1. We have carried out an emergency assessment of the company's business operations to understand the company's liquidity status.

2. We have communicated with major counterparties and relevant customers, and reached preliminary agreements on the repayment period of some debts, which has eased the company's short-term liquidity pressure.

3. We have actively communicated with shareholders and potential investors, and will continue to communicate and obtain liquidity support.

Given the current context of severe market volatility, Babel Finance’s management will continue to communicate closely with customers, counterparties, and other partners, and provide updates in a timely and transparent manner.

Babel Finance will actively fulfill its legal responsibilities to customers and strive to avoid further transmission and diffusion of liquidity risks. We thank our customers for their understanding and support during this period, and hope to obtain further support from our partners.

Dispute With Orthogonal Trading

Babel Finance posted a notice to their website about the situation.

Babel Finance has reviewed the notice issued by Orthogonal Trading concerning the business dealings between the two parties, and we would like to provide the following clarification:

1. Babel Finance disputes that it is in default on its loan from Orthogonal Trading out of the Orthogonal USDC Pool, and has communicated this position to Orthogonal’s representatives.

2. Babel Finance has engaged in, and will continue to maintain, constructive dialogue with representatives of Orthogonal Trading about the steps being taken by Babel Finance to address its liquidity position, as part of the comprehensive steps taken to respond to the current dynamics in the crypto market.

3. Babel Finance will be consulting with its various advisors as to whether or not the disputed actions taken by Orthogonal Trading may give rise to a cause of action by Babel Finance against Orthogonal. However, constructive mutually beneficial dialogue remains Babel Finance’s preferred path for addressing Orthogonal’s concerns about Babel’s plans for addressing the current liquidity position.

We will not comment on speculations on the market. But as we have indicated previously, Babel Finance continues to communicate closely with customers, counterparties and other stakeholders, and will provide updates in a timely and transparent manner as we pursue a comprehensive solution to the current liquidity issues. We appreciate our customers' understanding and patience at this time.

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

"Reportedly, the crypto firm refuted the rumor that it had told its partners that it was insolvent. In terms of the speculation regarding its liquidity crisis, the firm clarified that it had no business with the crypto hedge fund Three Arrow Capital, which, as CryptoPotato reported earlier, sought bailouts through “asset sale and a rescue by another firm.”"

"The troubled crypto lender is in conversations with large institutions for solutions, including “setting up a new entity to take up some of the debts.”"

“Babel Finance is taking action to best protect the interests of our clients," a company spokesperson told CoinDesk. "We are in close communication with all related parties and will share updates in a timely manner."

"Though the company noted that it would “provide updates in a timely and transparent manner,” it did not release details regarding when the platform will let users withdraw their funds."

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

Individual Prevention Policies

Babel Finance provides limited public transparency and visibility into where funds have been invested.

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

Any time that you are promised any profit or benefit in exchange for an initial payment, smart contract approval, or deposit, pay special care as to whether the entity making that offer is trustworthy, actually who they say they are, and has the means to fulfill what they're promising. There are no magic algorithms providing guaranteed returns from trading or mining. Trading on average will lose money. Mining is expensive and complex. No one is going to immediately send back more than you sent them. NFT projects will rarely announce a surprise mint in only a single location. Are you fully prepared for the event your money is kept and nothing is delivered in return?

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Do not take customer assets and performing highly risky trades and investments without giving visibility to customers.

All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.