A July 2022 proposal deck shows that Babel Finance lost 8K BTC and 56K ETH, worth $280M+, in proprietary trading of customer funds, as it seeks to raise money
Yogita Khatri / The Block :
Context & Ripple Effects
The arc here is fast and brutal: barely two months after an $80M Series B at a $2B valuation in late May, the Hong Kong lender froze withdrawals on June 17 and patched liquidity with preliminary repayment agreements on some debts. The July proposal deck now explains what was behind the freeze — 8,000 BTC and 56,000 ETH, worth $280M+, lost running customer funds through proprietary trading positions.
That disclosure lands while Babel is simultaneously courting current and prospective investors for a bailout or restructure, reportedly including a new entity to take over some debt. It also sharpens the picture for [[a:980362|Genesis, which sources say faces hundreds of millions in potential losses partly through Babel exposure]] — the counterparty web around this one lender keeps widening.
First-order effects
- Customers and creditors now have the actual loss figure — $280M+ in BTC and ETH from proprietary trading of their funds — replacing six weeks of vague 'liquidity pressure' language, which resets the terms of any rescue negotiation.
- Investors being pitched on a bailout or new-entity takeover must price a known hole rather than an unknown one, making equity-or-debt-conversion structure the central bargaining question.
Second-order effects
- Exposed counterparties like Genesis face pressure to mark down or hedge their Babel receivables, propagating the loss one hop further through the lending chain.
- Any rescue that converts creditor claims into equity of a 'new entity' effectively forces customers who thought they held deposits to become holders of a restructured, impaired business.
Third-order effects
- If the pattern holds across the 2022 lender failures, customer-asset segregation and verifiable reserves stop being marketing points and become the minimum condition for institutional counterparties to extend credit to crypto lenders at all.
- Asia-headquartered, deposit-taking crypto lenders that traded their own book face a structural credibility discount against lenders built on matched-book or fully custodied models, reshaping where lending volume consolidates.
The trend: Crypto lenders that ran customer deposits through proprietary trading books are being forced into bailouts, debt takeovers, and counterparty contagion as their real losses surface — the same unwind now hitting Babel Finance after 3AC.