Babel Finance Pauses Crypto Withdrawals Following Liquidity Troubles

Babel Finance – an Asian crypto lending platform coming off a $2 billion valuation – has revealed that it is facing liquidity pressures. In response, it has paused all withdrawals and redemptions from the products on its platform to protect customers.

• In a company announcement on Friday, Babel explained that its troubles stem from “major fluctuations” in the crypto market.
• Last weekend, crypto markets collapsed to lows unseen since December of 2020. This triggered a flood of liquidations and even forced MicroStrategy to pledge more collateral towards its Silvergate loan.
• As Babel noted, some institutions in the industry have now experienced “conducive risk events,” causing liquidity pressure at the company.
• Among these institutions is Celsius – another crypto lending platform that was forced to pause withdrawals as it struggled to refinance its loan with Oasis. It still remains unclear when withdrawals will resume.
• Another is VC firm Three Arrows Capital (3AC), which has been dogged with rumors of looming liquidations for days. Some of the company’s partners have revealed that 3AC has ceased contacting them, despite the company’s co-founder claiming that his team is “communicating with relevant parties.”
• Babel Finance has issued a statement similar to 3AC’s: “We are in close communication with all related parties on the actions we are taking in order to best protect our customers,” wrote the firm.
• Crypto lending platforms frequently rehypothecate user deposits to earn higher yields using loans in the defi space, using digital asset collateral. However, during a market pullback, such loans face higher liquidation risk.
• Kraken CEO Jesse Powell said in a tweet on Wednesday that his exchange plays no such “exotic shell games” in defi.