After Losing $766 Million on Bitcoin and Ethereum, Babel Plans to Introduce a ‘Recovery Coin’

A top executive at Babel Finance is optimistic that a new stablecoin would fix the ailing crypto lender's financial dilemma, which came to a climax last year when it stopped withdrawals.

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Yang Zhou, now the only director of Babel, filed a moratorium of protection with the Singapore High Court on Monday, asking creditors not to take further action against the firm for up to six months while it seeks their consent on a restructuring plan.

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The idea suggests repaying creditors' debts with money generated by a new decentralized finance initiative minting so-called "Babel Recovery Coins," according to a document seen by Bloomberg News ahead of the filing. Yang did not respond.

During the crypto market's fall last year, Babel's proprietary trading department racked up a $766 million order-book deficit using customer cash.

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The lawsuit blames the losses on co-founder Wang Li, who was ousted from the company's leadership in December, claiming that "the dangerous trading operations appear to have been ordered entirely by Wang."

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Wang told Trade Algo in a text message that he is aware of the court case but declined to comment more.

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Babel estimates that Wang's trading actions cost the firm and its clients $524 million in Bitcoin, Ether, and other tokens. About $224 million was lost when Babel counterparties liquidated collateral after the company was unable to pay a high frequency of margin calls.

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Restructuring ‘Hope’

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Yang, who has taken over control of Babel after earlier stepping down, intends to work with a few former Babel personnel in Hong Kong to flesh up the Hope DeFi project, which is at the core of the reorganization.

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According to its website, the stablecoin bearing Hope's name would first employ Bitcoin and Ether as collateral and maintain its value near a dollar using arbitrage incentives for traders. Popular stablecoins, like USDC, are entirely backed by cash and assets with a monetary equivalent.

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The website also reveals that Hope intends to use HOPE tokens to create a few initiatives, including a peer-to-peer lending network and a decentralized exchange called HopeSwap that is comparable to the more well-known Uniswap. Hope, like the majority of other DeFi initiatives already in existence, intends to replace numerous centralized projects with a more decentralized alternative, similar to Babel.

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On the restructuring, Kirkland & Ellis and Carey Olsen are providing advice.

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Babel, a company that was established in 2018, first catered to China's then-expanding Bitcoin miners before swiftly becoming one of Asia's largest crypto loan companies. Weeks before Babel suffered significant losses during the market crisis, in May of last year, it closed a $80 million investment round from investors including Jeneration Capital and DragonFly Capital, valued at $2 billion.

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Digital asset lenders, who may essentially act as unregulated banks by accepting cryptographic deposits and frequently trading against one another, have been dealt fatal blows as a result of last year's crypto crisis. A number of prestigious lenders, including Genesis Global, Celsius Network, and Voyager Digital Ltd., have declared bankruptcy. According to a January Chapter 11 filing, Genesis owes $150 million to Babel, its third largest named creditor.