A top executive at Babel Finance is betting a new stablecoin can resolve the troubled crypto lender’s financial crisis, which came to a head last year when it froze withdrawals.
Co-founder Yang Zhou, now sole director of Babel, is planning to file a moratorium of protection to the high court of Singapore, asking creditors not to take further action against the company for up to six months as it seeks their approval on a restructuring plan.
The plan detailed in the filing proposes repaying debts owed to creditors with revenue generated by a new decentralized finance project minting so-called “Babel Recovery Coins,” according to a document viewed by Bloomberg News. Yang declined to comment.
Babel hit last year during the crypto market’s meltdown after the company’s proprietary trading desk ran up an order-book deficit of $766 million using customer funds.
The filing alleges co-founder Wang Li — who was removed from the company’s leadership in December — was responsible for the losses, contending that “the risky trading activities appear to have been instructed solely by Wang.”
Wang, in a text message to Bloomberg, said he is aware of the court filing, but did not provide additional commentary.
Babel estimates $524 million worth of Bitcoin, Ether and other tokens owned by the company and its customers was lost as a result of Wang’s trading activities. Another $224 million was also lost when Babel counterparties liquidated collateral after it was unable to meet a large volume of margin calls.
Yang — who has resumed leadership of Babel after previously stepping down — plans to build out the DeFi project at the center of the restructuring, called Hope, with a few former Babel employees in Hong Kong, according to people familiar with the matter.
Hope’s namesake stablecoin will initially use Bitcoin and Ether as collateral, and maintain its value close to a dollar through arbitrage incentives for traders, according to its website. In contrast, popular stablecoins such as USDC are fully backed by cash and cash-equivalent assets.
Kirkland & Ellis and Carey Olsen are advising on the restructuring.
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Founded in 2018, Babel started off by catering to China’s then-burgeoning Bitcoin miners and quickly grew to become one of Asia’s biggest crypto lending firms. In May last year — weeks before Babel swallowed huge losses during the market downturn — it completed a $80 million funding round from investors including Jeneration Capital and DragonFly Capital, at a valuation of $2 billion.
Last year’s crypto meltdown, however, has since delivered deathly blows to digital-asset lenders, which can effectively operate as unregulated banks by taking deposits in crypto and oftentimes trading against one another. Top lenders including Voyager Digital Ltd., Celsius Network and Genesis Global have filed for bankruptcy. Genesis $150 million to Babel, its third biggest named creditor, according to a January Chapter 11 filing.
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