Anonymous whistleblowers posted on Twitter and YouTube audio recordings in which Babel Finance co-founder Del Wang allegedly admits that the company mismanages clients’ funds. The management of the crypto-financial services provider denies the allegations.
Babel Finance (a @dragonfly_cap portfolio) The biggest crypto lender in China, with $380 million in outstanding loans as of February, 2020 @CoinDesk is fraudulently misappropriating investors collaterals and savings. co-founder Del Wang admitted listen 👇https://t.co/spAd0InzDh
— scamstophere (@scamstophere) September 25, 2020
Co-founder and chief executive Flex Yang, in an interview with DeCrypt, said Babel Finance had not had to lose clients’ funds or face forced liquidations of collateral by lenders. He added that the firm has never abused leverage, which typically does not exceed 3x. By his account, other players in the industry may approach 10x.
Another source for the publication suggested the audio recording is forged and consists of fragments from different Del Wang speeches. He declined to confirm its authenticity.
Babel Finance was founded in August 2018 and to date is considered one of the largest lenders in the crypto space. Investors in Babel Finance included Dragonfly Capital and Parallel Ventures, the crypto arm of the large Chinese venture firm FreesFund. The business model is built on brokering between lenders and borrowers.
In March the company reported a loan portfolio worth $380 million. According to Yang, 70% of this financing was provided by Genesis Capital and BitGo.
According to the recording posted by @scamtosphere, who claims to know the insider story, during the market crash Babel Finance could have ceased to exist. The loan book stood at 130% of its own assets.
In the audio, Del Wang can be heard talking about moving to plan \”X\” — using clients’ funds to cover obligations. Yang rebutted the accusations, noting the robust operation of the risk-management system.
Standard terms for mining loans at Babel Finance involve a loan-to-value ratio in fiat or stablecoins secured by BTC of 50-65% at annual rates of 8-15%. The company effectively arbitrages funding rates from overseas partners, which cost it 6-8% per year.
Many firms in this space focus on preserving client assets and therefore employ market-neutral strategies in the derivatives market. As a matter of prudent practice they keep reserves in case volatility intensifies.
From the recording posted by @scamtosphere, it appears Babel may have chosen a more risky path— applying leverage of 3x-5x for a \”greater effect.\” In the interview, the whistleblower told the publication that this approach allowed the company to turn $4 million into $20 million shortly before the March crash.
Tether, the issuer, helped Babel Finance avoid bankruptcy by extending the loan term from 48 hours to a month. During this period the company launched a series of high-yield financing programs for miners with annual rates of 50-60%. This helped stabilise the financial position and repay debts. Tether declined to comment on these claims.
Industry rivals justify Babel Finance’s actions during the market meltdown, but they are puzzled that such practices persisted after its recovery. They see this as a \”real problem.\”
Since then the company has diversified its business, launching services for the wealthiest clients.
Babel Finance clients pay little heed to the circulating rumors. One told DeCrypt that he is confident in the management of the company.
“If they managed to get out of trouble back then, they will likely be able to pull it off again next time,” he explained.
As reported earlier, in July there were rumors in China about the arrest of Zhao Dong — founder of RenrenBit and a major investor in Bitfinex and Binance. Company representatives later denied them. However Chinese journalist Colin Wu confirmed the arrest of Dong and that he faces criminal liability.
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