Last week news surfaced hat the Asian cryptocurrency lending company Babel Finance suspended crypto withdrawals for users of their platform.
This is the full announcement made on their website:
Dear Customers，
Recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events. Due to the current situation, Babel Finance is facing unusual liquidity pressures. We are in close communication with all related parties on the actions we are taking in order to best protect our customers. During this period, redemptions and withdrawals from Babel Finance products will be temporarily suspended, and resumption of normal service be notified separately. We apologize sincerely for any inconvenience caused.
Babel Finance
June 17, 2022
This move mirrors the same decision made by Celsius Network just one week earlier, citing similar concerns about liquidity risk.
When considering the fact that Babel Finance recently raised $80 million in funding with a $2 billion valuation, their comments raise troubling questions about the stability of their crypto lending platform.
There is considerable speculation among the web3 community as to why such a highly valued company like Babel Finance suspended crypto withdrawals, since it demonstrates a surprising level of fragility in the face of predictable market patterns.
Connections have been made to an expose from 2020 that alleges co-founder Del Wang admitted to “taking risky, highly leveraged positions with client’s and investors’ funds, without their consent.”
Again, this is nearly identical to the Celsius Network playbook, which involved staking users’ funds in projects that couldn’t be redeemed until an indeterminate point in the future.
By adopting the memes and terminology of the web3 community, these companies adopted the same business models as traditional banks and hedge funds while capturing the enthusiasm and capital of people interested in moving past these archaic financial paradigms.
Despite the fact that DeFi projects led by DAOs with solid fundamentals are fully capable of avoiding liquidity crises like these, they’re unable to promise the ridiculous APY/APR yields that attracted users to Celsius and Babel Finance in the first place.
As a result, the companies promising the highest returns through the sketchiest means make headlines as they crash and burn under the slightest market turbulence, making the entire crypto community look like a bunch of idiots who spend thousands on ugly JPEGs.
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