Babel Finance reaches agreement to pay users after blocking withdrawals

Cryptocurrency lending protocol Babel Finance has reached preliminary agreements with its creditors regarding the repayment of some debts. With this, the protocol should start releasing the limited withdrawals last Friday (17).

However, the company did not say which agreements were closed or who the creditors benefited. O official announcement it only says that the company evaluated the liquidity of its funds and reached these agreements.

“Babel Finance will actively fulfill its legal responsibilities towards clients and will strive to avoid further transmission and diffusion of liquidity risks. We thank our customers for their understanding and support during this time, and look forward to further support from our partners,” the company said.

Liquidity issues affected several central lending protocols and funds over the past week. The devaluation of the cryptocurrency market caused strong liquidations, harming those who operated with leverage in these sectors.

Withdrawal limitations

While some funds and protocols blocked withdrawals altogether, Babel Finance allowed the withdrawal of smaller amounts. But on Friday, the protocol blocked withdrawals that were greater than US$ 1,500

This amount corresponds to a monthly limit, that is, protocol customers can withdraw less than $ 8,000 per month. But many wallets have balances up to ten times larger, which would naturally harm all investors.

Babel Finance cited “unusual liquidity pressures” as justification. In practice, the protocol suffers from the same problem that caused Celsius to completely halt looting. However, Babel did not disclose what the liquidity problems were.

The company then carried out an “emergency assessment” of operations and said short-term liquidity pressures had “attenuated”.

“We actively communicate with shareholders and potential investors and will continue to communicate and obtain liquidity support,” the statement continued.

From big investments to crises

At the end of 2021, Babel Finance had an outstanding loan balance of more than $3 billion, up from $2 billion in February.

The company last month raised $80 million in a Series B investment round last month. 

But Babel Finance was the target of a liquidity crisis that hit the markets as a whole. At first, most of this crisis occurred because funds were leveraged in multiple trades, but the falling market caused massive liquidations.

As a result, funds recorded net losses on their investments and had to sell positions in cryptocurrencies. This measure contributed both to deepening devaluations and to jeopardizing the solidity of the funds.

Three Arrows Capital (3AC), for example, had large holdings in Ether (ETH) and several investments in decentralized finance (DeFi) protocols. Part of the income paid to investors came from these investments, which dried up when the market went down.

Now, investors fear that the liquidity crisis will hit bigger companies like Nexo and even the giant BlockFi. for the investor Miles Deutscher this is the “biggest cash withdrawal crisis in the history of the cryptocurrency market”.