An extensive study conducted by the Chinese media outlet WuBlockchain looked deeply into the ways in which the cryptocurrency lending behemoth Babel Finance was on the verge of failing. According to the study, Tether’s patience and market rebound spared Babel Finance from bankruptcy in late 2020. Babel informed its partners on June 17, 2022, that the firm was bankrupt and that product redemption and withdrawal functions on its website will be suspended.
This time, there is no rescuer in sight since Tether is no longer affiliated with Babel Finance as there was last time. The stock market’s decline might go until the end of the year at the earliest. In order to fund its operations, Genesis, Tether, BlockFi, and OSL each get 100 BTC in exchange for USDT, which they subsequently lend to miners.
A rise in the value of BTC results in a gain for Babel equal to the increase in value multiplied by the leverage multiple. Tether’s stake alone required an increase of more than 2,000 BTC to maintain margin at the time of Babel’s withdrawal. Instead of closing its stake, Tether allowed Babel to continue raising cash for another month, giving it a fighting chance (typically, there are only 48 hours to cover the position).
To bridge the gap, Babel is relying on Tether, the crypto world’s central bank, to produce infinite money for the benefit of the business. There has been no comment from Tether to WuBlockchain, and it is said to be apprehensive about legal consequences.
There is a difficulty with the Babel model if users and funders are unaware that Babel is working with significant leverage. At this point, the overwhelming majority of them have no idea. A bank called Babel purports to be a commercial bank, but in reality, it acts as a fund or asset management.
When seen from the typical financial perspective, Babel does have a slew of issues. Because the “Babel model” survived the financial crisis and made a profit, some people believe it to be a success and desire to copy it. SparkPool, NGC, Dforce, Hash Age, Matrixport, and Kucoin are some of Babel’s most important clients or partners.