Crypto lending company Babel Finance halts redemptions and withdrawals
babel.finance
babel.finance
> Anonymous sources who claim to have inside knowledge allege that Babel Finance has been misusing client funds via highly leveraged transactions and without permission.
(Oh, look, Tether's involved again. How much of the $160M in their claimed "shareholder capital" at https://tether.to/en/transparency has evaporated in the last month? They're currently claiming it hasn't changed by more than $50 since a month ago; https://twitter.com/jjjbtc/status/1524819806892982272)
If you need any strong suggestions that Tether's asset statements are a pack of lies, this is it. They claimed to have--before the cryptocurrency collapses started--an equity buffer of around 0.2% of total assets. Now they claim to have unwound ~10% of those positions in a market environment where selling any of those assets (even something like US treasuries!) would realize enough loss to wipe out that buffer. Instead, their equity buffer increased by something like 0.00001%.
Since a pure fraud makes up its books, it's easy to declare a steady path of returns. Reality tends to be more complicated, and delivering steady returns in a turbulent market is both hard and expensive (by way of hedging contracts).
Whilst I DO think crypto is a scam, or at best a very terrible waste of time and effort from all involved. I will accept that I could be wrong.
But, scam or not, this early turbulent history will cement a stigma of crypto being synonymous with grifters and scammers. I don't see a future in it.
It'll be interesting to see if btc breaks through the 20k barrier today and what effect that has on the hype.
Once all the dust settles down Bitcoin will keep ticking along just like it's been doing for years.
[1] Used Denari because it's an old currency I know. Of course, there's collector value, but there are other useless currencies today I've never heard of worth nothing on the collector's market too. Unfortunately, I can't cite any, given how useless they are today.
* As is, while clearly some of these failures have had a massive impact, there clearly a lot of DeFi projects of significance still standing:
Here are dominos to fall ahead of us:
- BlockFi
- Voyager
Somewhere down the line, tether is also standing. We know they're insolvent, the question is when redemptions become a problem. And at that point, the abyss
but other than that how was the play Mrs Lincoln?
* Explanation of comments meaning: https://www.urbandictionary.com/define.php?term=Other%20than...
Abraham Lincoln was shot at a play, his wife Mary Todd Lincoln was sitting next to him.
The implication is to say 'even though your husband and President of The United States was just shot next to you, how was the play otherwise'
Meaning the recipient is being obtuse to the situation or is unaware of it.
I think what he is saying is that the avalanche is falling, and so it doesn't matter that some are left- they won't be for long.
Missing the forest for the trees.
Celsius/3AC/Babel are all not defi and we would know about their health and risk factors much sooner if they were defi.
Edit:- the cycle of upvotes and down votes on this comment hahaha....
We've had tens of thousands of competent software engineers working on this for the last 5 years and no one came up with anything more than gambling in a closed zero sum ecosystem.
From a longer-term point of view...the ways in which blockchains & crypto are going wrong look amazingly similar to things which kinda regularly went wrong, ~1.5 centuries ago, with under-regulated brick & mortar banks, securities, & such. "Backed by real gold in the vaults!" didn't mean much, when there were few checks that said gold was really there (some groups of banks had only enough gold - collectively - to pass an inspection at one of them), paper "gold-backed" notes & securities could be printed with only the backing of other such pieces of paper "backed by someone's gold, somewhere, supposedly...", etc., etc.
The basic concept was that mathematical limits made crypto fundamentally anti-inflationary: you can't debase the currency by minting more of it in response to exigent circumstances (you could wonder whether some inflation should exist to account for population growth and the demand that goes with it, but that kinda presumes universal adoption),
The problem was that while the minting of a cryptocurrency can be mathematically self-regulating, there's no barrier to just setting up more cryptocurrencies. A big reason I have not become more heavily involved/invested in crypto was that everyone I asked about the utility of having ~15,000 different virtual currencies hurriedly changed the subject. How is a rational investor supposed to choose between the proliferating altcoins and shitcoins...and why? The only honest answer I ever got was 'throw money at a bunch of cheap things and then shill the fuck out of them in the hope that they become expensive.'
Crypto just swapped inflation in the currency supply for inflation in the number of currency instruments.
> At the end of 2021, Babel Finance had an outstanding loan balance of over $3 billion, up from $2 billion the previous February. It averaged $800 million in monthly derivatives trading volume and had structured and traded over $20 billion in options products.
https://www.coindesk.com/business/2022/06/17/babel-finance-s...
The ripple effects here are going to be substantial and unpredictable. This was a toy bank/hedge fund that grew to monstrous proportions. Now that bank is experiencing a run and it has done what every bank before it facing a similar problem has done: blocked withdrawals.
Please explain to me the difference between a bank and a Ponzi Scheme.
Banks are forced to abide by regulations and laws dictating how fractional-reserve organizations are allowed to operate. In return, peoples' deposits are backed by the government up to $250k (in the US).
Ponzi schemes ignore regulations and laws, and their customers' deposits are not insured or backed by any organization.
The laws that banks are forced to follow may be woefully insufficient, but the government is incentivized to prevent serious collapses because they would be on the hook for a lot of money. Retail customers are also less likely to start a run if they trust that someone will be there ready to hand over their cash when the dust settles.
Depositors also have first claim against assets in insolvency, so even uninsured accounts will be paid back before bondholders or equity owners. Even a well-intentioned crypto security has no such strict prioritization.
Example: https://www.sec.gov/oiea/investor-alerts-bulletins/ib_banksw...
The story of the 3 little pigs comes to mind. "The first pig made his house out of straw...".
For example, with Terra the abstraction was that pegs don't work as we've seen many a time, especially when Soros broke the BoE. I took a small bath with my Terra holding and life goes on. I can do that because I didn't use leverage, I can lose everything I put into crypto, and I diversified my crypto portfolio. Moving forward I'm staying away from projects with a "stable coin" component as I don't think the fundamentals work.
If anyone has come across an analysis framework for other crypto projects please let me know.
"is crypto project?" -> "stay away"I think that the future is a probability distribution, and there is a non-zero probability that crypto doesn't die but keeps growing. Therefore, I'm not all in, but I'm not all out.
If your goal is "avoid frauds/scams", then the framework you were given works for sure (of course, it trivially works for anything).
If your goal is "make money", then investing in frauds/scams can in fact be quite profitable and then you are a bit stuck.
If your goal is "make money while avoiding anything that appears to be fraud/scam", then, honestly, at this point, i think that brings you back to "avoid crypto projects".
While there are obvious scams/fraud, there is also much higher than normal probability (relative to regulated stock markets, etc) that anything you choose is scam whether it looks okay or not.
Remember that one of the fundamental reasons that regulated markets exist is to be able to tell (with high probability) what is a fraud/scam not due to required disclosures, etc This is because otherwise it can be remarkably hard to tell anything but the obvious scams.
Since crypto is a non-regulated market, finding/identifying scams is, by definition, a crapshoot. The only ones you will identify are the ones that are obvious scams.
Probably the smart money knew that the builders who kept going had a chance to run up when the market came back on the excitement of what they built, but my social circle were not privy to those conversations.
Healthy dividends and massive growth; you should have listened to them!
Personally, I was working with computers back then too, and most people who also didn't work with computers at that point always asked me "When are you gonna get a real job?" and told me "the Internet is just a fad".
But again, your experience could very well have been different.
First. "Web dev" positions evaporated & I actually took a "stable" job at a university vs. staying at the failing internet investment firm I was working for as a developer. For a while tech was definitely "uncool", especially to those who were in it for the get-rich-quick angle. I hope the same will happen to crypto: an exodus of the scamsters.
Second. I remember thinking "so much potential destroyed by those damn suits" ... micropayments, banner ads, Ecommerce, online auctions, peer-to-peer file sharing' encrypted email, shopping bots ... we had all this wonderful tech but none of it came to fruition because of the inflated expectations / greed.
The greed of the dot-com bubble set tech back for about a decade & I expect something similar will happen now with crypto. Maybe we will finally have the breathing room to do something cool with the tech?
In hindsight it might seem so, but it really wasn't. Most people who didn't already see these "wide ranging use cases" thought the internet was mostly about shady stuff.
Sure, there were some old fogies (actual advanced age not required, but common) who thought in ~2000 that the Internet was nothing but a passing fad, but anyone with actual sense—including many, many people who were not at all financially invested in tech companies—could see that there was plenty of real substance there, however overly-inflated some valuations were at the time.
By 2000, we already had, very firmly-established, companies like Amazon and eBay, that were clearly worthwhile Internet marketplaces making it vastly easier to buy & sell things.
In 2022, the most "firmly-established" things we have in the blockchain landscape are the cryptocurrencies like Bitcoin, whose sole purpose is to be a different kind of money and/or speculative vehicle. Effectively the only people pushing these things are the ones who stand to lose lots of money when they finish crashing.
I own zero cryptocurrencies and would rather see the entire ecosystem crash down just to bring the people behind it back to reality. I'm just writing about my experience from the perspective of someone who experienced the "beginning of the internet as mainstream media" for the ones who didn't.
Yahoo and Amazon didn't look fundamentally different from Pets.com to me at the time, but they managed to survive.
They are just traditional wall street finance pretending to be crypto, just by saying they make money in crypto space.
There's an even easier metric for measuring crypto project. The bigger and dumber the shill army the more shady the project.
So vocal in fact that the man himself was quite annoyed to constantly being told that UST can't be stable: https://twitter.com/stablekwon/status/1462063962506338318
Do Kwon in general was a red flag. There are a lot of strong opinioned and self confident people in crypto. But when the representative of the crypto project is a toxic participant of the space, you should think really hard about putting your money into such a project.
For example: https://twitter.com/stablekwon/status/1396735774737928192 (note, this tweet was after the whole disaster, losing billions weren't a humbling experience for him).
If you decide to put money into crypto you need to do your own risk management. I especially look how dissenting voices are treated.
A good starting point is Eric Wall https://twitter.com/ercwl. He's not a maximalist of any coins and as such is often very critical of projects and gets a lot of flak for this even though he usually has a thorough explanation how he gets to his conclusions.
Is it offering Argentina/Turkey returns? Then they're probably the Argentina and Turkey of crypto.
If they offer more than ~12.5%, run away. Avast, ye salty dogs: a piece o' eight ain't worth losing yer shirt over.
Not all stable-coins are the same. Out of all of them USDC seems to be the strongest out of the rest of them and is more likely to survive in the long term out of the others.
That does not mean you should put your whole savings into it. It is still very early for stable-coins. I would rather wait for regulatory clarity to define a set of rules that will wipe all the meme-coins, tokens, copy-paste projects and any crypto project that doesn't fit the incoming regulatory framework for crypto and only then will stable-coins like USDC will improve.
Regulations for crypto is inevitable and is only going to make some coins that are compliant stay for much longer and separate the non-compliant ones into obscurity or non-existence.
Instead having both a co-existence of stablecoins like USDC on multiple blockchain technologies and CBDCs operating on the same form of blockchain and DLT.
Only the blockchains that fit those requirements of ISO 20020 will indeed continue to survive. A disappointing and upsetting result for both the absolutist crypto-maximalists and the absolutist anti-crypto crowd.
https://www.investopedia.com/terms/t/technicalbankruptcy.asp
The ones that will survive this crypto crash are probably going to be around for much longer, especially most cryptocurrency coins and blockchains (and not the ERC-20 tokens)
They want that sweet Ponzi-adjacent money.
All the receipts, none of the liability*.
(*they hope).
That means Stripe, Checkout.com, etc are somehow now 'scammers' and by using crypto, they have found a legitimate use case for it. If they are scamming, Where is the scam?
So now people using Stripe's products and using their crypto offering are now facilitating in the so called 'scam'. Does that mean they should close down their Stripe or Checkout.com accounts to stop the so-called scam that Stripe and Checkout.com are involved in?
Definitely think that their homepage slogan needs an update after this.
If it's a student loan its already in the toilet.
The casino existed for its entire lifetime in a bull run.
No one knows how they'll survive a recession
People bought luna 2.0 within days of the collapse of luna 1.0 - check
But at the same time it's disgusting the current state of the crypto wars. All that is happening is due to greed. People are greedy, crypto "companies " are greedy and everyone wants to become rich without effort. There are VERY few projects that really want to develop technology. And those are also hijacked by greedy people to play as casinos.
I really wish the crypto space would crash and burn, BTC to hobdown to $100 and similar, so that all that noise goes out, and people go back to scam penny stocks or Amway, and leave the development of blockchain technology alone.
I remember when Wikileaks started accepting bitcoin. Satoshi very well mentioned that it was not ready. I am sure he was surprised by the craziness that came of it. Becoming exactly the thing that it was supposed to fight against.
As far as underlying value goes: one thing we've learned from the constant scamming is that a protocol designed for trustless interactions will inevitably devolve into purely adversial interactions. Consider it a social application of Gresham's law. Central banks, multinational corporations, and others who can marshal the resources to perform extensive audits will probably use smart contracts on a proof-of-stake chain for large, adversarial transactions that occur outside of any one nation's jurisdiction. Everything else will continue to be based on trust, just like it always has been.
Arbitration at the highest echelons of power is done with weapons. I don’t give a shit about what your blockchain says when I can force you to the negotiating table Commodore Perry style.
True, there is an implicit threat of violence when parties interact at that level. But there is also a hope on both sides that if all the rules are followed, violence will not be necessary even if one party gets the better of the other. E.g., the central banks of unfriendly nations transact with one another according to international norms and rules, even though either side could escalate to "kinetic" reprisals. The force of norms and rules is strongest between parties with balanced power (otherwise the stronger side can just pull a Commodore Perry like you say).
No. The crypto/scam space will be back because people love to gamble and love the concept of easy money.
> Do you think the whole space is a fad or do you think there are patches of values underneath the froth?
There is crypto/scam space and there is Bitcoin/Monero space. The actual decentralized cryptocurrencies are widely used where fiat system fails, like on DNMs.
My approach is to stay away until the fad dies, and then look to see if any part of it is useful to me. The last time I made a serious evaluation of something in that space was Bitcoin; it didn't serve any use case I had; but maybe there's been some innovation in the space that is hard to find behind the fad hype.
I think eventually bitcoin fills the same space as "no programming knowledge required coding tools". Every few years it'll spike as this time they know went wrong the last time. And then the inevitable happens.
Unless governments step in and ban them, there will always be new crypto scams.
It's notable that classical Ponzi schemes come back in the real world from time to time; they just need a very light reskin, and people buy in again. Plausible that the same happens with crypto to some extent.
Same as MLM/Hype evolved to Crypto/NFT. Some new pyramid will come in place for the next generation.
Do I hope this will be the cycle though? Oh absolutely.
Even with the market as is, today it’s still a trillion dollar industry.
History is rife with hundred-billion dollar industries destroyed in very short periods of time, across multitudes of field types.
For example, i've watched fields created by single legal opinions, grow to many billions, and then get destroyed overnight by a different legal opinion. All in the course of 10-15 years.
The amount of money in it is just not a sufficient condition for it to stick around. It certainly helps, mind you, but there will always be somewhere else to put the trillion dollars.
Otherwise, as is, your response to me is without merit.
While still kind of alive (mostly legacy lawsuits), the vast majority of the value was rapidly killed off post supreme court decisions (and AIA)
This kind of thing happens all the time - in software, in pharma, in ...
As I said, value helps in some sense, but just because there is a lot of money in a thing simply does not mean it will remain.
FWIW - your comment very much comes off as the typical "crypto folks ignore roughly all history" stereotype that it gets painted with -
None examples so far have provided independently source of valuing industries claimed, nor to my knowledge have any of the industries cited have as many direct customers.
Feel free to provide specific (and comparable) examples.
To be clear, just trying to be objective. For example, NFTs alone for living artist easily surpassed the billion made in non-NFT sales for living artist; sure NFTs were 30-40% behind in total volume, but that’s largely for dead artists.
Further, you keep bring up legal changes, but I am not aware of any pending legal matters that might have a substantial impact on the use of the technology itself; further, crypto is global and clearly adapted to legal changes including all out bans in China.
I'm not going to continue this, because you are definitely one of these folks who seem to believe crypto is unique in value and capability, that somehow make it not capable of failing (but can't explain why other than "when you add up all the theoretical money involved in tons of distinct markets and uses that somehow relate to crypto it's a lot"). This is IMHO distinct failure of objectivity and imagination.
The entire stock market failed enough in a single day to wipe entire economic segments out and then continued to die - 2 day loss = 25%, 3 year loss = 89%. Eighty nine percent.
It's so amazingly naive to believe that in the thousands of years of human history that nothing like crypto has happened, that large scale markets on the same order of magnitude of crypto markets have not failed, etc, that i don't even know where to begin. Then going further and just asserting anyone who starts to provide you examples is wrong/incomparable without even a single sentence that backs up why, makes this a pointless conversation.
You don't want to understand, you want to win.
Have a good one.
Further, you clearly did read the OP comment, which said the “whole crypto space” — so no, I don’t believe me responding to that as the scope is off-topic, changing the scope, etc.; I didn’t even include cryptography, which is obviously part of the space, worth $10 of trillion and used 7.26 Billion or making up 91.54% of the world's population; every phone uses cryptography.
Next, lol, money is obviously real, claim it’s not is funny at best, not even worth responding too; obviously not worth the 10s of trillions the public equity market is worth, but again, no example you’ve supplied came close to even 10 billion; reminder that trillion divided by billion is 1000, even at 100 billion, that still 10x larger; even at 10 billion, that would be like comparing industry making $1 a year to one that makes $100.
No idea what the whole 89% of the stock market point means; either literally, or as it relates to the topic.
Cheers.
Obviously the tech is part of the “whole space” and not a fade; didn’t even bring up encryption, which is the fundamental core of crypto. Sure encryption might be ban, but if you think governments will apply that to themselves, that’s obviously not a common or reasonable position.
What’s next… Icarus Investments?
High efficiency, high energy solar solutions using phase change in solid hydrocarbons for energy capture.
A similar idea with phase changing wax (iirc that's more or less how the temperature regulator in your shower works) is probably just as physically sound and just as economically doomed.
And the wax thing can work, you just need wax that's energetic enough to count as an explosive. I haven't worked out the recovery phase yet, granted; but with a few billion dollars I'm sure it can be made to work.
No one is better off with that. At least in the runup to 2008 there was housing built speculatively, but since then there has been no productive investment at all.
There was a complete lack of any kind of policy in almost all major Western countries. Since the competitive pressure of the USSR fell away, Western politics have stagnated - keep the economy as-is, maybe lower corporate taxes and privatize government services. The only thing where a bit of progress happened in politics were social equality issues (gay marriage, access to abortions) and that's it.
But no government really thought about what digitalization would bring, how to regulate it to prevent the rise of new exploitation models (gig workers) or speculative bubbles (dotcom bubble, the current shitcoin collapse), or how the economy should transform to the new possibilities and realities.
The result is - we've seen it all - not pretty... the economy clearly wants directions from politics where it should go (particularly in the automotive industry), and a ton of money was blasted into cryptocurrencies, NFTs and other scams simply because there was no direction where money should go instead. If one wants to boil it down, I'd call it "this is what happens when the free market takes ultimate control over everything".
Since planned economy doesnt work, then clearly we shouldnt do planning of any kind at all
Centralized crypto "banking" institutions are the worst of both worlds. You are giving away your money to someone else, and there are no regulations to protect you from being screwed over by them.
With DeFi (decentralized finance) you have transparency over what the smart contract does.
(Of course you have to be careful because a lot of things claim to be decentralized but are actually centralized)
No, you don't. People find subtle bugs in open source code all the time, some of them disastrous. Unintentional bugs in smart contracts have lost tens of millions of dollars multiple times; imagine what you could accomplish with intentional holes.
Parity lost $280M alone. https://www.cnbc.com/2017/11/08/accidental-bug-may-have-froz...
There are many people in crypto who aren't fond of companies like Coinbase or OpenSea.
The helped to make things a bit more mainstream, but they aren't paragons of decentralization.
The infrastructure worked. The concept did exactly what it was supposed to. 100% successful.
.. and yet lending to unreliable borrowers that no-one else wanted was still a stupid idea.
Or “De-Fi” as the children call it.
Reality: The public trust on crypto erodes more and more when one of these companies goes down. There is no greater fool to make your hodl-ed assets valuable.
Quite the opposite actually.
BuT tHiS Is aLl A nEw PaRaDiGm!