Summary:
- Babel Finance plans to repay creditors with a two-prong approach – a decentralized finance platform and a crypto-backed stablecoin token.
- The troubled crypto lender could soon move to keep creditors at bay by filing a six-month moratorium extension.
- Babel was hit by last year’s crypto crash alongside other crypto lenders like Genesis.
Troubled crypto lender Babel Finance hopes to repay creditors with a new crypto-backed stablecoin token and a decentralized finance (DeFi) platform after pausing withdrawals amid spreading contagion in 2022.
Babel Finance Hopes To Repay Creditors With UST-Type Stablecoin
Bloomberg reported that the crypto lender was close to filing a moratorium extension to the high court of Singapore. Under the leadership of sole Director and Co-Founder Yang Zhou, the company hopes to secure at least six months of legal protection. If successful, creditors will be unable to sue Babel or pursue recovery of around $766 million in debt.
Director Zhou plans to settle creditors by rolling out a DeFi platform combined with a stablecoin token that leverages other cryptocurrencies as collateral or reserve. Per reports, the stablecoin token dubbed ‘Hope’ will be backed by two leading digital assets – Bitcoin (BTC) and Ether (ETH).
The design for Babel’s Hope token could mirror Terra’s UST coin, an algorithmic stablecoin also backed by cryptocurrencies before the token crashed and triggered a wider market downturn. Indeed, the losses from UST’s collapse are estimated over $40 billion including institutional and retail investments.
Furthermore, Babel’s decision to adopt a crypto-backed model could draw a parallel with other stablecoins like Tether’s USDT and Circle’s USD Coin (USDC) which are backed by cash, treasuries and other traditional financial equivalents.
Babel Finance, Crypto Lenders Pick Up The Pieces
The news comes months after the crypto lending market was rocked by failures from industry heavyweights like Terra, Three Arrows Capital, and FTX. Babel Finance reported a liquidity crunch last year and halted withdrawals in June 2022.
The filing aimed at a moratorium extension said that Co-Founder Wang Li stacked over $500 million in trading losses. Lenders liquidated an additional $200+ million in loan collateral, bringing Babel’s total debt to over $700 million.
Other crypto lending businesses like Genesis were also significantly affected.
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On Tuesday, Chinese financial services firm Babel Finance announced plans to use a “bitcoin-backed” stablecoin to repay its $766 million debt, making it the first institutional borrower worldwide to turn to digital currency for major financing.
Babel Finance, a Hong Kong-based cryptocurrency platform, is initially issuing 15,000 tokens backed by an equivalent amount of bitcoins on the Ethereum blockchain and seeks to raise $15 million. The tokens will be used to pay off a portion of the debt they currently owe, as well as offering capital for future business.
Chief Executive Officer (CEO) of Babel Finance, Chandler Guo, said the move is a signal that the company is committed to supporting new technologies and providing financial services with innovative solutions.
“At Babel, we strive to make the impossible possible, and our innovative issuance of a Bitcoin-backed stablecoin is a testament to that pledge,” Guo said. “We are optimistic that by leveraging the power of DeFi (decentralised finance) we can unlock new forms of capital for our business that are more flexible, cost-efficient and transparent.”
The token, which will be called “BABEL” and is ERC-20 compliant, carries the same interest rate as the long-term debt the firm has issued prior to the digital currency launch. It carries a yield of 6.5% and is expected to be redeemed within three years. The tokens can be traded on the Ethereum blockchain and will be used as collateral for financing operations.
The move by Babel Finance is a major milestone in the development of the crypto industry, demonstrating that more and more traditional companies are open to using digital currency to complete financing activities. This move could pave the way for other firms to pursue similar solutions in the future.
It also reveals the massive potential for bitcoin as a financial asset and gives another example of how stablecoins can be used as an alternative to traditional debt instruments. For now, we’ll have to wait and see whether this bold move will be successful and transform the way companies pursue financing activities in the years to come.
