Babel Finance, an Asian crypto lending platform valued at $2 billion, has revealed that it is facing liquidity pressures. In response, it has suspended all withdrawals and redemptions of products on its platform to protect customers.
In a company announcement on Friday, Babel explained that its troubles stemmed from “significant volatility” in the crypto market. Over the weekend, the crypto market plunged to its lowest point since December 2020. This sparked a flood of liquidations and even forced MicroStrategy to provide more collateral for its Silvergate loan. As Babel points out, some institutions in the industry have now experienced “favorable risk events” that have put liquidity pressure on companies. Among those institutions is Celsius, another crypto lending platform that was forced to suspend withdrawals as it struggled to refinance loans from Oasis. It is unclear when withdrawals will resume. Another is venture capital firm Three Arrows Capital (3AC), which has been dogged by rumors of imminent liquidation for days. Some of the company’s partners have revealed that 3AC has stopped contacting them, although the company’s co-founder claims his team is “communicating with relevant parties.” Babel Finance issued a similar statement to 3AC: “We are closely communicating with all parties involved the actions we are taking to best protect our customers,” the company wrote. Crypto lending platforms often use digital asset collateral to re-collateralize user deposits with loans in the defi space to earn higher yields. However, during market corrections, such loans face a higher risk of liquidation. Kraken CEO Jesse Powell said in a tweet Wednesday that his exchange is not playing this “exotic shell game” in defi.