Evaluating only Babel Finance’s profile at its peak — without knowing the outcome — the model ranked Fraud as the #1 likely cause. Documented cause: Market collapse.
Key Events Timeline
FOUNDING
Babel Finance founded
DOWN ROUND
Sector contagion hits funding
SHUTDOWN
Fraud Explosion: Babel Finance ceases operations
Full Analysis
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Documented cause
Babel Finance was a Hong Kong-based crypto financial services firm offering lending, structured products, and asset management. The firm raised $80 million at a $2 billion valuation in May 2022 — just weeks before its collapse. Unknown to clients, Babel Finance had been using customer funds for proprietary trading, losing approximately $280 million when crypto markets crashed in June 2022. The firm suspended redemptions and withdrawals in June 2022.
Alternative account: Babel Finance raised $80M from investors including Zoo Capital and 10T Holdings to offer crypto loans and yield products to institutional clients. The company secretly used customer funds for proprietary trading strategies beyond its stated mandate. When crypto markets crashed in May-June 2022 after the Terra/Luna collapse, Babel's trading book suffered massive losses. The company suspended redemptions in June 2022, revealing a $280M hole in its balance sheet. Babel entered a debt restructuring process that lasted through 2023.
Lesson
“Raising at a $2 billion valuation while hiding $280 million in client fund losses is not bad timing. It is fraud.
Alternative account: Crypto prime brokers that offer institutional yield products face the temptation to enhance returns via proprietary trading — a practice that creates undisclosed risk for depositors. The opacity of crypto balance sheets makes this fraud relatively easy to hide until a market shock forces revelation.”