The high volatility of crypto asset markets can be attractive to traders since it presents opportunities for them to make considerable amounts regardless of the direction market swings, and irrespective of market sentiment being either bullish or bearish. This however, is not the case when it comes to institutional investors who may feel their capital has too much exposure because of massive fluctuations. Most are tentative to enter the crypto space for this reason and subsequently there’s not as much investment pouring into companies operating within this burgeoning industry. This means that there are also fewer institutions willing to lend to blockchain businesses. Babel Finance is one company that decided to exploit this gap in the market and provide crypto lending and borrowing services.
What is Babel Finance?
Flex Yang and Del Wang, both from Yunnan in Southwest China, founded Babel Finance in August 2018. The team’s rise to power and influence started with a focus on building relationships with cryptocurrency miners in remote cities from the Southwest to the Northeast of China. Babel’s predominant business model involves lending stable coins to miners who put up their crypto or bitcoin mining machines as loan collateral to fund operations without selling off their crypto, especially during bear markets.
According to Babel Finance, the company provides deposit and loan services for global miners, crypto holders, individual and institutional investors in order to preserve and increase the value of their crypto assets; and also have access to sufficient liquidity in a timely manner.
Babel claims to have adopted bank-level asset risk assessment models and have established a sound risk control system to mitigate market risk. Their products support multiple cryptocurrencies, and use third-party custody, offline storage, and multiple authorization to ensure security of assets.
Why Finance Cryptocurrency Miners?
Miners are central to the maintenance of the bitcoin network since it uses Proof of Work. There are generally two major factors that influence mining operations. First being the cost of capital. The machines that run tests and solve complex math problems in order to gain mining rewards keep evolving and the need for faster and more efficient ways of solving these sophisticated algorithms keeps driving innovation for better hardware. From the CPU, which Satoshi used, to GPU, FPGA, and to application-specific integrated circuit (ASIC). ASIC is one of the most popular and efficient pieces of equipment available. It is specifically designed to mine bitcoin and its cooling power is much better.
According to Babel, mining farms operate the machines while holding them as collateral for Babel, and Babel keeps the mined crypto assets. This enables Babel to collect the full value of the loan even if the price of the machine is undervalued during a market crash. Machine-backed loans now make up almost 5% of the company’s $450 million in total outstanding loans earlier this year, according to Coindesk. Moving forward, Babel Finance hopes to allow miners to use their machines to hedge against the risk of their crypto investments.
The second major factor affecting mining operations is the cost of electricity. Some research points to China having a competitive advantage due to its supply of cheap electricity. According to Babel, in relatively poorer regions such as Sichuan, Far South West regions, the price of electricity is much cheaper, especially during the rainy season. Chinese miners, who account for around 70% of the total miners globally, benefit tremendously from using cheap electricity from those regions.
Babel Finance has been able to capitalise on the fact that the West needs Bitcoin from China while miners need cash to run their operations. They have established relationships with some crypto lending institutions from the West so that miners can have access to very cheap cash in USDT. This cheap capital has propelled Babel Finance and given it the competitive advantage on the Chinese miners’ lending market. According to Babel, their company is the bridge between miners in the East miners and Capital from the West.
Babel Finance Offerings – Loans, Interest Accounts, Trading, Staking & Mining Services
Babel’s lending services offer credit loans and collateral loans backed by Bitcoin and other digital assets. This means their clients can enjoy the flexibility to access liquidity without giving their crypto assets. Babel Finance claims to be one of the largest cryptocurrency finance service providers with its outstanding loans reaching USD 380 million at the end of Q1 2020.
In addition to loans, Babel Finance offers interest bearing accounts. This means their customers can enjoy their value-added wealth management plan, which they claim generates higher returns and offers the convenience of fast cash in and cash out, and flexible deposit and withdraw, while satisfying customers’ need for security and liquidity.
Furthermore, Babel offers institutional customers customized deposit and loan & income solutions. With their cross-exchange portfolio-margin crypto asset trading platform, Babel Finance Prime Services provide institutional customers with transaction execution services that have one account connecting multiple trading platforms, so that customers can have access to cross-platform margin sharing and funding services to greatly improve the efficiency of their capital utilization.
Babel Triple is a premium leverage offering that is said to allow traders to amplify their profits up to three times the value of their staked collateral. According to the company, Babel Triple works through buying and selling assets real-time on the exchange, unlike futures contracts. Babel’s tool automates the process and allows investors to take a more hands-off approach while still generating returns.
Babel Private is Babel Finance’s high-end customer service platform that provides private bank-level crypto financial services to high-net-worth individual customers. Through this offering they can provide clients with up to 500,000 USDT. They also provide asset management and investment advisory services. In addition, Babel Finance offers cross-border asset planning, family trust, equity structure design to family offices, security services, tax consultation and more.
Babel Finance also has a mining pool Babel Mining Pool which currently focuses on Bitcoin and Ethereum mining services. By leveraging Babel Finance’s proven capabilities in financial services, Babel Mining Pool is said to be dedicated to being the first mining pool equipped with professional financial services. Babel Finance also has mining facilities with sufficient power supply in Yunnan, Sichuan, and Northwestern China. They claim to be well equipped to provide professional mining machine custody services for various types of mining institutions and individuals. Babel Finance provides mining machine pledge loans, liquidity management, cash management, hedging strategies, etc. for their mining partners to get higher returns.