Celsius, How Babel Finance’s Liquidity Crisis Affected This Crypto Exchange

zipmex Citing the origins of his problems in illiquidity Celsius Network (“Celsius”) which later opted for bankruptcy. The balance sheet of Zipmex, a New Jersey-based crypto lending company that hit the balance sheet, is also a Southeast Asian crypto exchange vulnerable to Babel which is battling a similar issue like Celsius.

In a statement, Zipmex revealed that for its Zipup+ product, the company deposits funds into cryptocurrency lending platforms, including the Celsius Network (“Celsius”). “When the markets turned, Zipmex began to withdraw its funds from deposit partners,” she said.

However, in the case of Celsius, JIPMEX was informed on 13 June that the withdrawal had been stopped due to unforeseen circumstances. Later, Celsius declared bankruptcy on 14 July.

“On this date Zipmex wrote off this deposit and absorbed it through its balance sheet,” the company said on Celsius.

Together, Zipmex said, “We were made aware that another of our deployment partner (Babel) was facing liquidity issues. However, there was no cause for alarm as there was open and regular dialogue and both sides reached a resolution.” We were confident that Babbel would be able to find a solution in the short term and Zipmex was still able to operate BAU.”

But, last month, hopes of a solution with Babel hit a turning point.

On July 20, Zipmex and Babel held a formal meeting, including a legal advisor. Regarding the meeting, Zipmex revealed that “it was made clear that the road to resolution would be long, and could not be guaranteed,” adding, “This was a significant change from previous negotiations.”

For clarity and transparency, Zipmex has decided to report its position to the Securities and Exchange Commission, Thailand (“SEC”), including information regarding our deposits with Babel Finance and Celsius.

“This ultimately led to the decision to inform the SEC and the public that we are temporarily halting transfers between Z Wallet and Trade Wallet,” Zipmex said.

Explaining why it decided to pool the funds with Babel and Celsius, Zipmex said, “As is the case with all of our partners, extensive due diligence has been taken including trade, legal and compliance, stability and risk, among others. Variables are involved. Both of these sides were backed by highly reputable investors.”

Zipmex revealed that by the end of 2021, Celsius had raised more than $750 million in funding by the end of its Series B round. He started the round with an investment of $400 million. In total, Celsius raised $864 million in capital valuing the company at $3.5 billion. Meanwhile, in May of this year, Babel Finance raised nearly $80 million in a Series B funding round – bringing their net worth to $2 billion.

What is the solution plan?

Following the meeting with Babel, on 22 July, the exchange’s solicitor in Singapore, Morgan Lewis Stamford LLC, filed five applications under section 64 of the Singapore Insolvency, Reorganization and Dissolution Act 2018 on behalf of several entities of the Zipmex Group.

The entities seeking moratorium relief in applications are – Zipmex Asia Pte; Zipmex Pte; Zipmex Company Limited (Incorporated in Thailand); PT Zipmex Exchange Indonesia (Incorporated in Indonesia); and Zipmex Australia Pvt Ltd (Incorporated in Australia).

The moratorium is expected to give Zipmex Group a breathing space and time to explore options to resolve its liquidity position, including recovery against Babel and a restructuring plan and bag investments.

Notably, Zipmex has clarified that none of its subsidiaries have filed for bankruptcy as evidenced by multiple media reports over the past few days.

“The effect of this moratorium is to provide the company with ample time to address issues and find solutions that will lead to the best customer outcomes,” Zipmex said.

Zipmex disclosed that its ‘creditors’, referred to as business partners, have the right to furnish relevant details by 5 August 2022. Zipmex Singapore will take the lead in submitting the documents to the court by 12 August 2022 and will be considered by the Singapore court. Moratorium request on 15 August 2022.

Apart from this, the company is exploring various avenues to solve its growing problems. First, Zipmex is working towards a return of assets from Babel Finance. Secondly, the company is in advanced fundraising talks that will allow them to re-enable Zwallet transfers.

Zipmex is also in discussions with several reputed and large scale investors and has signed a Memorandum of Understanding (MoU) with two investors.

“Within just two weeks, Zipmex has worked hard to find solutions and expedite solutions where possible. Interact with investors, coordinate with government agencies and requests, and serve clients to the best of our abilities. Do – Zipmex is doing everything they can to deliver on their customer promise,” Zipmex said.

The company has set a timeline for allowing withdrawals of tokens such as Solana (SOL), Ripple’s XRP and Cardano’s ADA. However, major cryptocurrencies such as bitcoin and ethereum remain closed. The company announced the issuance of SOL on August 4th, while it will issue XRP on August 4th, and ADA tokens to investors’ Z wallets on August 9th.

Tokens will be debited in the Z Wallet and the corresponding amount will be credited back to the investors’ trade wallet. Once the token is available in the trade wallet, the investor can withdraw normally.

“We know this is a small step, but it is a step in the right direction,” Zipmex said.

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