DeFi Protocol Babylon Finance Shuttered - Unable to Recover
Babylon Finance, a DeFi asset management protocol will totally close all of it's services on November 15, 2022, according to an August 31, 2022 announcement posted on Twitter by its founder, Ramon Recuero.
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Briefly reviewing the Rari/FEI hack shows that "[b]efore the Rari/FEI hack, the protocol was in a relatively strong position as it had reached a total value locked of $30 million and created a top 10 lending pool on Rari" [Adejumo, O. Babylon Finance to shut down Nov. 15 after failing to recover from Rari/FEI hack. (Accessed September 2, 2022)].
However, the Rari/FEI exploit resulted in its investment gardens losing $3.4 million, and its users withdrew 75% — around $14 million — of its TVL within two days. Rari/FEI’s decision to cancel its reimbursement plans forced it to reprice the Rari assets to zero. It continued that its $10 million lending market on Rari, Fuse, was abandoned as its native token, BABL, could no longer be used as collateral to borrow funds. 'The team lost ~3 months of runway that were invested in Rari (as) funds evaporated overnight along with the possibility of borrowing from the BABL holdings.' The BABL token also lost over 90% of its value within this period, crashing from $20 to $5. According to the announcement, the crash has removed any possibility of future fundraising activities because 'the token supply is limited, non-inflationary and only 10% remains in the treasury.
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According to Recuero in a long winded statement posted on Medium:
Despite 🚑 taking swift action and doing everything that we could, the Rari exploit was the domino that kickstarted a series of unfortunate events [...] In a crisis, all correlations go to one. This series of unfortunate events created a tsunami that eroded our cash position, access to financing, and most importantly, user confidence. Since the event happened, the team has been working without a salary trying to find ways to fund the team to get to those 50M in TVL. Unfortunately, the general market conditions depressed the token price to a point that there are not enough tokens to fundraise. We don’t even have funds to keep the website and protocol running beyond November.We had reached the point of no return.(emphasis added)
[Recuero, R. 🌴 Babylon Finance is shutting down. (Accessed September 2, 2022)].
Recuero noted that "Although most protocols/tokens never wind down and remain in a zombie state, we strongly believe that closing down is the only responsible route. Leaving the DAO in a zombie state is definitely easier and cheaper than closing down. It also has fewer legal complications. However, it is definitely not the moral or ethical thing to do" [Id].
Recuero further acknowledges Babylon's failure:
We have failed and we need to accept it. It goes without saying that when a project/startup fails, founders should not receive any funds. We are going to return absolutely all of the team tokens — both vested and unvested. It’s really sad that this needs to be said. Utterly disappointing to see teams like FEI cashing out when their project has failed.
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According to Recuero:
[h]ere are the final actions the core team is going to take:
- Consolidate all remaining treasury holdings and distribute them amongst BABL and hBABL holders. The process will start on September 6th. All the details about the liquidation process will be shared later this week.
- In order to prevent people from raiding the remaining liquidity, we are extracting all the liquidity from the Uniswap pool. The decision is pending to be ratified by governance.
- The team will return all tokens — both vested and unvested. We have not sold a single token and we will not receive a penny from them.
- Strategists will have until November 15th to close all the active strategies. No new strategies or gardens will be able to be created from the UI from today. The website and Discord will be shut down on November 15th.
- Once and if the FEI reimbursement is completed, the team will still do all the work necessary to reimburse all the users that had funds in the gardens at the time of the hack.
- All the code is open-sourced and the community is welcome to fork/clone and build on top of the Babylon project and/or token.
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"After the announcement, the price of BABL dropped by 99%, reaching a new all-time low of $0.23 per token" [Reguerra, E. DeFi protocol shuts down months after the Rari Fuse hack. (Accessed September 2, 2022)]. At the time of this writing BABL has somewhat recovered priced at $5.21 per CoinMarketCap (September 2, 2022 at 09:45 ET). The 3 month price chart clearly demonstrates the effect on price of the above narrative:
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"The Ethereum-based project was an active asset management platform that drew on the expertise of its community for investment ideas in order to generate yield. Babylon offered a platform you could use to raise money and carry out your plan if you had an undiscovered way to benefit from the cryptocurrency markets" [Ibrahim, A. Babylon Finance Announces Termination Of Services Following A Ruinous Hack. (Accessed September 2, 2022)].
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