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How Celsius, Babel Finance's liquidity crisis impacted Asia's this crypto exchange

Zipmex is among the many crypto platforms, to halt their withdrawals and suspend trading due to volatile market conditions which dented their balance sheets.Premium
Zipmex is among the many crypto platforms, to halt their withdrawals and suspend trading due to volatile market conditions which dented their balance sheets.

  • Zipmex cited the origin of their problems to illiquidity in Celsius Network (“Celsius”). While the New Jersey-based crypto lending company impacted Zipmex's balance sheet, the Southeast Asian crypto exchange is also vulnerable to Babel who is struggling with a similar issue like Celsius.

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Asia's one of the leading cryptocurrency exchanges, Zipmex is facing crisis at its bay due to its exposure in the Celsius Network and Babel Finance which are currently facing liquidity crunch. Zipmex is among the many crypto platforms, to halt their withdrawals and suspend trading due to volatile market conditions which dented their balance sheets. Although Zipmex is trying to release some cryptocurrencies for withdrawals from its Z wallet, however, its withdrawals of major tokens like Bitcoin and Ethereum will remain locked up. Also, the exchange's yield-based program ZipUp+ remains suspended.

Zipmex cited the origin of their problems to illiquidity in Celsius Network (“Celsius") which led the latter to opt for bankruptcy. While the New Jersey-based crypto lending company impacted Zipmex's balance sheet, the Southeast Asian crypto exchange is also vulnerable to Babel who is struggling with a similar issue like Celsius.

In a statement, Zipmex revealed that for its ZipUp+ product, the company deposits funds into cryptocurrency lending platforms including Celsius Network (“Celsius"). It said, "When markets started to turn, Zipmex started to withdraw its funds from deposit partners."

However, in the case of Celsius, Zipmex was informed on June 13 that due to unforeseen circumstances, withdrawals were paused. Later on, Celsius declared bankruptcy on July 14.

"At this date Zipmex wrote off this deposit and absorbed it through its own balance sheet," the company said on Celsius.

Alongside, Zipmex said, "we were made aware that another of our deployment partners (Babel) was experiencing liquidity issues. However, there was no reason for alarm as there was open and regular dialogue and both parties were pressing ahead with a resolution. We were confident that Babel would be able to find a resolution in the short term and Zipmex was still able to operate BAU."

But, last month, the hope for resolution with Babel came to a turning point.

On July 20, Zipmex and Babel held a formal meeting including legal counsel. About the meeting, Zipmex revealed that "it was made apparent that the path to resolution would be protracted, and may not be guaranteed," adding, "this was a significant shift from the previous conversations."

For the sake of clarity and transparency, Zipmex made the decision to report its situation to the Securities and Exchange Commission, Thailand (“SEC"), including information about our deposits with Babel Finance and Celsius.

"This ultimately led to the decision to notify the SEC and the public that we are temporarily halting transfers between Z Wallet and Trade wallet," Zipmex said.

Explaining why it decided to have deposited funds with Babel and Celsius, Zipmex said, "as with all our partners, extensive due diligence is performed which covers business, legal & compliance, stability, and risk, amongst other variables. Both these parties were backed by extremely reputable investors."

Zipmex revealed that by 2021-end, Celsius raised over $750 million in funding by the end of their Series B round. They started the round with an investment of $ 400 million. In total, Celsius raised capital of $ 864 million valuing the company at $ 3.5 billion. Meanwhile, in May this year, Babel Finance raised about $80 million in a series B funding round - taking their total value to $2 billion.

What's the resolution plan? 

After meeting with Babel, on July 22, the exchange's solicitors in Singapore, Morgan Lewis Stamford LLC, filed five applications under Section 64 of Singapore’s Insolvency, Restructuring, and Dissolution Act 2018 on behalf of several of the Zipmex Group’s entities.

These entities who have sought the moratorium relief in the applications are - Zipmex Asia Pte; Zipmex Pte; Zipmex Company Limited (incorporated in Thailand); PT Zipmex Exchange Indonesia (incorporated in Indonesia); and Zipmex Australia Pty Ltd (incorporated in Australia).

The moratoriums are expected to give Zipmex group a breathing space and time for exploring options to resolve its liquidity situation including recovery against Babel and to further formulate a restructuring plan and bag investments.

Notably, Zipmex has clarified that none of its subsidiaries have filed for bankruptcy as portrayed by many media reports in the past few days.

"The effect of this Moratorium is to provide the Company with sufficient time to address problems and find a solution which will lead to the best customer outcomes," Zipmex said.

Zipmex revealed that its ‘creditors’, which are referred to as business partners, have the right to submit related statements by 5 August 2022. Zipmex Singapore will lead the submission of documents to the court by 12 August 2022 and the Singaporean Court will deliberate on the Moratorium request on 15 August 2022.

Apart from this, the company is exploring various avenues to resolve its mounting problems. Firstly, Zipmex is working towards the return of assets from Babel Finance. Secondly, the company is in advanced fundraising conversations which will allow them to re-enable Zwallet transfers.

Zipmex is also in discussions with multiple reputable, and large-scale investors and has signed a Memorandum Of Agreement (MOU) with two investors.

"In just under two weeks, Zipmex has worked hard to find solutions and expedite resolutions where possible. Negotiations with investors, coordination and requests with government agencies, and providing service to customers to the best of our abilities – Zipmex is doing everything they can to meet its customer promise," Zipmex said.

The company has set a timeline for allowing withdrawals of tokens like Solana (SOL), Ripple’s XRP, and Cardano’s ADA. However, major cryptocurrencies such as Bitcoin and Ethereum remain locked up. The company announced to release SOL on August, while it will release XRP on August 4, and ADA tokens on August 9 in investors' Z wallet.

Tokens in Z Wallet will be debited and the corresponding amount will be credited back into investors' Trade Wallet. Once the tokens in the Trade Wallet are available, an investor may withdraw as per usual.

"We know it’s a small step, but it’s a step in the right direction," Zipmex said.

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