Hong Kong-based cryptocurrency lender, Babel Finance, is reportedly planning to launch a new stablecoin backed by cryptocurrency in collaboration with a decentralized finance (DeFi) platform, Hope.
The move comes in the wake of a $766 million loss that Babel Finance incurred last year due to market downturns, which resulted in the freezing of withdrawals by the lender.
The new stablecoin, also called Hope, is set to be backed by bitcoin and ether, two of the most popular cryptocurrencies. The plan is to maintain its value at one dollar, which will allow traders to take advantage of arbitrage opportunities when the stablecoin’s value falls below or rises above the peg.
The Hope stablecoin will draw comparisons with the Terra USD (UST) stablecoin that was backed by cryptocurrency, and which caused market turmoil when it collapsed, contributing to Babel Finance’s losses.
However, the Hope stablecoin will be distinct in that it will be issued on the DeFi platform of the same name, Hope, which is being developed by Yang Zhou, co-founder and sole director of Babel Finance, together with some former employees.
According to the Bloomberg report, Babel Finance is on the verge of filing a moratorium extension that will prevent creditors from making claims for at least six months.
The filing is due to the losses that Babel Finance incurred, which were largely attributed to co-founder Wang Li, who allegedly lost $524 million in proprietary trading. Another $224 million was lost after lenders liquidated collateral that had underpinned loans issued to Babel.
The launch of Hope and its stablecoin could provide a lifeline for Babel Finance, which has been struggling to repay its creditors.
The stablecoin will not only allow Babel Finance to repay its debtors but also provide an alternative for traders who prefer using cryptocurrency-backed stablecoins instead of fiat-based ones.
