Just-In: Binance Explores Partnership With Banks To Offset Crypto Risk

Crypto News: Binance, the world’s largest cryptocurrency exchange, has been navigating a tumultuous year filled with legal battles and regulatory challenges. However, the platform has also made significant strides in expanding its global presence, solidifying its position as a major player in the crypto space. In its latest move, Binance is reportedly in discussions to allow select institutional clients to keep their trading collateral at a bank instead of on the exchange, potentially reducing counterparty risk.

Binance Looks To Offset Collateral Risk

According to a report published by Bloomberg, Binance has engaged in conversations with its institutional customers regarding a new arrangement that would enable them to employ bank deposits as collateral for both spot and derivatives margin trading. Two potential intermediaries for this service, namely Swiss-based FlowBank and Liechtenstein-based Bank Frick, have been mentioned, although the deliberations remain private and subject to change.

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The proposal comes in response to the growing concerns of institutional crypto traders following the sudden collapse of FTX late last year, which resulted in substantial losses for many. Cryptocurrency exchanges undertake multiple roles, including facilitating trades, custodying assets, settling transactions, and offering credit. This multifaceted involvement amplifies the risk of widespread consequences in the event of an exchange’s failure.

Binance Seeks Collaboration With Banks

Under the proposed setup discussed by the Binance exchange, the cash held by clients at the bank would be locked through a tri-party agreement, while the exchange would provide stablecoins as collateral for margin trading. Clients’ cash deposits with the bank could potentially be invested in money-market funds, generating interest to offset the cost of borrowing crypto from Binance. However, it should be noted that the arrangement has not been finalized and is subject to further modifications.

Secured custody and diversification of client holdings have gained significant attention in regulatory proposals across Asia and Europe. Additionally, industry giants such as Nasdaq Inc., Bank of New York Mellon Corp., and Fidelity Investments are either offering or developing crypto custody solutions for institutional investors.

In recent months, Binance has experienced a decline in crypto market share since discontinuing its zero-fee promotion in March, compounded by the unease caused by the Commodity Futures Trading Commission’s lawsuit against the exchange. However, following the FTX debacle, the exchange introduced a custody solution called Ceffu, enabling institutional clients to store their assets in a segregated cold wallet. A corporate filing from the year 2022 revealed that Changpeng Zhao, the CEO of Binance, controlled 100% of the company responsible for managing Ceffu.

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