NewsletterBinance Introduces Custody Solution for Institutional Traders
Binance has launched a pilot program that enhances the safety and efficiency of institutional trading. This initiative, announced on November 30, allows institutions to trade cryptocurrencies without the necessity of depositing collateral directly on the exchange.
A Safer Trading Environment
This program marks a notable shift towards a more secure trading environment. Institutions participating in the program can now store their trading collateral with a third-party bank. This setup mirrors practices in traditional financial markets, catering to the varied risk tolerances of different investors. By allowing the option of keeping collateral in cash or Treasury bonds, institutions gain the opportunity to earn yields while actively trading in the crypto market.
Binance’s Forward-Thinking Approach
Catherine Chen, a Binance executive, highlighted the company’s commitment to addressing the long-standing concerns of counterparty risk in institutional investing. “Our team, comprising both crypto natives and traditional finance professionals, has dedicated over a year to develop this banking triparty agreement,” Chen stated. She also emphasized ongoing discussions with various banking partners and institutional investors who have shown keen interest in the program.
Counterparty risk, a prevalent concern in finance, refers to the potential default on a contractual obligation by a party involved in a transaction. This risk is compounded in centralized exchanges as traders typically need to deposit their assets on the exchange. Binance’s new pilot program significantly mitigates the risk, providing safety and reassurance for institutional investors.
The move by Binance is not isolated in the industry. On November 28, Deribit, another prominent crypto exchange, partnered with Fireblocks, an MPC wallet provider, to introduce a cryptographic solution enabling traders to perform swaps without exchanging deposits.
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