Binance to Extend Collateral Holding Option to Traders
Binance, the world’s largest cryptocurrency exchange, is reportedly considering a new plan that would enable some of its traders to store their trading collateral in traditional financial institutions instead of keeping it on the online platform.
The main objective behind this proposal is to minimize counterparty risk. Binance has reportedly partnered with two European banks to facilitate this service for its traders.
Offering the Service to Institutional Clients
According to a Bloomberg report, Binance intends to provide this feature to its institutional clients.
The crypto exchange has engaged in discussions with several institutional customers regarding the possibility of storing their trading collateral at banks. By depositing cash at these banks, traders would be able to engage in margin trading for spot and derivatives.
Under one version of the proposal, Binance’s clients would lock up their cash at banks through a tri-party agreement. In return, the exchange would provide them with stablecoins to serve as collateral for margin trading.
The deposited funds could be invested in money-market funds to earn interest, which could also contribute to covering the interest on borrowed funds from Binance.
This facility aims to address the concerns of institutional clients who worry about the safety of their funds in the event of a platform failure.
Major players in Wall Street, including Nasdaq, BNY Mellon, and Fidelity Investments, are already offering or developing similar crypto custody solutions for institutions.
Binance has also reportedly partnered with Switzerland’s FlowBank and Liechtenstein’s Bank Frick for its plans.
Bank Frick declined to comment on the matter when approached by Bloomberg. FlowBank did not provide any details about its arrangement with the crypto exchange, but it stated that its banking license does not cover crypto trading.
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