Sources said that Binance is working on a setup that will allow them to keep bank deposits as collateral for margin trading in spot and derivatives.
The latest report from Bloomberg shows that the crypto exchange Binance is exploring a new solution to reduce counterparty risks while allowing some of the institutional clients to keep trading collateral at a bank instead of a crypto platform.
Sources familiar with the matter noted that Binance spoke to some of its professional customers regarding a setup that will allow them to keep bank deposits as collateral for margin trading in spot and derivatives. This is a move toward improving security measures for institutional players since the collapse of FTX last year.
The sources also named two potential intermediaries for the service – Swiss-based FlowBank and Liechtenstein-based Bank Frick. Last year’s collapse of the crypto exchange FTX led to heavy losses for institutional players. Since then, they have been demanding a change from crypto exchange to operate differently from traditional finance. Apart from facilitating trading, the exchanges should also keep assets in custody, settle transactions, and offer credit, said the institutional players.
Binance Explores Ways to Secure Client Funds
In one of the proposals, Binance explored a tri-party agreement to secure clients’ funds at banks. The exchange will lend the clients stablecoins to serve as collateral for margin trading. The sources also stated that the cash kept at the bank could be invested further in money-market funds for earning interest, thus compensating for the cost of borrowing crypto from Binance.
As said, institutional clients are seeking ways to insulate themselves from any major collapse of a centralized crypto exchange. At the same time, Asian and European regulatory proposals also highlight the need for safe custody and segregation of client assets. Similarly, US financial giants like Nasdaq Inc, Fidelity Investments, and Bank of New York Mellon, are already building crypto custody solutions for institutions.
To keep up with the demand for its institutional clients, Binance is working out ways. Speaking during a bankless podcast during a May 29 interview, Binance’s chief Changpeng Zhao addresses the idea of buying a bank and making it crypto-friendly. However, he did of the complexities involved in undertaking such a move. This involves jurisdictional challenges of operating a bank in a particular company and requiring compliance with other local banking regulators. CZ noted:
“The reality is much more complex than the concept. You buy one bank, it only works in one country, and you still have to deal with the banking regulators of that country. It doesn’t mean you can buy a bank and do whatever you wanna do.”
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