Binance is discussing a proposal that would allow some of its institutional clients to hold their trading collateral with a bank rather than a crypto platform, which could help reduce counterparty risk.
Due to Concerns of Institutional Companies, Binance May Keep These Companies' Funds in Bank
The world's largest cryptocurrency exchange spoke with some of its professional clients about an arrangement that would allow them to use bank deposits as collateral for collateral trading in spot and derivatives, according to four sources familiar with the matter.
Two sources, who said that Switzerland-based FlowBank and Liechtenstein-based Bank Frick were mentioned as potential intermediaries for this service, did not want their names to be disclosed because the talks were private.
Institutional digital asset investors are struggling for change, with many taking huge losses after FTX suddenly collapsed late last year. Crypto exchanges operate differently from traditional finance in that they not only mediate trade but also hold assets, process transactions and offer loans, raising the risk of widespread losses if they go bankrupt.
A Binance spokesperson declined to comment. Bank Frick also declined to comment, citing banking privacy laws. FlowBank said its license does not include crypto trading, without commenting on any arrangement with Binance. Sources said the proposed setup has not yet been finalized and could change.
According to one version of the proposal that Binance is discussing, customers will have their cash locked in the bank through a tripartite agreement, while the exchange will lend them stablecoins to serve as collateral for margin trading. The cash held in the bank can then be invested in money market funds to earn interest, helping to offset the cost of borrowing crypto from Binance.
*Not investment advice.
