Binance May Allow Institutional Clients To Keep Collateral At A Bank

• Binance is exploring a plan to allow some of its traders to keep their trading collateral at a bank.&
• The crypto exchange is considering this new step to reduce counterparty risk.
• This facility would be made available to institutional clients for margin trading in spot and derivatives.&
• Switzerland’s FlowBank and Liechtenstein’s Bank Frick are reportedly being considered to facilitate this service.&

The world’s largest crypto exchange is reportedly considering allowing some of its traders to store their trading collateral at a bank rather than on the crypto trading platform. Binance’s latest proposal would see traditional banking institutions hold the collateral in order to help reduce the counterparty risk. Two European banks are currently being considered as the institution that would help facilitate the safekeeping of the trading collateral.&

Binance Would Lend Stablecoins In Exchange For Clients’ Cash

According to a report by Bloomberg, Binance has been in contact with its institutional clients regarding its proposal to allow bank deposits to be used as collateral for margin trading in spot and derivatives. People familiar with the matter revealed that Swiss-based FlowBank and Liechtenstein-based Bank Frick have been tapped as potential intermediaries to help provide this service to the crypto exchange’s customers. It is unclear if the service will be extended to retail traders. 

Bloomberg’s request for comment was reportedly denied by a Binance spokesperson. Liechtenstein’s Bank Frick also declined to comment on the matter, citing bank secrecy laws. Switzerland’s FlowBank did not comment on any arrangements with Binance but stated that its banking license didn’t include crypto trading. As per one version of Binance’s proposal, the cash deposits of clients at the bank would be locked up through a tri-party arrangement. The crypto exchange would then lend stablecoins to the clients, which would serve as collateral for margin trading on the platform.&

Binance’s latest plan comes amid increasing scrutiny from clients that are worried about the safety of their funds in the event of the platform’s collapse. The bank deposit feature may help the crypto exchange regain some of the market share it lost this year. Crypto custody has become a major concern in light of the recent bankruptcies and scandals in the crypto industry. Nasdaq Inc, Bank of New York Mellon Corp., and Fidelity Investments are reportedly offering or building crypto custody solutions for institutions.

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