Binance considers allowing traders to secure collateral at banks: Report

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Cryp­tocur­ren­cy exchange Binance is report­ed­ly explor­ing a poten­tial solu­tion to reduce coun­ter­par­ty risk by allow­ing some of its insti­tu­tion­al clients to keep their trad­ing col­lat­er­al at a bank instead of on the cryp­to plat­form, accord­ing to Bloomberg. 

This move comes in response to demands from insti­tu­tion­al dig­i­tal-asset traders for increased secu­ri­ty mea­sures fol­low­ing the col­lapse of FTX late last year, which result­ed in sub­stan­tial loss­es for many traders.

Accord­ing to anony­mous sources famil­iar with the mat­ter, Binance has report­ed­ly engaged in dis­cus­sions with select pro­fes­sion­al cus­tomers on a set­up that would enable them to uti­lize bank deposits as col­lat­er­al for mar­gin trad­ing in both spot and deriv­a­tives mar­kets. Two poten­tial inter­me­di­aries for this ser­vice, Swiss-based Flow­Bank and Liecht­en­stein-based Bank Frick, were men­tioned, though the details of any poten­tial part­ner­ships remain private. 

Under the pro­pos­al, client funds held at the bank would be secured through a tri-par­ty agree­ment, while Binance would pro­vide sta­ble­coins as col­lat­er­al for mar­gin trad­ing. The funds deposit­ed with the bank could be invest­ed in mon­ey-mar­ket funds, enabling clients to earn inter­est and off­set the cost of bor­row­ing cryp­to from Binance.

Accord­ing to the unnamed sources, the sug­gest­ed arrange­ment is still under dis­cus­sion and sub­ject to poten­tial modifications.

Relat­ed: Binance denies fund mis­man­age­ment alle­ga­tions, calls it ‘con­spir­a­cy theory’

Dur­ing a May 29 inter­view on the Ban­k­less Pod­cast, Binance CEO Chang­peng Zhao (CZ) addressed the idea of Binance buy­ing a bank and mak­ing it cryp­to-friend­ly. CZ acknowl­edged that Binance had con­sid­ered the idea but explained the com­plex­i­ties involved. He point­ed out that acquir­ing a bank would be lim­it­ed to the juris­dic­tion of that par­tic­u­lar coun­try and would still require com­pli­ance with local bank­ing reg­u­la­tors. He explained: 

“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.”

Mag­a­zine: Cyp­tocur­ren­cy trad­ing addic­tion — What to look out for and how it is treated



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