Binance may let traders secure collateral at banks

The cryptocurrency exchange Binance is reportedly considering a potential solution to reduce counterparty risk. This involves allowing some of its institutional clients to keep their trading collateral at a bank, instead of on the crypto platform. Bloomberg reports that Binance is discussing a proposal to let some customers keep their collateral for margin trading in a bank account. 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. The suggested arrangement is still under discussion and subject to potential modifications, according to the unnamed sources.

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.