Leading crypto exchange Binance is in talks with some of its institutional clients to allow them to keep their trading collateral in a bank, people familiar with the matter told Bloomberg on Tuesday. The agreement would allow the selected clients to use bank deposits as collateral for margin and derivatives trading, four people familiar with the matter stated.
People familiar with the matter, who chose to remain anonymous, revealed a few institutions that are potentially in talks with Binance for this lower-risk option. Among others, Swiss-based FlowBank and Liechtenstein-based Bank Frick were identified as being in negotiations with the crypto exchange.
Risk Cushion Effect
The proposal came after a display of uncertainties among wholesale customers over the safety of their funds after the FTX collapse last year. The US-based exchange’s collapse caught some big institutional investors and led to the bankruptcy of many other affiliated crypto firms.
Binance looks to wipe out the prejudice of most firms about the safety of their funds and also reduce risks on their side in keeping user funds. A part of the proposal suggests that the bank will lock the money deposited by the client through a tri-party agreement, then the exchange will lend them stablecoins to trade the market with.
The agreement also allows institutional investors to invest the locked cash into mutual funds and bonds to earn profits, which they can use to soften the cost of borrowing from Binance.
Middleman: The New Norm?
Third-party firms are beginning to surface as regulators clamp down on exchanges and keep agitating for the separation of user funds. Institutions like Nasdaq Inc., the New York Mellon Corporation, and Fidelity Bank have all offered to provide separate, safe accounts for crypto exchanges to keep their money.
Binance also launched Ceffu, a self-custody cold wallet where institutional clients can keep their money away from the exchange’s control. OKX also announced it has partnered with Copper to integrate its off-exchange settlement, Clearloop, into the exchange.
