Media learn of Binance’s plans to allow the storage of collateral for traders in banks

According to anonymous sources, this possibility is being discussed with a number of institutional clients of the exchange

31.05.2023 - 12:00

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Binance is discussing a proposal to let some of its institutional clients keep their trading collateral at a bank instead of with the crypto platform, a step that could help reduce counterparty risk.

The world’s largest crypto exchange has spoken to some of its professional customers about a setup that would allow them to use bank deposits as collateral for margin trading in spot and derivatives, according to four people familiar with the matter.

Swiss-based FlowBank and Liechtenstein-based Bank Frick have been mentioned as potential intermediaries for the service, said two of the people, who asked not to be identified as the deliberations are private.

Institutional digital-asset traders have been agitating for change after FTX’s abrupt collapse late last year left many with large losses. Crypto exchanges operate differently than traditional finance in that they not only facilitate trading, but also keep assets in custody, settle transactions and offer credit — increasing the risk of widespread pain should they fail.

A spokesperson at Binance declined to comment. Bank Frick also declined to comment, citing banking secrecy laws. FlowBank said its license doesn’t include crypto trading, without commenting on any arrangements with Binance. The proposed setup hasn’t been finalized and could change, the people said.

Under one version of the proposal Binance has discussed, clients’ cash at the bank would be locked up through a tri-party agreement while the exchange lends them stablecoins to serve as collateral for margin trading, the people said. The cash kept with the bank could then be invested in money-market funds to earn interest, helping to compensate for the cost of borrowing crypto from Binance, they said.

This material is taken from the website https://www.bloomberg.com.

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