Binance Explores Bank Storage Solution

Bloomberg reports that cryptocurrency exchange Binance is exploring a solution to reduce counterparty risk by permitting some institutional clients to store their trading collateral at a bank rather than on the crypto platform.

This action is a response to institutional digital asset traders’ requests for increased security measures following the collapse of FTX late last year, which resulted in significant losses for many traders.

According to anonymous sources with knowledge of the situation, Binance is reportedly in discussions with a select group of professional clients regarding a system allowing them to use bank deposits as collateral for margin trading in both the spot and derivatives markets.

Two potential intermediaries for this service, based in Switzerland and Liechtenstein, were mentioned: FlowBank and Bank Frick.

However, the specifics of any potential partnerships remain confidential.

Under the proposal, client funds held at the bank would be secured through a tri-party agreement, while Binance would provide stablecoins as margin trading collateral.

The deposited funds could be invested in money-market funds, allowing clients to earn interest and offset the cost of borrowing cryptocurrency from Binance.

According to unnamed sources, the proposed arrangement is still under consideration and may be subject to change.

During an interview on the Bankless Podcast on May 29, Binance CEO Changpeng Zhao (CZ) discussed the possibility of Binance purchasing a crypto-friendly bank.

CZ acknowledged that Binance had considered the proposal but explained the inherent complexities.

He noted that the acquisition of a bank would be restricted to the jurisdiction of the country in question and would require compliance with local banking regulators. He elaborated:

“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.”