Binance is said to be investigating a formula that would allow some of its customers to keep their collateral in the bank.
Binance sees it as a step that can help reduce counterparty risk. The crypto exchange is in talks with its professional clients about using bank deposits as collateral for margin trading.
Binance Exploring Bank Deposits For Its Institutional Clients
Institutional crypto investors are concerned about the reliability of crypto exchanges after FTX suffered huge losses from last year’s collapse. While crypto exchanges operate differently from traditional finance in terms of holding assets, completing transactions and providing loans, they can also invite huge risks in the event of failure.
Binance spokesperson and Bank Frick declined to comment on the matter. FlowBank, on the other hand, said that its license does not include crypto trading, and said it did not comment on any arrangement with Binance. It is stated that this proposed regulation is not finalized and may change.
According to the proposed arrangement, customers’ cash in the bank will be locked through a triple agreement and these funds will be loaned for use by the exchange as collateral for margin trading. Cash held in the bank can be invested in money market funds to earn interest and help cover the cost of borrowing crypto from Binance.
These discussions of Binance arose with the idea that centralized crypto exchanges should guard against a potential failure at the request of customers.
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