Binance is undertaking discussions with some of its institutional clients about keeping their trade collateral at a bank rather than with the crypto platform. With this move, the cryptocurrency exchange seeks to minimize counterparty risk and improve the safety of its clients’ funds.
As per a Bloomberg article, Binance is planning to allow its customers to use bank deposits as collateral for margin trading in spot and derivatives. The company is reportedly considering two European banks — FlowBank and Bank Frick — to act as intermediaries.
Under Binance’s proposal, funds held at the bank would be secured through a tri-party agreement, and Binance would provide stablecoins as collateral for margin trading. Further, these funds would be invested in money market funds and allow clients to offset the expense of borrowing crypto assets from Binance with accumulated interest.
The crypto sector particularly sparked fears among investors following the November 2022 collapse of the FTX exchange due to improper handling of customer funds. Furthermore, the scenario for Binance worsened after the Commodity Futures Trading Commission accused Binance of operating an illegal exchange in March.
This hurt investors’ confidence in Binance’s future prospects and resulted in $1.6 billion worth of cryptocurrency withdrawals from its platform.
Amid all the concerns surrounding cryptocurrencies, Binance’s digital currency, Binance Coin (BNB-USD), has dropped 2.4% over the past year.