It has been reported that Swiss-based FlowBank and Liechtenstein-based Bank Frick have been mentioned as potential intermediaries for this service.
Cryptocurrency exchange Binance is reportedly exploring a potential solution to reduce counterparty risk by allowing some of its institutional clients to keep their trading collateral at a bank instead of on the crypto platform, according to Bloomberg.
Binance is discussing a proposal to let some customers keep their collateral for margin trading in a bank account, which could reduce counterparty risk https://t.co/IGnLqASBuA
— Bloomberg Crypto (@crypto) May 30, 2023
This move comes in response to demands from institutional digital asset traders for increased security measures following the collapse of FTX late last year, which resulted in substantial losses for many traders.
According to anonymous sources familiar with the matter, Binance has reportedly engaged in discussions with select professional customers on a setup that would enable them to utilize bank deposits as collateral for margin trading in both spot and derivatives markets. Two potential intermediaries for this service, Swiss-based FlowBank and Liechtenstein-based Bank Frick, were mentioned, though the details of any potential partnerships remain private.
Under the proposal, client funds held at the bank would be secured through a tri-party agreement, while Binance would provide stablecoins as collateral for margin trading. The funds deposited with the bank could be invested in money market funds, enabling clients to earn interest and offset the cost of borrowing crypto from Binance.
According to the unnamed sources, the suggested arrangement is still under discussion and subject to potential modifications.
During a May 29 interview on the Bankless Podcast, Binance CEO Changpeng Zhao (CZ) addressed the idea of Binance buying a bank and making it crypto-friendly. CZ acknowledged that Binance had considered the idea but explained the complexities involved. He pointed out that acquiring a bank would be limited to the jurisdiction of that particular country and would still require compliance with local banking regulators. He explained:
“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.”