Binance to Allow Institutions to Store Collateral Off-Exchange with Banks
- Binance executed the “world’s first cryptocurrency triparty arrangement with a third party banking partner.”
- The firm will allow institutions to trade while keeping the collateral off-exchange in the custody of a bank.
- The exchange’s goal is to address the fear of counterparty risk that institutions have while trading crypto.
- The firm has been exploring the triparty agreement for more than a year, said an executive.
Binance, the world’s largest digital asset trading platform by trading volume, has announced that it “successfully executed the world’s first cryptocurrency triparty arrangement with a third party banking partner,” allowing institutions to trade without depositing on the platform. Interestingly, the firm will allow banks to store trading collateral off-exchange.
According to the official press statement, Binance will allow institutional investors to “keep trading collateral, off-exchange in the custody of a third party banking partner,” an industry-first move. In the announcement, the firm noted that this was the first in a series of pilot projects that the leading exchange has planned.
Binance noted that the primary risk for institutional clients that seek exposure to the crypto industry is the issue of counterparty risk, and the new program from the exchange seeks to tackle this concern of investors.
“It replicates a framework common in traditional financial markets, which enables investors to proportion their crypto-asset allocation based on their risk tolerance. Collateral held with the banking partner can be in the form of fiat equivalent such as Treasury Bills which has the added benefit of being a yielding asset,” the exchange noted.
On the other hand, Catherine Chen, Head of VIP and Institutional at Binance, noted that the exchange’s team has been “exploring a banking triparty agreement for more than a year” to solve the fear of counterparty risk for institutions. Chen noted that the firm has developed a solution that would allow its institutional clients to “optimize their collateral and cryptocurrency investments, modeled after the traditional markets’ trading conduct.”
“We are in close discussions with an array of banking partners and institutional investors who have also expressed strong interest in participating,” Chen added.
As per a blog post from Investopedia, counterparty risk is defined as “the likelihood or probability that one of those involved in a transaction might default on its contractual obligation.” For the crypto industry, this risk generally refers to investors needing to deposit their assets before engaging in a trade on an exchange.
As reported earlier by Bitnation, former Binance CEO Changpeng Zhao, also known as CZ in the crypto space, resigned earlier this month and also resigned from the board of the United States arm of the leading exchange. Richard Teng, the former global head of regional markets at the exchange, took over as the chief executive of the parent exchange and plans to continue to drive growth and increase adoption.