Cryptocurrency exchange Binance is reportedly exploring a potential solution to reduce counterparty risk by allowing some of its institutional clients to deposit trade collateral with banks rather than crypto platforms, according to Bloomberg. The move comes in response to deman ds from institutional digital asset traders for enhanced security Measures following the FTX debacle late last year, which resulted in significant losses for many traders.
According to anonymous sources familiar with the matter, Binance has reportedly been in discussions with some of its professional clients about a setup that would allow them to use bank deposits as collateral for margin trading in spot and derivatives markets. Two potential intermediaries s for the service were mentioned, Switzerland-based FlowBank and Liechtenstein-based Bank Frick, but details of any potential partnerships remain confidential.
Under the proposal, client funds held by banks would be secured through a three-party agreement, while Binance would offer stablecoins as collateral for margin trading. Funds deposited in the bank can be invested in money market funds, enabling customers to earn interest and offset the cost of borrowing cryptocurrencies from Binance. The proposed arrangement is still under discussion and could be revised, according to the unnamed sources.
In an interview on the No Bank podcast on May 29, Binance CEO Changpeng Zhao (CZ) talked about Binance's idea of acquiring a bank and making it crypto-friendly. CZ acknowledged that Binance considered the idea, but explained the complications. He noted that acquiring a bank would be limited to the jurisdiction of that particular country and would still be subject to local banking regulator regulations. He explained: "The reality is much more complicated than the concept. You buy a bank and it only works in one country and You have to deal with the banking regulator in that country. It doesn't mean you can buy a bank and do whatever you want."
