Binance plans to let traders hold collateral in banks

• Binance to allow its institutional customers to keep trading collateral at banks.
• Swiss-based FlowBank and Liechtenstein- based Bank Frick have reportedly been contacted for this service. 

Binance is reportedly exploring a plan to allow some of its traders to keep their trading collateral in traditional financial institutions instead of storing it on the online crypto trading platform.

The world’s largest cryptocurrency exchange is aiming to reduce its counterparty risk with this latest proposal. The exchange has reportedly tapped two European banks to help facilitate this service to its traders. 

Binance to extend the facility to institutional clients

According to a report published by Bloomberg, Binance will make this feature available to its institutional clients.

The crypto exchange has held talks with some of the institutional customers about the proposal that would allow them to store their trading collateral at banks. The cash deposits at banks would allow the traders to carry out margin trading in spot and derivatives. 

As per one version of this proposal, Binance’s clients would lock up their cash at banks through a tri-party agreement. The exchange would then lend them stablecoins to serve as collateral for margin trading.

The bank deposits may be invested in money-market funds to earn interest. This can also help pay the interest on the funds borrowed from Binance. 

This facility would help address the growing concerns among the crypto exchange’s institutional clients regarding the safety of their funds in the event that the platform fails.

Wall street giants including Nasdaq, BNY Mellon and Fidelity Investments are already offering or building such crypto custody solutions for institutions. 

Additionally, Binance has reportedly tapped Switzerland’s FlowBank and Liechtenstein’s Bank Frick for its plans.

Bank Frick refused to provide a comment to Blomberg on the matter. FlowBank did not comment on any arrangements with the crypto exchange either. However, it added that its banking license didn’t include crypto trading.