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Binance, the leading cryptocurrency exchange renowned for its high trading volume, has initiated a groundbreaking pilot program designed to offer institutional investors an alternative to depositing funds directly on the platform.
This new custody program allows institutional investors to hold collateral at a third-party bank, providing a viable option for trading while minimizing counterparty risk. The primary objective of the program is to alleviate concerns related to counterparty risk that are commonly expressed by corporate clients.
Key Points:
The pilot program enables investors to hold collateral in the form of cash or Treasury bonds, allowing them to earn yields while actively engaging in trading activities on the Binance platform.
Catherine Chen, Binance's head of VIP and institutional, emphasized that the exchange has been diligently developing this program for over a year and has ambitious plans for its expansion in the future.
Interest from an array of banking partners and institutional investors has been robust, indicating strong support and enthusiasm for participating in the program.
Initial reports revealed that Binance has been considering Swiss-based FlowBank and Liechtenstein-based Bank Frick as potential intermediaries for the service, showcasing the meticulous selection process for the program's partners.
The launch of this program coincides with heightened regulatory scrutiny faced by Binance in various countries, leading to the exchange's withdrawal from several markets worldwide due to compliance issues.
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Counterparty risk, a critical concern in the context of centralized crypto exchanges (CEXs), pertains to the potential loss of assets by traders who deposit their crypto or cash on the exchange in the event of a platform collapse or suspension of withdrawals.
Binance's innovative custody program marks a significant step towards addressing these concerns and providing institutional investors with an alternative approach to trading on the platform, ultimately contributing to the mitigation of counterparty risk.