Binance, the leading cryptocurrency exchange, has recently launched a pilot initiative that allows banks to securely store institutional investors’ trading collateral outside.
Binance, the leading cryptocurrency exchange, has recently launched a pilot initiative that allows banks to securely store institutional investors’ trading collateral outside of the exchange platform. This move is aimed at mitigating counterparty risk, providing a solution that is commonly employed in traditional financial markets.
Under this program, financial institutions are given the option to store their collateral with a third-party bank rather than directly depositing it on the exchange. This arrangement enables investors to tailor their allocation of crypto-assets based on their risk tolerance, mirroring the established principles followed in traditional markets. The collateral can take the form of either cash or Treasury bonds, allowing institutions to generate yields while engaging in trading activities.
Catherine Chen, an executive at Binance, disclosed that the exchange has been diligently working on this program for over a year and has plans to expand its scope in the future.
Chen said: “We’ve developed a solution that ensures our institutional clients can 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.”
The concern surrounding counterparty risk, which refers to the probability of default in a transaction, has long troubled institutional investors operating in the cryptocurrency industry. Typically, traders are required to deposit their crypto-assets or cash onto an exchange platform prior to conducting trades, making them susceptible to potential losses if the exchange encounters technical difficulties or suspends withdrawals.
Let us know what you loved about this article, what could be improved, or share any other feedback by filling out this short form.
This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators.
This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice.
The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap.
