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.
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