Despite not having any plans to acquire a bank, Binance is reportedly considering another bank-related initiative.
Binance, the largest cryptocurrency exchange in terms of daily trading volumes, is reportedly considering a new initiative to mitigate counterparty risk.
As per a Bloomberg report shared on May 30th, the crypto exchange is allegedly exploring options allowing institutional clients to keep trading collateral within a banking institution rather than directly on the crypto platform.
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As per sources close to the matter who preferred to stay anonymous, Binance is supposedly in talks with a select group of professional clients about a plan that would allow them to use bank deposits as collateral for margin trading in both spot and derivatives markets.
The discussions have highlighted FlowBank, based in Switzerland, and Bank Frick from Liechtenstein, as potential intermediaries for the proposed service. Nevertheless, the specifics of any potential collaborations remain undisclosed.
In the proposed setup, funds at the bank would be shielded via a tri-party agreement, while Binance would supply stablecoins as collateral for margin trading. The funds maintained with the bank could be invested in money market funds, allowing clients to earn interest and counterbalance the cost of borrowing cryptocurrency from Binance.
As per the undisclosed sources, the proposed plan remains a topic of discussion and is open to potential adjustments.
In a recent Bankless Podcast interview on May 29th, Binance CEO Changpeng Zhao (CZ) was asked about the prospect of Binance acquiring a bank to foster crypto-friendly banking. Responding to the possibility, Zhao noted:
The reality is much more complex than the concept. You buy one bank, it only works in one country, and you still have to deal with the banking regulators of that country. It doesn’t mean you can buy a bank and do whatever you wanna do.
Binance’s exploration of the feasibility of institutional clients securing their collateral at banks illustrates the exchange’s commitment to strengthening security measures. However, the complexity of such initiatives, as CZ pointed out, suggests that navigating the regulatory landscape will remain a primary challenge in this ambitious venture.