In response to the need for enhanced security measures following FTX’s collapse in late 2022, which resulted in significant losses for many investors, Binance is reportedly considering a potential solution to reduce risks for its partners.
According to Bloomberg, the cryptocurrency exchange is exploring the possibility of allowing some of its institutional customers to hold their collateral assets in banks instead of on the digital platform.
Sources familiar with the exchange have revealed that Binance has engaged in discussions with select professional clients regarding a setup that would enable them to use bank deposits as collateral for leveraged trading in both the spot and derivatives markets. The potential intermediaries for this service are FlowBank, based in Switzerland, and Frick Bank, based in Liechtenstein, although details about any potential partnerships remain undisclosed.
Under the proposed arrangement, customers’ funds held in the bank would be secured through a three-party agreement, while Binance would provide stablecoins as collateral for leveraged trading. Deposited funds could be invested in currency market funds, allowing customers to earn interest and offset the borrowing costs of cryptocurrencies from Binance.
In a Bankless Podcast interview on May 29th, CZ, the CEO of Binance, discussed the idea of the exchange acquiring a bank and making it crypto-friendly. CZ acknowledged that Binance has considered this concept but highlighted the complexities involved. He pointed out that acquiring a bank would be limited to the jurisdictional powers of a specific country and would still require compliance with local banking regulations. CZ explained:
“The reality is much more complex than the concept. When you acquire a bank, it operates only in one country, and you still have to deal with the banking regulatory authorities of that country. That doesn’t mean you can acquire a bank and do whatever you want.”
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