Binance, the largest crypto exchange by trading volume, has started weighing the possibility of allowing institutional clients to hold collateral at a bank, according to a recent Bloomberg report citing people familiar with the issue. The new method would allow Binance's corporate customers to show bank deposits as collateral for margin trading in spot and derivatives exchanges. The exchange evaluates Swiss-based FlowBank and Liechtenstein-based Bank Frick as potential intermediaries for the service. - The sources underlined that the plans for the proposed service have not been finalized yet and could change completely.
- If the service is brought into use, a tri-party deal will lock up the institutional clients' cash in the bank.
- In return, Binance will lend the bank and the client stablecoins as collateral for margin trading.
- The bank will be able to invest the cash in money-market funds to generate interest, compensating for the cost of borrowing crypto from Binance.
The move came at a time when regulatory criticism increased around the crypto market that has the potential to create widespread and contagious risk in case of failure. - The increased scrutiny has directed many crypto-related firms to use a middleman to make their ways of facilitating trading, asset custody, settling transactions, and offering credit closer to traditional finance.
- Binance is currently under increased pressure in several countries, including the U.S., by market regulators, mainly due to compliance issues.
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