Binance in talks with banks to allow traders to store their collateral there, according to Bloomberg

Binance, which is the largest cryptocurrency exchange in the world, is currently discussing a proposal that would allow some of its institutional clients to keep their trading collateral in a bank rather than with the cryptocurrency platform. Bloomberg News reported on Tuesday that Binance has spoken to some of its professional clients about “a setup that would allow them to use bank deposits as collateral for margin trading in spot and derivatives, according to four people familiar with the matter.” Two of the people Bloomberg spoke with mentioned Swiss-based FlowBank and Lichtenstein-based Bank Frick as potential intermediaries.

“Under one version of the proposal Binance has discussed, clients’ cash at the bank would be locked up through a tri-party agreement while the exchange lends them stablecoins to serve as collateral for margin trading,” Bloomberg reported. “The cash kept with the bank could then be invested in money-market funds to earn interest, helping to compensate for the cost of borrowing crypto from Binance, they said.”

Spotlight on exchanges

US regulators have been scrutinizing cryptocurrency exchanges for offering various services together, such as custodying, acting as a broker, and lending. “The commingling of the various functions within crypto intermediaries creates inherent conflicts of interest and risks for investors—risks and conflicts the Commission does not allow in any other marketplace,” said SEC Chair Gary Gensler in his testimony before the US House Financial Services Committee last month. The fallout of FTX, a cryptocurrency exchange, also did not help to quell concerns about potential losses. FTX filed for bankruptcy last year after it collapsed and its former CEO Sam Bankman-Fried stepped down. Bankman-Fried now faces criminal and civil charges in the US, including charges to conspire to commit money laundering, wire fraud, securities fraud, and commit campaign finance violations.

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