Binance has launched a pilot program enabling banks to securely store trading collateral off the exchange, aiming to reduce counterparty risk in crypto trading. The initiative allows institutions to keep collateral at a third-party bank instead of depositing it directly on the exchange, resembling a model commonly found in traditional financial markets. This setup lets investors tailor their crypto-asset allocation based on their risk tolerance, with collateral accepted in the form of cash or Treasury bonds, allowing institutions to earn yields while actively trading.
Catherine Chen, an executive at Binance, revealed that the program has been in development for over a year. The exchange plans to expand the initiative further in the future, as Chen stated:
“Counterparty risk has long been a concern of institutional investors across the industry. Our team of crypto natives and traditional finance professionals has been exploring a banking triparty agreement for more than a year to address their concern […] We are in close discussions with an array of banking partners and institutional investors who have also expressed strong interest in participating.”
Counterparty risk refers to the likelihood of any involved party defaulting on its contractual obligation, and in the context of centralized exchanges, it often involves traders depositing their assets on the platform before executing trades. Binance’s new pilot program aims to address these concerns about counterparty risk, providing a more secure trading environment for institutions.
Binance is not the only exchange addressing this issue, as Deribit recently collaborated with MPC wallet provider Fireblocks to create a cryptographic system allowing traders to execute swaps without directly depositing assets on the exchange.
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