Binance recently launched new services for enterprise investors. The service in question will allow institutional investors to make deposits without making direct deposits at the exchanges.
Pilot Program
Binance Exchange has noted that the pilot will allow banking institutions to setup collateral accounts outside of the exchange. Binance notification further explained that the program will reduce counterparty risk.
The announcement noted that institutions can place their collateral at third-party banks rather than adding the funds directly on the exchange platform. This type of collateral outsourcing is a common practice among traditional financial institutions. In this manner, investors are able to allocate assets based on their personalized risk appetite.
The notification further indicated that the funding can be placed in the form of cash or Treasury bonds. At the same time, institutional investors will be able to earn yields on their collateral accounts.
Institutional Collateral Services
Catherine Chen, an executive from Binance, recently noted that the firm has been working on the collateral option for a year. She noted that the trading platform is also working on expanding its trading services across the industry.
The firm noted that Binance officials are collaborating with traditional financial firms such as banks to form a triparty agreement. She stated that institutional investors have shared reservations regarding the counterparty risks for external collateral services.
Therefore, the firm has been working on triparty agreements mentioned before to address these concerns. At the same time, Binance noted that banking partners and private companies have also expressed massive interest in taking part in the new type of trading services.
For context, it is important to note that counterparty risk is the probability of the corresponding investors defaulting on their payment obligations.
More Crypto Trading Platforms to Offer Collateral-Related Solutions
Centralized or regulated cryptocurrency trading platforms involve investors making direct deposits in their accounts in the form of cryptocurrencies or cash. The funding amount should be added before the trading can commence.
This practice ensures that in case a trading platform stops withdrawal services the investors can continue to access their assets without losing access to funds. Therefore, Binance noted in the recent notification about the new collateral services that it will address the reservations of institutional investors.
However, Binance is not the first cryptocurrency trading platform to address this issue. Recently, a cryptocurrency trading platform Deribit signed a contract with an MPC custodial services provider called Fireblocks to set up a cryptographic system for allowing investors to perform swaps without making deposits on the exchange.
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