Binance, the world’s largest crypto exchange, is in the midst of discussing a proposal to let some of its institutional clients keep their trading collateral at a bank, instead of with the crypto platform, according to Bloomberg News.
Binance has spoken to some of its professional customers 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,” Bloomberg reported on Tuesday.
Two of the people Bloomberg spoke with have 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, the people said,” 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
Crypto exchanges have been scrutinized by US regulators for combining many 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 crypto exchange FTX also did little to quell concerns about potential losses.
FTX filed for bankruptcy late 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.