In a strategic move reflecting the growing apprehension among traders, cryptocurrency giant Binance has yielded to demands from customers seeking a safer haven for their assets. Notably, the crypto exchange, facing heightened scrutiny since last year’s hefty fine by U.S. authorities, is now allowing select traders to store their assets with independent custodians, notably Switzerland’s Sygnum Bank and Flow Bank.
Meanwhile, this shift marks a pivotal moment in Binance’s approach to counterparty risk, a concern exacerbated by regulatory actions and the recent collapse of its rival, FTX.
Binance Collaborates With Banks To Mitigate Counterparty Risks
In response to traders’ escalating unease, Binance has taken a bold step by enabling some prominent traders to choose independent custodians for their assets, breaking away from the exclusivity of its internal custodian, Ceffu. Notably, the selected banks, including Sygnum Bank and Flow Bank, now offer traders an alternative to keeping assets solely within the exchange or Ceffu, Financial Times (FT) reported citing people familiar with the matter.
Meanwhile, the move comes as a proactive response to the evolving concerns of traders who, post the FTX collapse in 2022 and the subsequent regulatory crackdown on Binance, the recent being from the U.S. SEC, are increasingly wary of leaving their funds on an exchange. On the other hand, the U.S. Treasury and Department of Justice (DOJ) imposed a record $4.3 billion fine on Binance last year, resulting in heightened scrutiny from regulatory bodies.
However, Binance, in a statement, acknowledged the changing landscape, stating they initiated the exploration of a banking triparty solution nearly two years ago, emphasizing that counterparty risk is an industry-wide concern, not exclusive to Binance. Notably, this move aims to offer traders a choice in safeguarding their assets, emphasizing that the initiative was in progress before counterparty risks gained prominence.
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Traders Weigh Risks Amid Evolving Crypto Landscape
Traders express a mix of caution and necessity in their response to the changing dynamics. Some are apprehensive about the residual risks even with the shift to independent custodians, noting the decisions still seem influenced by Binance. However, the move is seen as a positive step by others, allowing traders to segregate their custody and trading counterparties, reducing the inherent risks associated with keeping assets within a single entity.
Meanwhile, the arrangement involves depositing capital at custodians in U.S. Treasuries, providing traders an additional layer of security and the opportunity to earn around 4% interest due to the current higher interest rate environment. Binance claims this arrangement directly addresses counterparty risk, offering institutional investors a risk management solution.
While Binance remains the world’s most liquid crypto exchange, boasting impressive liquidity levels, its market share has seen a decline, currently accounting for 30% of the volume traded on exchanges compared to 55% a year ago. Traders, despite expressing reluctance to cease trading on Binance, are navigating a transformed landscape where choices for asset custody are increasingly diversified. As the crypto industry continues to evolve, Binance’s collaboration with independent banks reflects a broader trend of adapting to investor demands for enhanced security and reduced counterparty risks.
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