Announcement of new solution
On November 30th, crypto asset (virtual currency) exchange Binance announced a new solution for institutional investors.
#Binance has executed the industry’s first Triparty agreement, where institutional investors’ collateral is held off-exchange with a third-party banking partner.
Learn how @BinanceVIP is setting new standards for institutional crypto trading 👇https://t.co/oyARwUWzI0
— Binance (@binance) November 30, 2023
With this solution, institutional investors can keep their funds in a bank and use them as collateral to trade on Binance without having to deposit fiat or cryptocurrencies on Binance. The purpose is to reduce counterparty risk, which is one of the concerns of institutional investors.
What is counterparty risk?
The risk of incurring damage due to the counterparty in a transaction defaulting on its obligations.
▶️Virtual currency glossary
In addition to fiat currency, institutional investors can use cash equivalents such as government bonds held at banks as collateral, allowing them to trade on Binance while earning interest at banks. The company claimed that Binance is currently the only cryptocurrency exchange offering such a solution.
Catherine Chen, head of Binance’s VIP and Institutional department, which provides services to professional traders and institutional investors, commented on this announcement as follows:
Counterparty risk has long been a concern for institutional investors in the crypto industry. To address this concern, a team of experts in cryptocurrencies and traditional finance have been working on a solution for over a year.
We are currently in close communication with banks and institutional investors who have a strong interest in this solution.
Binance developed this solution by modeling it on traditional financial markets. Although it appears to be still in the testing stage, the company plans to disseminate the solution and create a new standard.
Initiatives of other companies
While the company claims that Binance is the only cryptocurrency exchange offering a solution like this, other companies are working on similar initiatives. On the 28th of last month, Fireblocks, which provides services to digital asset companies, announced the launch of Off Exchange, a solution similar to Binance.
Fireblocks solutions are also developed to reduce counterparty risk. This is a system in which trading companies and asset management companies hold funds in a wallet separate from the exchange and then reflect the funds on the exchange for use.
This solution was launched on the virtual currency derivatives exchange Deribit. He explained that it will be available on other global exchanges in the coming months, including HTX, ByBit, and OKX.