Binance to Allow Institutional Investors to Keep Collateral Off Exchange

Traders will be able to post their collateral with Binance Custody, which will hold it offline in cold storage wallets.

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  • Institutional investors can post collateral used for leveraged trading with Binance Custody.
  • Binance Custody will hold customer assets off the internet in cold storage wallets. Users will be able to reaccess their assets once trades settle.
  • Holding customer assets offline also helps keep them safe from potential on-chain hacking incidents.

Binance, the largest centralized crypto exchange in the world, will allow institutional investors to keep collateral used for leveraged trading off the platform, according to a report by Bloomberg.

The exchange will now let traders post collateral with Binance Custody, a legal entity registered in Lithuania. Binance Custody will hold customer assets offline in cold storage wallets. Once trades settle, assets become accessible to users again.

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Binance’s move comes amid investors’ fears sparked by the downfall of FTX. The now-bankrupt exchange, which experienced a bank run in November that ultimately brought it down, misused billions of dollars of customer assets.

Holding assets in cold storage wallets also means they’re virtually immune to on-chain hacks. 

Binance’s move to reassure investors that their collateral is safe is also an attempt to keep outflows from the exchange in check.

According to Forbes, Binance has seen over $12 billion leave the exchange in the last 60 days. That’s contrary to the $3 billion figure Binance CEO Changpeng Zhao referred to in December.

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On top of that, Binance has recently admitted that its BUSD stablecoin hasn’t always been fully pegged to the U.S. dollar. The stablecoin was undercollateralized by at least $1 billion on three occasions from 2020 to 2021.

On the Flipside

  • It’s unclear when the option to store collateral in cold storage will become available to institutional investors.

Why You Should Care

Binance is the world’s largest centralized crypto exchange. It’s a welcoming sign that the exchange is attempting to make it safer to trade for institutional investors.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Arturas Skur

Arturas Skur is a cryptocurrency news reporter at DailyCoin who covers Web 3.0 domains, DeFi, and Ethereum Layer-2s. With over five years of experience in journalism and public relations, Arturas brings his critical thinking and analytical abilities to deliver insightful news stories. In his free time, he enjoys hiking, playing with his dog, and reading.