Binance, the operator of the world’s biggest crypto exchange, will allow institutional investors to keep the collateral for leveraged positions off the platform, a move to ease concerns caused by the collapse of one-time rival FTX.
The exchange will enable investors to post collateral with Binance Custody, which will hold the assets off the internet, in cold storage wallets, Binance said in a statement on Monday. Once trades are settled, the assets would then become accessible to the user again.
The feature, called Binance Mirror, could be a major blessing for crypto investors trading in the leveraged markets as most crypto traders have to keep their collateral on the exchange for trading. However, using cold storage wallets means users can continue to trade crypto during volatile sessions without massive outflows on an exchange. Users’ assets would also be protected against on-chain hacks, to which hot wallets are vulnerable.
The collapse of Binance’s rival FTX in November last year prompted fears about crypto exchanges’ ability to keep users’ assets safe, with regulators probing FTX over the misuse of customer funds. “This an exercise to build trust among institutions that their funds will remain safe. Its a positive development that shows Binance is moving toward becoming an institutional-focused crypto exchange,” said Markus Thielen, head of research and strategy at crypto services provider Matrixport.
“However, this might not be enough as exchanges will likely have to work with external custodians to completely eliminate risks around collateral ownership,” Thielen added.
After FTX’s demise, users yanked funds from Binance and other rivals. At the peak of that pullback in early December, users withdrew billions of dollars in one day from Binance’s trading platform. Additional concern surfaced in mid December when the accounting firm Mazars halted work for Binance and other crypto firms on proof-of-reserves reports.
The feature, called Binance Mirror, could be a major blessing for crypto investors trading in the leveraged markets as most crypto traders have to keep their collateral on the exchange for trading.Its a positive development that shows Binance is moving toward becoming an institutional-focused crypto exchange,” said Markus Thielen, head of research and strategy at crypto services provider Matrixport.
“Our clients are a lot more conscious of managing risks,” said Catherine Chen, the head of VIP & Institutional at Binance, in an interview. “We hear from our users that they love to trade on Binance, but at the same time they are getting ‘pressure’ from their internal risk control. For them to scale up further activities on Binance, they need to look for ways to help them diversify the on-exchange risks.”