Binance is launching a pilot program for bank deposits

Crypto exchange Binance announced on November 30 that it has launched a pilot program that allows banks to store transactions off-exchange. Binance says the program helps reduce collateral risk.

According to the announcement, the program will allow institutions to hold bonds with third-party banks instead of depositing them on exchanges. This “replicates the framework common in traditional financial markets, which allows investors to choose the allocation of crypto-assets based on their risk tolerance,” the announcement said. Collateral can be held in the form of cash or treasury bonds to allow the institutions to obtain a yield when they trade.

According to Binance CEO Catherine Chen, the exchange has been developing the program for at least a year and plans to expand the program further in the future.

“The threat of an opposition party has long been a concern of institutional investors in the industry. Our Crypto natives and traditional financiers have been exploring a bank tripartite agreement for over a year to address their issues. […] We are in close discussions with a number of banking partners and institutional investors who are keen to participate.

Counterparty risk is defined as “the likelihood or possibility that one of the parties involved in a transaction may default on its contractual obligations.” In the context of a centralized exchange, it generally refers to traders who need to deposit their crypto or cash on the trade before trading. This means that traders can lose their assets if the exchange goes offline or stops issuing funds. Binance said in its announcement that this new pilot program will help ease institutions' concerns about these risks.

Binance is not the only exchange that has sought to address this issue. In the year On November 28, crypto exchange Deribit partnered with MPC wallet provider FireBlocks to create a cryptocurrency exchange that allows traders to exchange funds without depositing them on the exchange.