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- Binance has agreed to let traders park their money elsewhere and still trade on its platform as US regulators’ crackdown and the collapse of FTX weigh heavy on investors’ hearts.
- Traders can now deposit their money with digital custodians such as Switzerland’s Flow Bank and Sygnum Bank to reduce counterparty risk, with the latter saying its customers are already opting for this service.
Traders on Binance can now park their money elsewhere and still access the exchange’s leading trading platform in a change meant to address growing unease over counterpart risk.
Previously, traders could only deposit their funds directly on the exchange or with Ceffu, a custodian that claims to be independent of the exchange but which insiders describe as a Binance-owned semi-autonomous entity. Knowledgeable people claim that while the leadership and operations may be separate, the big decisions are all made by the exchange’s top management.
The duopoly is ending, reports the Financial Times. Citing sources with knowledge on the matter, FT reports that the exchange is now allowing some of its institutional traders to deposit their money with independent custodians. Flow Bank and Sygnum Bank, both Swiss, have emerged as favorites.
Fund managers and crypto trading firms have welcomed the move, which they say gives them greater comfort and confidence. “I’d much rather park my money with a Swiss bank than Binance,” one source said. He added that since the bank is regulated independently, the money is safer “in theory” than when the exchange or the quasi-independent Ceffu is holding it.
On Ceffu, one head of a crypto hedge fund stated, “It works [and]the teams are different, but there is a sense the decisions are still made at Binance. The residual risk is it’s still the same place.”
Binance Gives Traders Freedom as Market Dominance Wanes
Binance’s woes began when US regulators—the SEC and the CFTC—started investigating it. SEC charged the exchange with 13 counts, including money laundering, and to settle the charges, the Justice Department demanded $4.3 billion, one of the largest penalties in history.
The collapse of FTX—which Binance was heavily involved in—hasn’t helped matters for the exchange. With traders now aware that a global exchange giant can collapse in days and sink with billions, they are now more cautious than ever.
All these factors have seen traders pile pressure on Binance to allow independent custody, and the exchange is bowing to the pressure.
However, in an attempt to save face, the exchange has claimed that the move has nothing to do with investor confidence. Instead, it stems from a growing overall market need for independence in crypto. It stated:
[We] started exploring and developing a banking triparty solution almost two years ago, well before counterparty risk became prominent. Counterparty risk is an industry concern, not specific to Binance.
Sygnum confirmed the changes, revealing that existing and new clients had approached it for its solution.
“…based on these numerous customer requests, [we are]helping our largest institutional customers to segregate their custody and trading counterparties,” it told FT.
